KUALA LUMPUR – The postponement of Monday’s (Jan 14) bilateral meeting between Singapore and Malaysia on Johor’s most important economic zone comes at an inopportune time for the southern state where investors have been hesitant for the past year.

The meeting of the Joint Ministerial Committee for Iskandar Malaysia (JMCIM) was postponed following Johor Menteri Besar Osman Sapian’s decision last week to board a vessel in disputed waters off Tuas.

Singapore said his presence on a Malaysian vessel in Singapore’s territory had rendered holding the JMCIM “untenable”. Malaysia has maintained that he was in Malaysian waters.

The postponement could be a significant blow to Iskandar, as Singapore is the zone’s second largest foreign investor behind China, which is already expected to slow its investments in Malaysia with relations cooling since Prime Minister Mahathir returned to office.

Official sources told The Straits Times that Datuk Osman defied instructions from Kuala Lumpur not to visit the crew of MV Pedoman, due to the sensitivity of various territorial disputes ahead of the JMCIM.

“It was a counterproductive stunt as foreign affairs come under federal jurisdiction. Singaporean interest in Johor, especially Iskandar, is going to be crucial in the near future as Chinese investments pull back,” Singapore Institute of International Affairs’ senior fellow Oh Ei Sun told The Straits Times.

Singapore contributed nearly a quarter of the foreign investment in Iskandar as of November 2017 or RM22 billion ($7.25b) of the RM95 billion it received.

Already there are signs that all is not well in Johor. From boasting total property transactions second only to Selangor in the first quarter of 2018, Johor now has the largest residential overhang in the country.

Including serviced apartments and small offices home offices (SoHo), the nearly 14,000 unsold completed units in the state at the end of September 30 were worth over RM10.6 billion, which was more than a third of the national overhang of RM27.4 billion.

Confidence in the property sector in Iskandar – which at 2,217 square kilometres is three times the size of Singapore – is a crucial indicator of sentiment, as developers have poured in more than half of the RM273 billion invested in the area since it was established in 2006.

“There is an oversupply of apartments and condominiums in Johor Baru because developers were ‘enthralled’ with Iskandar Malaysia when it was first announced, considering all the initiatives that they undertook like Educity and pushing the industrial sector in the region,” Datuk Zamani Kasim, chief executive of property developer Astaka Holdings said last month.

Johor is languishing in the lower half in terms of GDP per capita among Malaysian states despite a concerted effort by both the federal and state governments to make Iskandar a catalyst in propelling its economy. At RM34,362, it is well below the national average of RM42,228.

Saddled with one of the highest inflation rates in the country, economic concerns weighed heavily in Johor in the run-up to the general election on May 9 last year. The state was the birthplace of Umno and was regarded as a bastion for the party which was the main component of the previous Barisan Nasional coalition that ruled in Kuala Lumpur. But, in a shock upset, Johor fell to the Pakatan Harapan alliance which swept to power in the election.

The unprecedented change of government created uncertainty among investors.

Moving forward with development plans between Malaysia and Singapore would have allayed concerns over Iskandar. But as it stands, projects like the planned Rapid Transit System (RTS) Link between Johor Baru and Woodlands, which is part of the JMCIM’s remit, is “behind schedule and not progressing well”.

Transport Minister Khaw Boon Wan said Monday it was likely that the cross-border MRT service – intended to ease congestion at land checkpoints – will be delayed beyond the target of Dec 31, 2024.

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