Iskandar Report

7/30/2019 Iskandar Report

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Real Estate Foresight

06 August 2013| Malaysia | Residential |

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1. Where are the hotspots in Iskandar?Iskandar, the latest development in Johor, was created in 2006 to spur the growth ofthe Malaysian economy. Iskandar covers 221,634 hectares (2,217 sq km) of land areawithin the southern-most part of Johor. To put things into perspective, Iskandar isabout 3 times the size of Singapore and 2 times the size of Hong Kong. Iskandaraspires to become a strong and sustainable metropolis of international standing. TheIskandar Regional Development Authority (IRDA) is the body responsible for thedirection and development of Iskandar.

There are five flagship zones in Iskandar. These zones have been designated as afocal point of development in Iskandar. Each zone will develop a specific industry.

Exhibit 1: Map of Iskandar

Source: IRDA, OrangeTee Research

Zone A Johor Bahru City: The financial district of Johor and the capital of Johor.

Zone B Nusajaya and Medini: The hub for creative arts and entertainment,medical facilities, educational institutions, tourism, biotechnology and hi-techmanufacturing. The planned new major growth centre of Iskandar Malaysia wheremost of the catalyst projects will be developed. Medini is the only part of Iskandarwhere there is no foreigner quota and where foreign investors are allowed to buyproperties costing less than RM 500,000.

Zone CThe Western Gate Development: Logistics, Port and Marine services, Foodproduction and Petrochemical industries will be located here.

Zone DThe Eastern Gate Development: The Industrial and manufacturing hub ofJohor.

Zone E Senai-Skudai: The hub for agro and food processing, information &communications technology and retail tourism. The Senai International Airport andUniversiti Teknologi Malaysia (UTM) are also located here.

Research & Consultancy

Wong Xian YangSenior Research Analyst

Christine LiHead

International Projects

Chris YapSenior Manager

Iskandar: A place for Work, Play and LivingOrangeTee Research & ConsultancyEmail: [email protected]: www.orangetee.com
mailto:[email protected]:[email protected]


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| Malaysia | Residential |

2. How has Iskandar done so far?Iskandar has come a long way since 2006. Started with only a committed capital of RM11 billion in 2006, the investment grew at an annualised rate of 36.9% over the last7.5 years. It reached RM 118.9 billion worth of committed investments in June 2013,surpassing its investment target of RM73 billion for phase 2. The final investmenttarget of Iskandar is RM 383 billion by 2025. Of the RM 118.9 billion, RM 53.7 billion

has been realised to date, which is about 45% of the total amount committed. Interestfrom private investors has been piqued in recent years, with the ratio of privatesector investment to government investment standing at 13:1 as of June 2013. This isin stark contrast to 2006 when the ratio was at 1:1, indicating that Iskandar has beenincreasingly successful in getting the buy-in from private investors.

Exhibit 2: Cumulative committed investments in Iskandar

Source: IRDA, Media reports, OrangeTee Research

Exhibit 3 shows the annual investment amounts over the years. In the first 3 years,investment in the manufacturing sector took the lead. After accumulating a totalinvestment amount of RM21.7 billion, investments in the manufacturing sector has

slowed. However, the sector still manages to attract about RM2 billion to RM4.3 billionadditional investment each year. In 2009, other sectors such as property, utilities andtourism started to pick up. Given the bullish sentiments among property developers,pace of property development in Iskandar accelerated. Developers invested a recordRM9.1 billion in 2012. However, this is set to be broken soon, as the total propertyinvestment in the first half of 2013 stood at RM8.8 billion, just a shade lower thanwhat was achieved in the whole of 2012. If this momentum continues into the secondhalf, the investment amount could well surpass the previous record.

Exhibit 3: Iskandars yearly investments by sector



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3. Who is buying into Iskandar?Before 2010, Iskandar was mainly supported by foreign investors. However, afterseeing the increase in foreign interest in Iskandar, more local investors have sincejoined the fray. As at June 2013, local investments represent 64% of the total privateinvestments, while foreign investments have declined to 36%. Nevertheless, foreigninvestments in absolute dollar terms have been increasing over the years to RM40billion in June 2013, up from RM22.83 billion in 2008.

Exhibit 4: Foreign Vs Local private investments in Iskandar


Investments in manufacturing and properties continue to form the main chunk of theinvestments to date, carrying a weightage of 31% and 38% respectively. IRDA expectsthe manufacturing sector to lead the growth moving forward.

