When news broke out in early 2013 that Country Garden, a top 10 Chinese developer, had bought land in Iskandar Malaysia, the response was quite positive. The purchase highlighted that Iskandar was able to attract other international investors than just Singaporeans. Fast forward 18 months to late 2014, and a slew of other Chinese developers such as R&F Guangzhou and Greenland Group entered the market as well.
However it was still Country Garden that created the biggest stir. It announced the massive 3,400 acre Forest City development, off the 2nd Link between Singapore’s Tuas and Johor’s Nusajaya.
Why are the Chinese so interested in Iskandar? What is it that attracts them into investing millions into the region?
Replica of the Hong Kong – Shenzhen story
Country Garden and R&F Guangzhou, arguably the 2 developers with the biggest investments in Iskandar, are from China’s southern Guangdong region. Both have seen the growth of Shenzhen and Guangzhou in the 1980s and 1990s driven by the substantial economic spill-over from Hong Kong and increased high-speed rail connectivity within China. To the Chinese, Singapore and Iskandar present very similar dynamics with the High Speed Rail (HSR) and the Rapid Transit System (RTS) being the key catalysts. Manufacturing will be the key economic driver just like in Hong Kong, and evidence shows that this is already the case. According to the Malaysian Investment Development Authority (MIDA), Johor state enjoyed the highest committed manufacturing investments in Malaysia in 2013 (RM14.4bil) and 2014 (RM21.1bil), beating heavyweights Kuala Lumpur, Selangor and Penang. And Singapore is still the biggest foreign investor in Iskandar, reflecting the on-going migration of Singapore manufacturers into Johor.
Expectations of a population boom in Iskandar a.k.a. Shenzhen
Shenzhen back in the early 1980s was basically a collection of fishing villages and a relatively small population. As then-Chinese leader Deng Xiao Ping kick-started economic reforms across China, Shenzhen was opened up as a free trade zone in the hope that Hong Kong companies would relocate there because of the much lower costs. Shenzhen took 10-15 years to mature. During that time, thousands of jobs were created and people from all over China moved there to take advantage of the jobs created. Many people living in Shenzhen today are actually not its natives, but from other parts of China. And this is what the Chinese developers are looking at when they see Iskandar. Iskandar’s population today may only be in the 1.6 million to 1.8 million, but the 3 million target is achievable in the eyes of the Chinese since Malaysia has a population of 30 million.
Singapore private property gets more expensive in the medium term
Singapore private property prices have fallen 4% in 2014 and probably another 4% to 5% in 2015. If expectations are that some cooling measures will be relaxed in 2016, it looks like those who are waiting for Singapore private property prices to fall further are going to be disappointed. If a majority in Singapore still see prices as too high even after the cooling measures, what more when the property cycle turns upward again in 3 to 5 years? More and more Singaporean residents will find Iskandar an enticing option, as a 2nd property in Singapore becomes increasingly un-attainable. Out of the city-state’s 5.5 million population, there are more than 2 million who are non-citizens, many are Malaysians working in Singapore who might be priced out of the private market and more amenable to buying homes in Iskandar.
Aging population in Singapore
Like Hong Kong, Singapore faces an aging population problem. If not for immigration, both countries would be facing an abnormally low birth rate and a higher median age. The median age in Singapore is 40.4 years while in Hong Kong its 42.8 years versus Malaysia’s young 27.7 years. As the living environment, security and transport links in Iskandar improve, many in Singapore will see Iskandar as a viable option for retirement and to reduce healthcare costs. Singapore will have 900,000 residents aged 65 and above by the year 2030 – a big market for the various services that Iskandar will offer.
Chinese property buyers are going global
According to the Chinese luxury event group Hurun Report, one in three wealthy Chinese own properties overseas. Both Malaysia and Singapore are among the top 10 countries where they own properties. In the first half of 2014 alone, US$ 5.4 billion (SGD$ 7.2 billion) of overseas properties were bought by the Chinese. The Chinese had the highest number of applicants in 2013, 2014 and 2015 year-to-date for the Malaysia My Second Home programme, which offers multi-entry 10-year visa for the applicant as well as his direct family members. As the Chinese middle class expands and more Chinese travel abroad, Iskandar will enjoy increased visibility driven by the Chinese property developers present here.
Chinese companies doing business in South East Asia
Chinese companies are rapidly expanding globally, and South East Asia is no exception. Greenland Group’s decision to develop some 3,000 acres of industrial land in Pasir Gudang in partnership with the Johor government is a signal that Chinese manufacturers regard Iskandar favourably and are looking for proper solutions. Many Chinese businesses are flush with cash and looking to produce and market their products globally. One example is the rail business. Chinese rail companies are in the running to build the HSR and RTS. If they clinch either or both projects, expect to see Chinese contractors and specialists flooding into Malaysia to start businesses. In fact Chinese construction companies are bidding heavily for projects across South East Asia as many countries in the region upgrade their infrastructure.
While the general public may dismiss the Chinese property developers as being overconfident or even irresponsible in Iskandar Malaysia, it would do well for us to remember that they are giants and that their decisions to come to Iskandar Malaysia was not made lightly. Their investments in Iskandar could pay off in the long run as they rush to land-bank the best land plots today and bide their time for the above trends to play out, after which their investments will bear fruit. Even if half of these trends occur in a small way, it is already a big boon to Iskandar Malaysia which today is still at a low base comparatively.