11 February 2016
Iskandar's challenges, 10 years on
Rennie Whang, Joyce Lim
As Iskandar enters its tenth year as a development region, some projects that were seen as catalysts for growth in the region appear to be taking a longer gestation period than expected, with many developers taking a wait and see approach.
Companies hoping to take advantage of the region as a lower-cost location have faced problems in getting the manpower they need.
On the other hand, bright spots have come through in the areas of education and healthcare.
According to the Iskandar Regional Development Authority (Irda), "Iskandar Malaysia is well on track". Irda has achieved 48 per cent of its target of attracting RM383 billion (S$128 billion) of committed investments from 2006 to 2025, with 10 years still to go, an Irda spokesman told The Straits Times. About 50 per cent of the RM187.96 billion in committed investments received so far has materialised, in terms of projects already built, for example.
SECTORS TO WATCH, CATALYTIC PROJECTS
Irda's Comprehensive Development Plan for 2014 to 2025 identifies nine economic sectors that will drive growth in the region.
The core sectors are electrical and electronics, petrochemical, oil and gas, food and agro-processing, logistics and tourism.
Its emerging sectors, which Irda feels have great potential to drive growth, are healthcare, education, creative and financial, investment, real estate and business services.
A total of 605,381 jobs have been created in Iskandar Malaysia from 2007 to date in these nine sectors, along with other sectors, including property and construction.
Irda is targeting the creation of 817,500 jobs by 2025. The region is projected to have a population of around three million by then.
The manufacturing sector has always been the region's main growth driver and accounts for about RM52.10 billion of committed investments to date, translating into firm demand for industrial space.
Take the 210ha Nusajaya Tech Park, where joint developers Ascendas and UEM Sunrise have almost fully sold its first batch of 21 ready-built facilities. A second batch will be completed by the end of this year. Its customers are from precision engineering, marine, security systems, logistics and distribution, data centre and telecommunications. About 77 per cent are Singaporean or international companies.
But firms note that there are problems with securing manpower; the unemployment rate is just 3 to 4 per cent. "Skilled workers would prefer to work in Singapore, which is just a bridge away. We have heard it is not easy to secure sufficient foreign labour given quotas in Iskandar," said Mr Kurt Wee, president of the Association of Small and Medium Enterprises. There is not yet a large enough domestic population in and around the region to help alleviate the labour shortage.
The savings for a company choosing to manufacture in Iskandar over Singapore is about 20 to 30 per cent, compared with places like Klang Valley and Kuala Lumpur, where savings can be up to 50 to 60 per cent, he estimated.
Moderating prices of industrial land in Singapore over the past one to two years also means Iskandar has become a less attractive option for companies, Mr Wee added.
Some small and medium-sized enterprises (SMEs) from Singapore have factories in Iskandar but are not even using them due to high labour costs.
"In the long term, though, we are still optimistic about the adoption of Iskandar as a location for operations... There is room to make Iskandar more attractive in terms of building a vibrant industrial and commercial base, relooking customs procedures and tax incentives," added Mr Wee.
Things are going slowly on the development front.
Construction has not started for the 28.7ha township in Danga Bay, a joint project by CapitaLand, Temasek Holdings and Iskandar Waterfront Holdings announced in 2013. Building has also yet to start on the 9.23ha Vantage Bay project by Rowsley, a firm controlled by Singapore billionaire Peter Lim, which was repositioned last year from an integrated residential, office and retail project to a healthcare hub.
Mr Lim has another large project, motorsports hub FASTrack Iskandar. A spokesman said the design, technical and tender details are being reviewed with a view to commencing construction this year. It will take up to three years to build the project on the 121ha site, the spokesman said.
Some developers are believed to be changing tack.
Malaysian developer Tropicana, for example, is said to be considering selling some of its land bank, including sites at Tropicana Business Park, development land in Gelang Patah and a commercial parcel opposite Danga City Mall.
The company is focusing its development efforts on Klang Valley instead, market sources say.
A Tropicana spokesman said it has no definite plans to sell land. Its Bora condominiums and Oasis 2 shop offices are under construction, and it is planning to launch landed homes in Tropicana Danga Cove, she added.
Progress on the energy front is easing up as well.
Developments in Iskandar and southern Johor, which are part of a bid to make the region one of Asia's top oil and gas hubs, have slowed amid weak oil prices.
The completion of the Pengerang Integrated Petroleum Complex (PIPC) is likely to be delayed due to difficulty in getting new investors to sign up, according to the federal government agency Johor Petroleum Development Corp late last month. Phase 1 of the project is on track but future phases may be delayed, according to news reports.
Malaysia's state-owned oil and gas company Petronas said last year it is delaying until mid-2019 the start of its US$16 billion (S$22.5 billion) refinery and petrochemical integrated development (Rapid), which is to be in Phase 1 of PIPC.
A decline in oil prices forced Petronas to review and re-tender some of its engineering, procurement and construction contracts.
However, it is clear that developments in Pengerang have been a boost to the area. "Thousands of people from the country and region have moved there... (the nearby) Sungai Rengit town is booming and housing prices have shot up," said Mr V. Sivadas, executive director PA Property Consultants.
In the education sector, various international schools have set up shop in EduCity, including Marlborough College Malaysia, which has 823 students. Tertiary institutions include the Netherlands Maritime Institute of Technology with 1,387 students, and Newcastle University of Medicine Malaysia with 598 students.
"Apart from Malaysians, there are students from Singapore, Sri Lanka, India, Seychelles, Mauritius, United Arab Emirates, France, the Philippines, Bangladesh, Egypt, Indonesia and Austria at EduCity," said a spokesman for Iskandar Investment.
