Singapore has the means but lacks land while Johor has abundant land but lacks the means. Enter Iskandar Malaysia ...
ISKANDAR Regional Development Authority (Irda) anticipates the second phase of Iskandar Malaysia development from 2011 to 2015 to be more challenging than phase one which was from 2006 to 2010.
Chief executive officer Ismail Ibrahim tells StarBizWeek that while the first phase was about planning and building foundations, the next level is about growth and expansion.
He says the next three years to 2015 will be about leveraging on developments from phase one.
“The challenge will always be there... in different forms. The question is whether we are able to anticipate it,” he says.
He adds that risks are unavoidable in an undertaking the scale of Iskandar Malaysia, hence stakeholders need to do risk management.
A five-year progress report on the economic region by Irda forecasts Iskandar Malaysia would need total investment of RM383bil (US$115.7 bil) over the next 20 years.
It generated a total cumulative committed investments of RM84.56bil until the first quarter of this year.
“The next move is to continue attracting more domestic and foreign investors through a systematic approach and strategy of engaging with them,” he says.
Irda is looking at investments averaging between RM15bil and RM20bil yearly from 2011 to 2015, up from RM10bil-RM15bil targeted from 2006 to 2010.
The tide seems to be turning in favour of the region. Singapore-based Jones Lang LaSalle head of residential project sales David Neubronner says interest in the region was limited and muted in its initial years but has changed dramatically of late.
The Singapore factor
“Singaporean interest, until recently, has generally been muted and limited to a handful of developments like Leisure Farm and Horizon Hills. However, the situation has changed quite dramatically recently,” says Neubronner, in an email interview.
Iskandar Malaysia is now spoken in the same breath as Johor Baru and has become synonymous with the city.
No longer do developers say they have a project in Kota Tinggi or Johor Baru, or some other specific town.
It's “we have a project in Iskandar ”
Tangibles like new highways and improved landscaping have helped. Other tangibles include the September launch of themepark Legoland and educational facilities in Educity.
“For Iskandar to succeed, we need the Singaporeans to agree to play ball,” says Chur Associates managing partner and legal advisor Chris Tan, who promotes Malaysian properties to foreigners. “Johor has always been Singapore's factory. Iskandar Malaysia is like Shenzhen and Hong Kong. Shenzhen is thriving today because of the Hong Kong factor.”
While Singapore has the means, it lacks the land. Johor has abundance of land, but lacks the means.
Iskandar Malaysia is presented as a new territory with ample opportunities for all, particularly Singaporeans in terms of value, growth and possibly future retirement plans, Neubronner says.
He says there are lots of push and pull factors to steer interest to Malaysia in general, and the Iskandar scheme, in particular.
“The rapid price appreciation of Singapore properties over the past 30 months is one of them,” he adds.
“With new price levels, Malaysian properties become relatively cheaper. For example, a new semi-detached house in Bukit Timah, Singapore costs S$5mil (RM12.4mil). A similar house in The Straits View Permas Jaya Johor, 10 minutes drive from CIQ Johor, is S$500,000 (RM1.24mil) or a fraction of what it costs in Singapore.
“And that same house in Permas Jaya offers a view of Senoko Singapore (a power station),” quips Neubronner.
While Iskandar beckons, on the other side of the causeway, the Singapore government has implemented a slew of anti-speculative measures to deter investors in Singapore from speculating in the Singapore property market, he says.
“As a consequence of these measures, investors are going overseas, such as London, Australia and Malaysia.”
From the global property perspective, property values in Malaysia and London have “depreciated” on the basis of the strong Singapore dollar.
Supporting the strong interest for Malaysian property investment is a market well supported by robust fundamentals, including political stability, economic growth and a fast growing middle class which is driving demand in the overall market.
Neubronner says interest subsidy schemes offered by Malaysian developers, which is not available in Singapore anymore, is another key attraction.
In this scheme, an investor needs to put in as little as 10% cash downpayment and nothing thereafter until the development is completed, which may be three to four years down the road.
“Should the property appreciate by 10% at completion, the investor would have doubled their investment, before outgoings,” says Neubronner.
But the formula of affordable property prices and easy credit alone will not have worked if not for friendly government ties between the two countries,” says Neubronner.
Iskandar's early days
The guardians of Iskandar could not be more illustrious and the political weightage could not be more influential. Prime Minister Datuk Seri Najib Tun Razak, and the Johor menteri besar are keenly involved. Irda, the agency that regulates, plans, promotes and strategises Iskandar Malaysia's growth, reports directly to them.
Goverment-linked company (GLC) Khazanah Nasional Bhd drives the corporate motor with managing director Tan Sri Azman Mokhtar having a seat on the Irda board.
Other GLCs involved include Iskandar Investment Bhd (IIB) and the UEM group. There is a reason for such heavyweights. This is the first of several economic zones being promoted by the Government. So far, it has also been the most successful, despite its muted start.
