Iskandar Malaysia Gains Traction Post Najib’s Visit

Property analysts say the warming bilateral relations between Singapore and Malaysia can only bode well for Iskandar Malaysia but they also warn there are some inherent risks involved.

By Khalil Adis

When Malaysian Prime Minister Datuk Seri Mohd Najib Tun Abdul Razak came to Singapore on an official visit in February this year, he more than just renewed bilateral relations with Prime Minister Lee Hsien Loong.

In fact, both countries achieved historic economic milestones with the announcement of the high-speed rail network from Singapore to Kuala Lumpur as well as the largest joint-venture project in Malaysia by Temasek Holdings, CapitaLand Malaysia Pte Ltd and Iskandar Waterfront Sdn Bhd.

The investment sum, at RM811 million or approximately S$324 million, is considered a feat as it marks CapitaLand’s first direct large scale township investment and development in Malaysia.

This has helped spur confidence and buying activities across the causeway in Iskandar Malaysia.

Kenanga Research, a research firm in Malaysia, said the warming bilateral ties and policies friendly to foreign investment have helped draw in investments.

“Developers with large exposure in Iskandar Malaysia have seen strong investor interest since December 2012. This follows news flow of rising foreign investments and the proposed JB-Singapore Rapid Transit System (RTS) by 2018, which would be positive for property prices,” its research cites.

CIMB Research also gave an upbeat assessment on Iskandar Malaysia where it states that UEM Land’s involvement and upper hand in choosing its joint venture partners in Nusajaya has allowed Iskandar to reach its tipping point in 2012 .

Agreeing, invited speakers at the recently concluded Asia Pacific Real Estate Convention & Expo (APRECE) organised by the Institute of Estate Agents (IEA) said the excellent bilateral ties is a win-win situation for both countries.

“The excellent bilateral relationship between the two Prime Ministers who are very keen to promote trade and investments in the two countries can only lead to economic prosperity,” said Kumar Tharmalingam, chief executive officer at Malaysia Property Inc (MPI).

Noting that Singapore offers Iskandar Malaysia direct access to the international market, Tharmalingam said this has helped Malaysia achieve record investments.

“Because our relationship with Singapore is so good, the Japanese and Chinese are thinking, if Singapore were to invest in Iskandar it must be good because Singapore does not make decisions lightly. Because of that, we have a flood of Chinese and Japanese investors in the country. In fact, it has never been in this volume before, not for the last ten years,” he said.

Mohamed Ismail of PropNex said Singaporeans are taking cues from the excellent bilateral relationship as a good time to invest.

“I think we are probably at our peak in terms of bilateral relationship and confidence with Temasek and Khazanah taking stakes across each other’s border and trying to develop projects for the betterment of both countries. This is where Singaporeans suddenly see a need, probably that they are losing out something. Coupled with the cooling measures, it has become restrictive for those buying their second properties. Those who believe in the fundamentals of property investment suddenly want to look at Iskandar as a possible option,” he said.

Burying the hatchet

While analysts note the current warming bilateral relations, this was never the case in previous years.

In fact, diplomatic relationships between both countries were often strained under the Lee Kuan Yew-Mahathir administrations leading to much discussions about possible MRT links to Johor Bahru in the 80s which never materialised.

On top of that, crime and safety issues in Johor Bahru as well as cases of errant developers who did not follow through on their projects, have greatly deterred investments.

As a result, both cities never had the opportunity to reach their full potential in terms of economic co-operation by leveraging on each other’s strength – Johor offers plenty of cheap labour, abundant land and natural resources while Singapore is an economic powerhouse.

In 2005, under the leadership of Abdullah Badawi, there was a change in direction from the Malaysian government when it mooted the idea of Iskandar Malaysia so as to enjoy the economic spillover from Singapore.

However, it was only in 2009, when Prime Minister Datuk Seri Mohd Najib Tun Abdul Razak took over that Iskandar Malaysia started to gain traction.

A joint-ministerial committee was formed by to look into enhancing connectivity by developing the Rapid Transit System (RTS).

Subsequently, the historic land swop deal was concluded leading to joint-venture projects between Temasek Holdings and Khazanah Nasional at One Marina and DUO in Singapore as well as Afiniti Medini in Nusajaya.

