A Mega City in the making
According to McKinsey Global Institute's Urban World report titled; "Mapping the economic power of cities", China's rapid growth is fueled by the continued growth of its megacities and the emergence of new ones. Emerging cities are important as they spread wealth, reduce concentration and enhance per capita income.
The largest city in Malaysia is the capital, Kuala Lumpur, which contributes eight times the GDP of any other city in Malaysia and contributes about RM263 billion to the nation's Gross National Income. In order to spread the wealth of the nation, the government has announced five "economic corridors" to develop the various states and propel Malaysia into a fully developed nation by 2020.
Iskandar Malaysia development, launched in November 4, 2006, is one such corridor that has been strategically planned to jumpstart the urbanisation of Johor Baru and its surrounding areas.
Johor as a hub
Johor Bahru, the state capital of Johor, is strategically located within six to eight hours flight radius from Asia's growth centres such as Bangalore, Dubai, Hong Kong, Seoul, Shanghai, Taipei and Tokyo and has a reach of a global market of some 800 million people. With an urban population of 2.2 million and rural population of 1.1 million, the state of Johor is serviced by three major ports, Pasir Gudang Port, Port of Tanjung Pelepas and Tanjung Langsat Port.
Johor's business concentration has been primarily on the manufacturing and agricultural industries. The state was the third largest contributor to the nation's GDP at 9.3%, behind Selangor and Kuala Lumpur at 22.1% and 14.8% respectively in 2009.
The steady flow of foreign investments and low unemployment rate in the state has increased its appeal for foreign and domestic investors alike to participate in its growth. The foreign direct investment as at March 2011 stood at RM1.05 billion despite the global economic situation.
Although the economy of Johor is experiencing a steady growth, the urbanisation level still lags behind Kuala Lumpur's. The services and real estate sector is stagnant with low per capita gross national income. Analysts say the state has been experiencing a "middle income trap" dilemma - a phenomenon that leads to migration of talented workers to Kuala Lumpur and Singapore where salaries are higher and living standards much better. To draw Johor out of the trap and create a vibrant city, Iskandar Malaysia was conceptualised to jumpstart and propel economic growth.
Developing Iskandar Malaysia
Iskandar Malaysia was established on 30 July 2006. Spanning across 547,830 acres, it is divided into five flagship zones and each flagship has its own sector concentration. These flagships are designed to create a conurbation that completes the characteristics of an emerging city.
Flagship A: JB City Centre
This comprises the Central Business District and the State Capital of Johor. It is also the main gateway into and out of Singapore; thus it will be the primary business district complementing Singapore's vibrant financial industry and act as a platform to support local businesses.
To improve accessibility between JB City Centre and Singapore, both Governments are in talks to implement the RTS-MRT project, connecting Polytechnic station (Singapore) to JB Central. The project is in its initial study stage and the transportation linkage will support the heavy traffic that is flowing in and out of Johor Baru to Singapore.
Flagship B: Nusajaya
Nusajaya is the 2,400 acres of residential and commercial development that comprises seven signature developments: Kota Iskandar (Johor state's new administrative centre); the Southern Industrial and Logistics Clusters (SiLC); Puteri Harbour Waterfront Development (residential and commercial development); EduCity (Education Cluster); Afiat Healthpark; International Destination Resort; and Nusajaya Residences. Nusajaya is positioned to be primary residential and commercial enclave.
Flagship C: Western Gate Development
This industrial development area covers 30,000 acres comprising a port terminal, Port of Tanjung Pelepas (PTP) and Tanjung Bin Power Plant. PTP spans across 3,500 acres comprising 2,000 acres of port Terminal and 1,500 acres of free trade zone. It is Malaysia's busiest container terminal - handling approximately one-third of Malaysia's total containers. The terminal handled 6.5m TEU's in 2010 and is expected to handle 7.5m TEU's in 2011.
Flagship D: Eastern Gate Development
This development is the industrial and manufacturing hub covering 31,132ha comprising Pasir Gudang Port, Pasir Gudang Industrial Park, Tanjung Langsat Port and Tanjung Langsat Industrial Complex.
Key economic activities in the Pasir Gudang area are electrical and electronic, chemical, oleochemical, chemical biofuels, food products, engineering-based industries, ports and logistics, warehousing, research and development and plastics. Heavy industries relating to Oil & Gas activities like engineering, fabrication and shipyard are also located this area.
Currently more than 10 oil & gas related multinational corporations have set up operations with over RM4 billion (USD1.3 billion) invested. Notable oil & gas investments are:
• Technip Group's RM700 million (USD225.8 miilion) plant to make flexible pipes in Tanjung Langsat
• EEW's investment of RM250 million (USD80.6 million) in building its fifth plant in Tanjung Langsat to produce steel pipes
• Halliburton's RM200 million (USD64.5 million) manufacturing centre in Johor Technology Park to supply completion equipment and cementing tools.
• Dialog Group Berhad and Vopak invested RM5 billion (USD1.7 billion) to develop a deepwater petroleum terminal and storage capacity in Pengerang.
Flagship E: Senai-Skudai
This project is synonymous with Senai International Airport and Universiti Teknologi Malaysia (UTM). Senai Airport is envisaged to become the No. 2 airport in the region after Changi Airport by 2025. It takes only 30 minutes to drive from Johor Baru to Senai Airport.
Another major development is the opening of Johor premium outlets by Premium Outlets, a division of US-based Simon Property Group and Genting Berhad by the end of 2011. The RM149 million outlet with 330,000 sq ft built up area on a 17.8ha site, is the first of its kind in South-East Asia and is expected to open in the third quarter of 2011.