Former Prime Minister Tun Abdullah Ahmad Badawi launched the growth corridor in 2006, then known as Iskandar Regional Development. It attracted much Middle Eastern interest. These initial investors came with their riyals and dirhams to buy land with the aim to become master developers.
The project then was very much government-driven. The scarcity of land for development in the Klang Valley and the proximity to Singapore prompted the private sector to invest in Johor.
Today, some of the country's top developers have interest here. These include BRDB Developments Bhd, the Eastern & Oriental group, Mah Sing and SP Setia group. Their move down south has given credibility to the project, says Neubronner.
Says a property lawyer promoting Malaysian properties to foreigners: “Malaysia was viewed as among the more progressive, moderate and modern Islamic states in the region. It was this factor which attracted the Middle Eastern investors to our shores. (But in the opening up of any region), you need people who actually come and stay and not just to buy land. And our closest neighbour is Singapore,” he says.
A report from Jones Lang LaSalle in London may provide the clue why Singapore is important for Iskandar Malaysia's success. The report says Singapore has the world's highest concentration of wealthy people and is considered as “the Switzerland of Asia”. And all the wealth are just across the causeway.
Singapore has more millionaires per capita of its five million population than anywhere else on the planet, reported The Telegraph. Although other countries have more total millionaires because of larger populations, the little red dot in South-East Asia has more as a percentage of its population.
The catalyst to the strong buying interest from Singaporeans has been the warming of political ties between the two governments and their leaders, says Neubronner.
Ties improved when Najib hosted his counterpart Lee Hsien Loong at an inter-governmental meeting in March. Both countries were looking for opportunities to expand beyond their borders. International Trade and Industry Minister Datuk Seri Mustapa Mohamed says the Singapore business community is looking to relocate or expand operations in Iskandar Malaysia.
That meeting was quickly followed with Temasek Holdings (Pte) Ltd and Khazanah Nasional Bhd announcing they would jointly develop about RM30bil of projects in the south of Peninsular Malaysia and Singapore.
The developments in Singapore will include hotels, apartments, offices and shops in two main areas of the city state while the Iskandar developments will have homes, retail space and “wellness-related offerings”.
Singapore Business Federation did not respond to questions emailed to them. The Association of Small & Medium Enterprises in Singapore says it does not have information about Singapore's SME interests in Iskandar Malaysia.
Brian, a Malaysian businessman, with Singapore PR status, who has been living in Johor “off and on” the past 10 years, says the Singapore factor is important for Johor to succeed “much faster.”
“We need the support of Singapore because it is a successful neighbour and has a well-established brand name. It is generally felt that if Singapore companies were to invest in Iskandar, it will be quite safe for others to follow,” he says.
While government-to-government ties are important, other prerequisites are needed. These include good infrastructure in the form of roads and connectivity, services, amenities and aggressive marketing and promotional efforts from both private and public sector.
“With each passing day, the challenge (seems) less daunting,” says Neubronner.
Legoland Malaysia will be opening its doors Sept 15 to provide the leisure component. Over one million visitors are expected during its first year of operations.
“We are expecting to have over 70% to 80% of the visitors from Malaysia and Singapore, with the rest are international visitors,” says Legoland Malaysia general manager Siegfried Boerst.
The park's pre-opening promotional drive, which began in January, resulted in 35,000 annual passes sold online by the closing date on April 16, the highest ever recorded for the sale of pre-opening annual passes for any of the Legoland theme parks.
Singaporeans make up the majority of foreign buyers who bought 40% of those passes. Malaysians bought the other 60%.
Even without Legoland, Singaporeans were enjoying the beach and island resorts over in Johor over the years.
Brian says he is drawn to the open space and serenity of Johor. He has bought a holiday home in Leisure Farm some years ago.
EduCity provides the education framework. In the next five years, Iskandar is expected to have 10,000 students, nine universities and schools. Raffles University Iskandar vice-president (services) and registrar Gan Chin Huat says its American-curriculum school is targeting 1,000 students in 2017.
Of the 3,000 students targeted for Raffles University Iskandar, half of them are expected to be Malaysians and the rest from around the region.
On how it will attract students to Iskandar, Gan says Raffles Education Corp is a quality name in Asia Pacific and its graduates are well received by industries.
Raffles will offer hostel facilities in the new campus at Iskandar and also shuttle students over, he says in an email interview.
The Raffles education group has 32,000 students in the 38 Raffles Colleges in 35 cities in 14 countries.
Of the three universities and 38 colleges in 14 countries, Gan says they only have one Raffles College of Higher Education in Singapore with the rest located elsewhere. In Malaysia, the group currently has one Raffles College in KL in addition to the Raffles University Iskandar and Raffles American School in JB.
While Singaporean and Malaysians with PR status remain a prime target, and with the US and the eurozone the way they are, other Asian investors from Indonesia, South Korea, China and Vietnam are being keenly sought.
The building blocks for the next chapter attracting investors are being put together today. But challenges remain.
By The Star
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