Iskandar Malaysia: Is there a Silver Lining Among the Ominous Clouds?

By Ryan Khoo / Alpha Marketing, The Edge Property | May 28, 2015 9:00 AM SGT
Is the worst over for Iskandar Malaysia? As highlighted in my previous article, Iskandar Malaysia’s property market has taken a huge image beating in 2014 and confidence is at its lowest ever. Despite the recent negative media coverage, there are actually several positives looming on the horizon.
The High Speed Rail (HSR) linking Kuala Lumpur to Singapore remains the biggest catalyst to enable Iskandar's population boom. Singapore has about 5.5 million as at June 2014 and Klang Valley another 8million today. Melaka, Negeri Sembilan and the rest of Johor which are all linked by the HSR would make available another 2million people in addition to the estimated 1.8million in Iskandar Malaysia today. This rail connectivity is important to draw population growth to Iskandar Malaysia. Those who question Iskandar's 3mil population target by year 2025 would do well to remember that Shenzhen in southern China also experienced a huge population boom when it was turned into a special economic zone. Today many Chinese who live and work in Shenzhen are not Shenzhen natives and in fact came from other parts of China due to the many job opportunities created there corresponding to the expansion of the high speed rail networks in China. The HSR together with the Rapid Transit System (RTS) MRT linking to Singapore at Woodlands are important as they facilitate mass population movement, a key ingredient in making the city more accessible to Singaporeans and other Malaysians whom today may find living in Iskandar a chore (due to heavy traffic on the 2 bridges with over 700,000 vehicles monthly) and simply because it takes too much travelling time from their current work environments.
The HSR detailed announcements are due in Q4 2015, with the alignment apparently close to finalization and both governments currently discussing the financial models for the project. The Japanese and Chinese are both tipped as the frontrunners to build the HSR, with financing schemes packaged together as well. The Malaysian parliament has recently approved the setting up of MyHSR Corp Sdn Bhd, the company that will undertake the construction of the HSR with an initial paid up capital of RM10million.
Ascendas and UEM's first business park in Malaysia, Nusajaya Tech Park will open its doors in late 2015, the first phase of a massive 500 acre business park run by one of Singapore's most recognizable business space providers. Telekom Malaysia has already shared plans to build data center facilities there and a number of multinationals are slated to be operational there by early 2016. Manufacturing investments in Johor are the highest in Malaysia, hitting RM14.4billion in 2013 and RM20.1billion in 2014, surpassing the traditional heavyweights Selangor and Penang. Many of this will translate into actual spending and job creation in the next 1-3 years, propelling Iskandar Malaysia into a manufacturing powerhouse like Shenzhen in China. Industrial land costs are about half that of Singapore, with utility rates between 40-80% cheaper and foreign labour policies that are less stringent versus Singapore. Singapore manufacturers would do well to hire skilled foreign labour for their operations in Iskandar where it would have been expensive or impossible to do so back home. Other examples of manufacturing success are the opening of Indian pharmaceutical production facilities in Nusajaya and Koh Brothers setting up its precast plant in Senai. From a real estate investment perspective, industrial real estate is the most attractive sector currently, with low unsold stock and strong demand from both local and foreign end users.
From the healthcare front, the second half of 2015 will see the opening of Gleneagles Hospital in Medini. The first phase of the hospital boasts 150 beds and with its recognizable brand name, is expected to do very well in a market where the private healthcare segment is much underserved today. Not only would Gleneagles service the local market but would also support medical tourism from Singapore (where CPF Medisave usage would likely be granted) and Indonesia (a large and popular segment for Singapore private healthcare). Frost & Sullivan predicts a compounded annual growth rate of between 8-10% p.a. for healthcare expenditure in Malaysia till year 2020. Healthcare costs are significantly cheaper versus Singapore and would play well with Singapore's rapidly aging population in the coming years.
EduCity will also see the completion of 3 key projects with the University of Reading opening its main campus building, Raffles American School also with a large new 46 acre main campus and Management Development Institute Singapore (MDIS) opening its flagship MDIS Iskandar University campus. This is reminiscent of year 2012 when the initial 3 education firms opened for business and signifies the growth and increase in capacity that EduCity is achieving. EduCity targets 18,000 students at its maturity in 2018, up from the current estimated 2,000 student population.
Tourism in Iskandar Malaysia will also see new boosts in later 2015 with upcoming announcements by Sunway Group on its planned Sunway Iskandar theme park and rumours of another indoor digital theme park in Puteri Harbour. The long term plan for Iskandar Malaysia is to achieve a "theme park capital of South East Asia" status with several branded theme parks in close proximity to each other and in partnership with Singapore's own tourism attractions. Visitors to Singapore would be able to visit Iskandar's tourism offerings as part of an extended tour and vice versa. The long overdue opening of ferry operations between Harbourfront Singapore and Puteri Harbour will also kickstart a potentially popular weekend jaunt for Singaporeans seeking to know Iskandar better.
Expectations are also high that 2015 will be the year where we finally see the groundbreaking ceremonies for both Motorsports City and the Thomson Iskandar medical hub projects, both projects of its key shareholder, Singapore billionaire Peter Lim. Both are linked to the booming tourism and healthcare industries in Iskandar and will provide much impetus to job creation in Johor.
Singapore's Ascott has three buildings in Nusajaya all within a 5km radius; Somerset Puteri Harbour which just opened in February, Somerset Medini slated for opening next year in 2016 and a Citadines Medini to open in 2018/ 2019. The presence of three serviced residences/ hotels in such close proximity speaks volumes on the confidence in tourism numbers and business travellers expected in the region.
With these positive news items on the near horizon, Iskandar Malaysia fortunately has a solid growth story supporting the hype of the previous years. These fundamentals suggest that interest in Iskandar Malaysia will pick up at some point especially once the HSR construction gets underway and perhaps more importantly when the Singapore property market recovers as well. Both the Singapore and Iskandar property markets are now intertwined and it looks like Singapore's economic success has rubbed off onto Iskandar Malaysia, judging by the various economic milestones that we are set to see in the latter half of this year. A betting man may start to shift some of his bets to Iskandar Malaysia again, if one cared to see beyond the perhaps unfair negative perceptions that currently plague Iskandar Malaysia's image.
This article appeared in The Edge Property Pullout of Issue 678 (May 25) of The Edge Singapore.
Ryan Khoo is co-founder of Singapore-based Alpha Marketing, a real estate investment consultancy that focuses on the Malaysian market, especially Iskandar Malaysia. The views expressed here are his own.