Mohamed Basir bin Mohamed Sali, the General Manager of the Johor State Investment Centre (JSIC) reiterates that the primary motive behind Johor's flagship developments is to increase investment in the manufacturing and oil and gas sector which can lead to a spillover effect into the real estate and services sector.
At the same time, JSIC is adopting a holistic approach to development by improving the infrastructure landscape, healthcare, education facilities and improving the government's delivery process to increase the ease of doing business in Johor and sustain investors' interest.
Notable Investments in Iskandar Malaysia
The biggest investments in Iskandar Malaysia are from Acerinox SA of Spain and Japan's Nisshin Steel, which have committed RM5 billion (USD1.64 billion) in investments to build a stainless steel plant.
From the Middle East, Mubadala, Millenium, Kuwait Finance House and Aldar have committed USD1.2 billion to develop properties in Medini in Nusajaya. Ongoing projects in Medini include the development of Legoland Malaysia by Merlin Entertainment for USD200 million.
The UK's Newcastle University of Medicine is setting up a branch campus for USD100 million in EduCity. Some of the other notable companies in Iskandar Malaysia are Newcastle University Medicine (NuMed), Management Development Institute of Singapore (MDIS), Netherlands Maritime Institute of Technology, Marlborough College, Pinewood Studios, Halliburton, BASF, Maersk Logistics, Trafigura Pte Ltd, FMC technologies and Biocon Limited.
From 2008 to March 2011, Iskandar garnered RM73.2 billion worth of investments comprising RM43.3 billion (59%) of domestic investments and RM30 billion (41%) foreign investments. The investments were primarily from the manufacturing sector followed by utilities, tourism & others, properties and government.
Ismail Ibrahim, CEO of Iskandar Region Development Authority explains that Iskandar Malaysia is targeted to garner investments worth RM60 billion in 2011 and has already exceeded its target.
"The development has already attracted a total of RM73.2 billion in the first quarter of 2011 despite the global financial crisis," he says.
To increase the attractiveness of investments into Iskandar Malaysia, fiscal and non-fiscal incentives are being offered to companies. Some of the incentives are exemption from income tax and withholding tax for a period of 10 years and unrestricted employment of foreign-knowledge workers. In addition, companies are allowed to borrow any amount in foreign currency, onshore and offshore.
Real Estate Outlook
The real estate sector is also booming due to the Iskandar Malaysia development. Presently, the residential and industrial segments are experiencing consistent growth.
The steady inflow of operational plants relocating from Singapore has increased the demand for industrial land. Hence, the price of industrial land has increased from RM20-25 psf in 2008 to RM35-40 psf in 2010.
Southern Industrial and Logistics Clusters (SiLC) developed by UEM Land Berhad in Nusajaya, comprising 1,300 acres of managed industrial park, is set to cater for the increasing demand.
Prices of residential properties have started to pick up and the take-up rate is strong, averaging about 70 per cent. The prices of medium cost and high-end residential properties hover around RM250,000 - RM400,000 and RM 401,000 - RM2 million respectively, almost similar to prices in the Klang Valley. The residential sector is burgeoning due to interest from foreigners, especially Singaporeans,. Presently, 60 per cent of the residential properties are owned by foreigners and 40 per cent by locals.
Note: * One Medini Condominium is a 99-year leasehold development with no minimum threshold value for foreign purchase.
Source: Company data, MPI Research
The Singapore factor
Partly due to its proximity to Malaysia, Singapore is the country's largest investor. Statistics from the Malaysian Investment Development Authority (MIDA) have put Singapore's investments at approximately USD700.2 million in 2010.
Prime Minister Datuk Seri Najib Tun Razak's two day visit on May 21 and 22 in 2009 to Singapore has strengthen and forged closer bilateral relations between the two countries. Cross-border investments have since seen a steady increase.
An investment worthy of note is the joint venture investment by Malaysia's Khazanah Nasional Berhad and Singapore's Temasek Holdings Pte Ltd in a USD8.9 billion mixed-development project comprising hotels, apartments, offices and shops in 5.4 million square feet of space in Singapore and a USD980 million project in Iskandar Malaysia comprising residential development, retail space and a wellness centre. These investments fortify Iskandar Malaysia's position as the hinterland to Singapore; similar to that of Shenzhen to Hong Kong.
2012 Tipping point
The tipping point for Iskandar Malaysia is expected to be in 2012 with the launch of the Educity Cluster, Indoor Theme Park, Legoland and Marlborough College. Investments in various sectors are also taking shape in this region. Increasing population growth, retaining human capital and rising living standards are among issues that need to be addressed as cities are molded through high per capita gross national income, commendable lifestyle benefits and capacity to attract higher investments and talented workers.
Johor is on its way to becoming a force to be reckoned with, balancing the robustness of Kuala Lumpur and Penang and making its way to become Malaysia's next metropolis.
Source: Malaysian Investment Development Authority
Source : Labor Force Survey, Dept. of Statistics Malaysia
Source: Johor State Investment Corporation
Source: IRDA, Khazanah, Iskandar Investment Berhad, MIDA, corporate announcements
Source: IRDA, Khazanah, Iskandar Investment Berhad, MIDA, corporate announcements
Source: KGV Lambert
Hierarchy of Conurbation
Source: National Physical Plan, Department of Town Planning
By S.Sulocana
Source: Real Estate Malaysia, July 2011, Malaysia Property Incorporated
(www.malaysiapropertyinc.com)
