As I have written previously the potential for Johor Bahru, Malaysia is great. The proximity to Singapore give JB the extra boost that moves the potential above that of dozens of similar locations throughout South East Asia. But potential has to be managed properly or it is wasted. The inability of Singapore and Malaysia to cope with the demand for cross border traffic has to be a huge concern for investors.

The backups have become progressively worse throughout the last year and especially bad the last few months. As I have also written previously the massive supply of luxury housing in JB without a visible source of equally high paying jobs in Johor that will allow people to afford those houses is a worrisome sign.

The failure to complete a 3rd link by last year and the huge delays experienced all this year create strong headwinds for realizing the potential of Iskandar. Obviously cross border transportation was going to be bad before the MRT was finally extended given the huge volume of luxury condos being build in JB. But things are tremendously bad already when only a few of the new luxury condos are completed.

The potential is still great but the huge problems with the borders already calls into question the ability to plan, execute and grow to meet that potential. More high paying jobs need to be created in Johor Bahru itself. I don’t see how the number of luxury condos being built will be workable in the next few years. 10 years from now all may be well, but from 2015 to 2018 (or whenever the border gets fixed so the median border delay is under 15 minutes, likely the extension of the MRT to JB will have to play a role in fixing the problem) I see big risks countering the big potential.

People are willing to envision themselves putting up with huge commutes. but as they live with them year after year and miss their children, spouses and lives sitting at a border waiting to move forward many will decide it isn’t worth it.

Cut-Price Luxury Homes Fuel Singapore-Johor Bahru Sprawl

Darren Chin gave up a 15-minute train journey to his office in Singapore for a two-hour drive with a stop at passport control. The reason: By commuting from Malaysia, he can afford his own two-story home and car.
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“Without the regional perspective it would be a lot more difficult, if at all possible, for Singapore to maintain the role that it has as a global city,”
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A five-bedroom, two-story home with private pool in Iskandar was advertised last month for 3.9 million ringgit. A similar-sized home on Singapore’s prime Sentosa district with a waterfront view was on sale for about 15 times as much.
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Chan, a 30-year-old father of three, earns about S$3,000 ($2,393) a month, twice what he would get in Malaysia. The cost: Some nights, he doesn’t get home until after 11 p.m.

“Sometimes I fight with my wife because I spend so little time at home,” Chan said.

The benefits to Singapore and Malaysia of fulfilling the potential of Iskandar are great. But there are worrying signs for investors most notably: the failure to effectively manage the trickle of cross border transportation issues even in these early stages and the huge imbalance in luxury condos versus high paying jobs being created in Johor. There are many potential paths to a very successful Iskandar but investors that want to avoid risks need to pay attention to very troubling signs and those are two very troubling signs.

My guess is that in the long term bungalows have lower risk to investors than do condos. If Iskandar even achieves a fraction of the potential, luxury condos 10 or 20 years from now are likely to be very costly. Condos may well do well also, though there is a much greater risk of overbuilding holding down the price appreciation.

The vacancy rate for luxury condos is already high and many many many units are set to be completed in each of the next few years.

Related: Singapore Market Impacts on the Johor Bahru Real Estate Market – The Investment Potential for Iskandar is Attracting Interest from Great Britain

Update – another note on how bad the situation is: Chaotic commute ruining Iskandar dream

A commute that used to take 45 minutes can now take from 11/2 hours to three hours
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If nothing is done to improve transport links soon, the Iskandar project will fall flat on its face long before any mass transit system reaches Johor. Some people are already looking to sell their properties and return to Singapore.