Exhibit 5: Investment in Iskandar by sectors as at June 2013


4. What are the upsides and downsides?Upsides

Lower price entry point compared to Singapore

One of the main reasons for investors to buy Iskandar properties is its lower priceentry point. Private home prices in Singapore have increased significantly since 2009and the index is about 60% above the trough in 2Q2009. In comparison, Johor housingprices have risen about 31% over the same period. With the slew of property coolingmeasures over the last 3 years, some would-be investors might have been priced outof the Singapore residential market. For them, Iskandar could be an alternative realestate investment opportunity compared to Singapore.However, even though Iskandar region was created in 2006, the prices only seemed tohave picked up in 2012. From the start of 2012 to Q1 of 2013, Johor housing priceshave risen about 16%. This could mean that investors should have a longer investment

horizon for Iskandar properties.


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Exhibit 6: Singapore RPPI and Johor Housing Price Index

Source: URA, NAPIC, OrangeTee Research

Improving accessibility and infrastructure in IskandarThe upcoming KL-Singapore High Speed Rail (HSR) and JB-Singapore Rapid TransitSystem (RTS) will improve the accessibility in Iskandar. If Iskandar becomes one of theimportant stops, the attractiveness of Iskandar could be further enhanced with goodconnectivity. However, both the HSR and RTS are still in their planning stages and willonly be completed around 2018. The RTS is planned to be linked to the upcomingThomson Lines Woodlands North station near Republic Polytechnic in Woodlands.

Political will by both Malaysia and Singapore governmentsWith improving ties between Singapore and Malaysia, the success of Iskandar willbenefit both countries. Billions of dollars have been invested in Iskandar by both theSingaporean and Malaysian governments and investors. A notable project is thecollaboration between Temasek Holdings, CapitaLand Malaysia and IskandarWaterfront Holdings to develop a S$3.2 billion township in Danga Bay. In addition, anintegrated eco-friendly technology park in Nusajaya was also jointly developed byAscendas and UEM Land Berhad.The Economic Development Board (EDB) in Singapore is encouraging multinationalcorporations to consider Iskandar as a complementary investment opportunity where

land and labour are relatively more abundant and cheaper. EDB envisions companieshousing their high value and skilled operations together with their headquarters inSingapore while their factories operate in neighbouring countries. According toIskandar Regional Development Authority (IRDA) figures, Singapore companies have setup over 300 manufacturing projects in Iskandar since 2006.

Downsides

Safety and securityOne of the main concerns of Singaporeans is the safety and security in Iskandar.Recent spate of robberies in Johor has deterred many Singaporeans from buying ahome in Iskandar and living there. To address these concerns, the IRDA announced aSafety and Security blue print for Iskandar. Currently a total of 15 new police posts

have been built, with 4 more under construction. CCTV cameras will also be installedin locations throughout Iskandar. To supplement the police in Iskandar, an auxiliarypolice force will be established. According to Malaysian government statistics, streetcrime in Iskandar fell 47% in 2011 compared to 2010.

Currency riskThere is an implicit currency bet when investing in Iskandar. As the rentals and assetsales in Iskandar would be in the Malaysian Ringgit, buyers will be exposed to currencyrisk. Should the Ringgit depreciate against the Singapore dollar, investors may notachieve the desired rentals or prices on their asset sales. The Singapore dollar hasgained about 6.78% over the Malaysian Ringgit over the last five years.

Lack of transparency and historical data

In Singapore, investors can get information on the property market by using URAsdatabase, REALIS. However, official transaction data in Malaysia is not readilyavailable to the general public. This is especially so for Nusajaya, an area where manyresidential projects have just begun to sprout up. Many buildings in Nusajaya are still


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under construction. As a result, there is hardly any market history to track or analyse.Future rental yield and resale price is anyones guess at this point of time.

Possible oversupplyInvestors have shown strong interest in Iskandar which spurred demand for real estateinvestment since 2012. Developers have launched many residential projects inIskandar to meet the popular demand. However, with the large supply coming up inthe next few years, the demand can hardly be supported by local population alone.Therefore, a significant portion of the demand has to come from foreign interest. So

far Singaporean investors have led the demand, being the top foreign investor inIskandar as at end 2012. The looming spectre of an oversupply has caught theattention of the Malaysian authorities, who halted further land sales in Iskandar forthe time being last month according to media reports. Halting further land sales willlimit the supply of land that developers can build on thus stoking demand for Iskandarproperties.

5. What should buyers know before purchasing a property in Iskandar?Real Property Gain TaxBuyers who wish to lock in capital gains within 5 years of purchase will be subject toReal Property Gain Tax (RPGT). This is similar to Singapores sellers stamp duty. Thetax charges are as follows: 15% of the profits in the first 2 years, and 10% of the

profits in the next 3 years. After which there will not be any RPGT payable for sale ofproperty.

