Industrial property the way to go at Iskandar
By Ryan Khoo
/ Alpha Marketing, The Edge Property |
Much of the media attention in Iskandar Malaysia has been on the residential real estate market. This has unfortunately taken away attention from the manufacturing segment — the other rising star in Iskandar Malaysia.
Iskandar Malaysia has achieved more thanRM161 billion ($56.4 billion) of cumulative committed investments as at 1Q2015, 31%of which is in manufacturing, which is also the segment that has achieved the highest investments in total, surpassing residential property. As a result, the most attractive segment in Iskandar Malaysia’s property market today is actually in industrial property. The following are some of the reasons.
Johor is achieving record highs in manufacturing investments
According to data from the Malaysian Investment Development Authority (MIDA), Johor state has achieved the highest amount of manufacturing investments in 2013 and 2014 atRM14.4 billion and RM21.1 billion respectively. These figures are also the highest among all the states in Malaysia (see Charts 1 and 2).
Source: MIDA
These record figures will translate into job creation and actual spending in the ground from 2015, powering Johor into an industrial powerhouse and increasing the demand for quality industrial properties, among others.
This trend is relatively new for Johor. Prior to 2013, the state received only RM5.5 billion in 2012 and RM6.6 billion in 2011. We attribute the recent strong growth to Iskandar Malaysia’s increased visibility in 2012, when several key infrastructure projects were completed and more Singapore companies took notice.
Iskandar Malaysia-Singapore as the Hong Kong-Shenzhen of Southeast Asia
This comparison has often been made between Iskandar Malaysia and Shenzhen. The latter’s growth in the 1980s and 1990swas driven primarily by Hong Kong manufacturers relocating there to take advantage of cheaper costs. In fact, the initial Shenzhen population was insufficient to support labour demands and workers from all over China soon moved to Shenzhen because of the availability of job opportunities.
Similarly, this arbitrage between Iskandar Malaysia and Singapore is apparent, and Singapore manufacturers’ moving to Iskandar Malaysia is not a new trend. In recent times, however, it has been gaining momentum as Singapore tightens its foreign labour rules and its industrial property prices remain stubbornly high. While it may take 10 to 20 years for this trend to fully play out, it is one of the biggest macroeconomic trends for Southeast Asia in the near future.
Land cost and utilities are cheaper in Iskandar Malaysia than in Singapore
Singapore is an island, and land scarcity has been a long-standing issue. While land reclamation has been undertaken in the city-state for the past few decades, post-2030, very little reclamation can be carried out further, as international water borders have already been reached. As such, many land intensive industries would have to consider moving operations overseas as land usage intensifies for Singapore to accommodate its fast-growing population. Industrial property prices in Singapore are three to five times higher than in Iskandar Malaysia and the leases for new industrial land released are getting shorter, now usually at 20- to 30-yearleases, compared with Malaysia, where freehold land is readily available.
Utilities in Malaysia are also a huge cost savings for Singapore companies. Electricity and water costs are 40% cheaper than in Singapore and natural gas as much as 80%cheaper. All this translates into hundreds of thousands of annual savings for the typical small and medium-size enterprise, and much more for companies that are utilities-intensive.
Availability of human labour in Malaysia versus in Singapore
In recent years, the Singapore government has embarked on a policy to tighten its foreign labour intake. The requirements for employment pass holders have been raised and levies for foreign workers have been increased, especially for general workers in construction or service industries.
In Malaysia, the levies for a similar foreign worker are cheaper by 80% to 90%, and requirements for employment pass holders are also less stringent. Singapore companies would embark on a policy of hiring Malaysians first, owing to the better cultural compatibility. Even if it were not possible to do so, it would at least be easier and cheaper to hire foreigners in Malaysia than in Singapore. In fact, this has been the case in Johor, which has seen a large influx of foreign skilled workers in recent years.
Infrastructure in Malaysia is of a high quality and world standard
If there is one thing that Malaysia is good at and in which it has a proven track record,it is the construction of infrastructure. The Coastal Highway in Iskandar Malaysia and the North-South Expressway are great examples; they are well maintained and have important linkages. Water is plentiful (water is still being supplied to Singapore) and the power supply is stable, with two gas-fired power plants in Pasir Gudang and a coal fired plant in Tanjung Bin.
Johor is also blessed with world-class ports. The Port of Tanjung Pelepas (PTP), which handled 8.5 million TEUs in 2014 and 7.6 million TEUs in 2013, is ranked 18th in the world and now the busiest in Malaysia. Port Klang (comprising Westport and Northport) handled10.94 million TEUs in 2014 and 10.35 million TEUs in 2013. If you were to compare the proportionate sizes of the Klang Valley and Johor economies, the ports in Johor would be punching way above their weights. Again, PTP enjoys a significant portion of its business with Singapore, owing to its proximity to the city-state, which is the world’s second-busiest port at 33.9 million TEUs in 2014.
The Pelepas Free Zone, adjacent to PTP, has developed more than 600 acres of support space, including warehouses and industrial lots. The existing 2.5 million sq ft of warehouse space owned by third parties is 99%-occupied, and another 2.4 million sqft will be added progressively in 2017. Alternatively, there are the Johor Port and Tanjung Langsat Port in Pasir Gudang, which tend to handle the heavier industries and oil and gas-related work.
Johor is also home to three large upcoming infrastructure projects in Malaysia —the RM40 billion High Speed Rail (HSR), theRM90 billion RAPID petrochemical plant by Petronas and the estimated RM8 billion Rapid Transit System (RTS) link to Singapore. If you consider that the Klang Valley’s two MRT lines cost RM40 billion to RM50 billion, the fact that Johor will get this much in infrastructure investments is testament to the quality of infrastructure and connectivity that it will enjoy for the foreseeable future.
Low unsold stock of industrial property in Johor
Data from the National Property Information Centre (NAPIC) shows that the stock of unsold industrial property in Iskandar Malaysia has remained low over the past few years despite new incoming supply. In fact, the industrial property overhang (completed but unsold) has practically been cleared. This bodes well, as it shows end-users are seeking completed space that can be put to immediate use.
Singapore manufacturers get more established in Iskandar Malaysia and confidence increases
While the trend of Singapore manufacturers setting up in Iskandar Malaysia is not new, we are seeing bigger names come in, and their success will raise confidence and attract others to come in. A good example would be Ascendas, with its Nusajaya Tech Park. Ascendas is one of Singapore’s most recognisable providers of industrial space. The opening of its tech park in December 2015 will be momentous for both Singapore and Iskandar Malaysia. Several MNCs that have signed on with Nusajaya Tech Park will be unveiled then, and this will boost the confidence of those who are still unconvinced.
If the Iskandar Malaysia story is new or still unfamiliar to you, there is at least one thing you should remember, and that is Iskandar Malaysia is a playoff Singapore’s economy, which is only slightly smaller than that of both West and East Malaysia. With restrictions to physical growth, it is only inevitable that some needs will spill over to Iskandar Malaysia. The best way to ride that growth is through industrial property, where the numbers are most favourable today.
Ryan Khoo is co-founder of Singapore-based Alpha Marketing. The views expressed here are his own.
This article appeared in The Edge Property Pullout of Issue 690 (August 17) of The Edge Singapore.
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