Following that, Singapore investments started to pour in, most notably from billionaire investor Peter Lim, CapitaLand, Raffles Education, Ascendas and UOB Kay Hian.

“If we focus on the residential sector, we have witnessed a frenzied pace of people flocking to Iskandar and this is because things are becoming a little bit more clearer although Iskandar has been talked about since year 2006. Today, when one goes across, it is like unbelievable infrastructure is being put in place, the highways and things like that. Many developments are already in different level of stages. These have given Singaporeans a level of confidence to see these are for real,” said Mohamed Ismail.

“I think Iskandar will be a new hinterland for Singapore. As the two governments progress to a more seamless exchange of people from both countries, it is only a matter of time that every Singaporean and every Malaysian living in Johor will have automatic pass card to go in and out of Singapore if you are working in the country. It means that access will be cheap. You don’t have to fill up a form anymore. That will happen because that is the only way businesses can grow,” said Tharmalingam.

A new waterfront city

With CapitaLand Malaysia’s largest committed investment in Malaysia, a new waterfront city is set to rise on A2 Island in Danga Bay.

Occupying 71.4 acres of net land, this premier waterfront residential community will comprise high rise and landed homes with a central waterfront hub with a marina, shopping mall, F&B outlets/restaurants, serviced residences, offices and recreational facilities.

“Given the close proximity and the strong bilateral ties between Malaysia and Singapore, and the increasing investor confidence in Iskandar Malaysia, CapitaLand finds this a compelling investment opportunity in a new upcoming development region. With the site’s strategic location – close to Johor Bahru city centre and accessible via the newly constructed Coastal Highway; with the Singapore-Malaysia Causeway to its east and just 29 kilometres away from Legoland and EduCity in the west, we are confident that the development will be attractive and well received by the market,” said Lim Ming Yan, president and group CEO of CapitaLand Limited.

The project with an estimated total gross floor area of 11 million square feet, is expected to be developed in phases over a period of ten to 12 years.

CapitaLand said its project is expected to generate a total gross development value of approximately RM8.1 billion (equivalent of S$3.2 billion).

Inherent risks

Despite the friendly relations and record investments pouring into Iskandar Malaysia, analysts say investors should go in with their eyes open.

One area of concern is price appreciation and if this is sustainable.

“I am not trying to pour cold water in an excitement that is taking place. We have witnessed condominium properties in Iskandar which was going for about RM400 to RM500 per sq ft five years ago. Today, they are launching at RM1,200 to RM1,300 in a similar area. The prices have gone up twofold. One of the key fundamental is all capital appreciation is a by product of rental yield. The rental can only continue to move up because of strong demand for rental,” said Mohamed Ismail.

He also adds there appears to be a demand supply mismatch.

“Though Iskandar Malaysia’s plan is very broad and macro in terms if what it wants to attain, in terms of businesses moving in, I am concerned with the industries growth and pace versus the industrial development supply. When there is a mismatch – that means industries take sometime to sink its root and grow. Only when industries and businesses grow, you will attract a pool of talent,” he said.

With this, Ismail said buyers need to be able to hold their properties for the long-term.

“A danger will take place, where you are forced to sell a property where there are not enough buyers, and the property prices that you bought will come down. The property that you had bought may become a liability and a nightmare,” he said.

Others said the price appreciation is only fair but there are options for those who have been priced out from the market.

“If you want to live in Iskandar, it is like you are living in Kuala Lumpur City Centre. You have to pay the RM1,000 per sq ft. However, you can very well live away in Shah Alam where it is only RM200 per sq ft. You cannot grow an area with a fantastic infrastructure with high quality design and features and still say I want it cheap. There are still alternatives,” said Tharmalingam.

Estate agents encouraged to broaden horizons

With the challenging property market in Singapore, coupled with excellent bilateral relations between Singapore and Malaysia, events like APRECE can only bode well for cross border investments.

“With the various cooling measures, even the consumers are a bit concerned about buying local properties. If there are other alternatives overseas, they will go for it,” said Jeff Foo, president of the IEA.

Foo said he hope real estate salesperson will enhance their knowledge and professionalism by expanding their horizon.

“Everybody is going global. We want to let real estate agents be exposed to other markets in the international arena. Don’t just focus on the local market but also other regional markets. APRECE will provide agents passport to the international arena,”said Foo.

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