Sub-SalesSub-sales may only be allowed with the consent from the developer. In additional, anadmin fee may be charged. For commercial properties, 2% of the sales price may becharged by the developers.

Upfront costs of PurchaseExhibit 7 shows the costs that are payable during purchase of a property in Malaysia.However, do note that some developers in Iskandar are offering differentdiscount/rebate packages to entice investors. The discounts can be as much as 16% offthe initial purchase price.

Exhibit 7: Upfront fees payable when purchasing a newly launched property inIskandarCosts Notes

1. Down payment after signing S&Pagreement

10% of the purchase price.

2. Legal Fees for Sales andPurchase Agreement

0.4% to 0.7% of the purchase price

3. Stamp Duty for Loan 0.5% of the loan quantum4. Legal Fees for Loan 0.4% to 0.7% of the loan quantum5. State Consent Fee

(Foreign Ownership Levy)Varies from state to state. For Johor,the state consent fee is currently

RM10,000, with an application fee ofRM500.6. Balance payment assuming 80%

loan10% of the purchase price

7. Stamp duty for memorandum oftransfer(This stamp duty is usuallypayable upon after constructioncompletion and transfer of titleto owner)

For the first RM100,000 1% ofpurchase priceNext RM400,000 2% of purchase priceAbove RM500,000 3% of purchaseprice

Total estimated costs for RM1,000,000property with 80% loan (Assuming norebates and discounts on purchase

price)

RM256,600

Convert to SGD assuming exchange rateof 2.5

SGD$102,640

Source: OrangeTee Research


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Rental Income TaxThere is a rental income tax of 26% for non-residents in Malaysia. Anyone that staysless than 182 days in Malaysia in a year will be considered a non-resident, regardlessof citizenship or nationality.

New loan curbs in MalaysiaOn July 5th 2013, the Malaysian central bank announced a new set of loan measures torein in excessive household borrowing and to curb property speculation. Notably, thetenure of property loans is now capped at a maximum of 35 years, down from 45 years

previously. The new measure would probably deter some highly leveraged buyers fromthe property market as a maximum tenure cap would mean higher monthly interestpayments. This would remove some demand from the market.

6. What are the major upcoming catalyst projects?Below are some of the upcoming projects in Iskandar, Nusajaya.

Motorsports CityMotorsports City is a RM3.5 billion Project in Nusajaya by Singapore billionaireInvestor, Peter Lim. It will have a 4.5km test track, dubbed the Nurburging ofIskandar Malaysia, that will be Formula One-compliant and designed by aninternationally acclaimed track designer.

Gleneagles Medini HospitalGleneagles Medini Hospital will be a fully integrated healthcare facility featuring a300-bed hospital, nursing home and a rehabilitation centre. It will be located next toAfiniti and Legoland.

Pinewood Studio in MediniPinewood Studio is an integrated media production studio facility aiming to transformIskandar into a destination for filmmakers worldwide.

Afiniti and Avira wellness resortAfiniti Medini is developed by Pulau Indah Ventures (PIV). PIV is a 50-50 joint ventureformed by Khazanah and Temasek. Avira is developed by Nuri Merdu Sdn Bhd, a joint

venture between PIV and E&O Oriental Bhd. Both Afiniti Medini and the Avira Wellnessaimed at providing residents a holistic retreat-like lifestyle with many retail andhospitality services within arms reach.

EducityEducity aspires to be a regional education hub. So far, Marlborough College Malaysiaand Newcastle University Medicine Malaysia, have already begun full-time operations.Commencement of operations of more colleges in EduCity - Raffles UniversityIskandar, University of Reading, Raffles American School, Johan Cruyff InstituteMalaysia (JCIM) and MDIS - are set to begin in the coming years.

Ascendas-UEM Land Technology ParkThe $1.5 billion 210ha freehold techpark by Ascendas and UEM Land will haveinfrastructure to support a range of industries such as electronics, logistics,engineering services etc. The park will be the closest industrial site to the Malaysia-Singapore Second Link checkpoint.

Legoland Water ParkIt boasts Asias first Legoland Water Park. It will have over 20 attractions and 70models, and will be the world's largest Legoland Water Park.Now nearing completion,the water park is the latest addition to the Legoland Malaysia Resort, which openedlast September 2012 in Iskandar.

Angry Birds theme parkSet to open in May 2014, it will be the first Angry Birds theme park in South-East Asia.


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7. Where are the upcoming property launches in Iskandar?

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Iskandar Report