This year will see the opening of the Management Development Institute of Singapore (MDIS) campus in EduCity, along with the first phase of Raffles American School.
Healthcare has also proven to be Iskandar's strong suit.
Gleneagles Medini opened last year, taking the number of beds in the area to 1,500 in key private hospitals. These hospitals, including Regency Specialist Hospital and those under the KPJ Group, are said to be packed. Upcoming hospitals, including Thomson Medical Centre and more by KPJ, will add about 1,000 more beds.
So with such a mixed bag, what needs to take place for Iskandar to succeed? While much land has been allocated for high-end housing and commercial uses, there is a shortage of homes for middle and lower income groups. More infrastructure investments to the north, north-east and north-west of Johor are needed to solve the housing crunch.
Experts also point to the need for a far smoother flow of people and goods across both countries.
Bilateral discussions on the Johor Baru-Singapore Rapid Transit System are ongoing, a Ministry of Transport spokesman told The Straits Times.
"Following Malaysia's confirmation of their terminus location at Bukit Chagar, both countries are now discussing the type and alignment of the crossing scheme. The next step will be to commence Phase 2 of the Joint Engineering Study, which is expected to take about two years," he said.
Both governments expect to finalise the commercial model and procurement approach for the Kuala Lumpur-Singapore High Speed Rail this year.
"Until the Causeway and Second Link congestions are solved, this region will be held back. It will not be able to fully realise the potential of being complementary to Singapore," said Mr Sivadas. "Eventually, we need to go back to the core issue. If you are building a city, it must have connectivity."
Housing market struggles amid weak interest
The idea that property development in Iskandar would satisfy spillover demand from Singapore was tested to its limit last year.
Despite the weakened Malaysian ringgit, which provided a lower entry cost for investors, there was not a notable increase in sales to foreigners, say developers and analysts. Upfront price discounts of up to 20 per cent by some developers also failed to move units.
Some property firms have had to re-strategise product offerings, while others deferred new launches.
Iskandar's housing market continues to struggle, as seen by falling numbers of transactions and project launches last year.
Only about a dozen highrise residential projects were launched last year, compared with 24 in 2014 and 49 in 2013 - making 34,364 units in total - noted Savills.
Sales of condominiums and apartments for the first three quarters of last year fell 23 per cent year on year to 1,368 units, according to most recent figures from the National Property Information Centre (Napic).
Savills Malaysia executive chairman Christopher Boyd told The Straits Times that the fewer launches last year could be due to developers exercising restraint and self-regulation. Some developers could also be facing difficulty in securing financing.
The slowdown was first felt in mid-2014 after reports surfaced in the media on oversupply concerns and rising property prices. The implementation of cooling measures, the goods and services tax, and the turbulent political scene in Malaysia inevitably hit market confidence.
Aggressive marketing of huge developments by Chinese developers has also stoked fears of a glut.
Most investors have adopted a wait-and-see approach, amid the general economic slowdown and instability of the ringgit, said Mr Wee Soon Chit, executive director of Malaysian property consultancy Landserve.
Leading Malaysian developer UEM Sunrise has not been spared. For the first nine months of last year, it posted total property development sales of RM1.18 billion (S$398 million). Before the cooling measures were unveiled in October 2013, sales was recorded at RM2.1 billion for the same period.
UEM Sunrise managing director and chief executive Anwar Syahrin Abdul Ajib told The Straits Times: "Many developers have opted to scale down or defer new launches. We also took the same approach, especially in 2014, when we concentrated mainly on existing projects (East Ledang, Almas, Nusa Idaman)."
Prospects of oversupply amid news of planned mega projects like the 1,386ha Forest City also dampened sentiment last year.
Mr Boyd noted that the construction of 29,230 units has yet to start. According to Napic, the total incoming supply of condos and serviced apartments was 69,732 units, as at the third quarter of last year.
Mr Wee attributed the delay in construction to poor buyer response: "During the present bad time, developers normally open their units for registration of interest, with a minimal booking fee. No sale and purchase agreements signed. Hence, developers are not obliged to start construction yet."
UEM Sunrise, the master developer of Nusajaya - one of the five flagship zones of Iskandar - said it will launch only products that fit market needs. For now, its focus will be on landed property and "affordable" highrise developments.
Mr Anwar expects the secondary market to remain flattish in the near term, but tips strong interest for resale landed homes priced up to RM500,000 and located within 20km of Johor's central business district.
Having hit the 10-year mark since its development plan was first unveiled, Iskandar still lacks proper industrialisation, where more business activity would help to generate demand for property. Currently, people are just buying houses there to use as second homes, while the current market condition is made worse by recent reports of massive congestions at the Causeway.
Still, property consultants and developers remain confident about the region. Mr Boyd said: "There will always be a mismatch between supply and demand. When a massive area like Iskandar is masterplanned, it follows that large areas will be designated for residential development and then taken up by developers.
"We are very encouraged by the massive infrastructure improvements in Iskandar, as well as the investment that has gone into job-creating industries. This, and the logic of the location, guarantees substantial future demand for housing.
"Sure, some developers jumped the gun, but it is only a matter of time before the market takes off again, and, at some time in the future, house prices in Iskandar could easily become the highest in the country."
The Johor Baru-Singapore Rapid Transit System Link could be the single biggest game changer on the horizon, Mr Boyd added.
About 26 per cent of property buyers in Nusajaya were foreigners, as at Sept 30 last year - 73 per cent of them Singaporeans, said Mr Anwar.
Country Garden Holdings said 25 per cent of its 6,000 units at Danga Bay were sold to Singaporeans.
The Chinese developer remains undaunted by the slowdown.
Its spokesman told The Straits Times: "We do not wait for the customers. Our philosophy is that we will create the market and the customers will arrive."