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Saturday, June 25, 2011

High-speed rail will spur growth in hub cities

Rail-link: The Eurostar train link has helped to strengthen economic activities in both London and Paris. — AFP

The Kuala Lumpur-Singapore High Speed Rail (HSR) has been highly anticipated ever since the Malaysian Prime Minister announced in September 2010 the instigation of the HSR connecting the two neighbours. Initiated by YTL Corp Bhd way back in the late 90s, this RM8bil to RM14bil project has so far received mixed views from the public.

HSR has been operating long ago in our Asian counterparts especially in Japan, China, Taiwan and South Korea. For comparison, China's HSR network by the year 2013 will be at 6,000 km, exceeding Japan's HSR network of 2,459 km. Last year, in the United States, the Obama administration invested US$8bil in federal stimulus money to create 13 high-speed rail corridors and billions of dollars of new business and tens of thousands of jobs are expected to flow to four hub cities Los Angeles, Chicago, Orlando and Albany, NY where plans for major high-speed rail networks are located.

It was reported at the Conference of Mayors that the benefits of travelling between 110 mph and 220 mph will mean better connectivity, shorter travel times and new development around train stations. The changes will create 150,000 new jobs and some US$19bil in new businesses by 2035. The rail network is also expected to spur tourism, give businesses a wider pool of workers to choose from and help grow technology clusters in cities.

Similar to experiences in other countries, in Malaysia, HSR will also generate substantial economic benefit to both countries, particularly Kuala Lumpur City Centre and the Iskandar region. The availability of HSR will shorten the distance between Malaysia and Singapore in terms of travelling time, hence attracting a larger pool of market catchment to stay in Malaysia and work in Singapore or vice versa. Straddling around 400 km, the proposed HSR will reduce travelling time to Singapore to 90 minutes compared to existing trains which take about seven hours. The significant reduction in travelling time will attract foreign companies to operate in Kuala Lumpur or Iskandar.

While the occupation cost (gross rental rate) for prime office space in KL City Centre range between RM6 per sq ft (psf) and RM8 psf, the cost in Singapore range between RM25 psf and RM30 psf. Meanwhile, the current rental rate in Johor Baru, where most of the buildings are more than ten years old, range from RM1.40 psf to RM3 psf. The low rental market in Johor Baru is hardly surprising as it is mainly domestic-demand driven. With ambitious Iskandar initiatives coupled with various investment friendly policies, the HSR will further augur the Johor Baru office market, hence attracting more MNCs to operate in Johor Baru. Upon completion of the HSR, gross rental rate for new Grade A office towers in Iskandar is expected to hover between RM4.50 psf and RM4.80 psf, 50% to 60% higher than the highest rate achieved in Johor Baru city centre.

Meanwhile, average selling price for existing condominiums in Johor Baru range from RM230 psf to RM370 psf. Capital value for existing condominiums in Johor Baru registered mixed performance from as high as 23% growth while some even noted depreciated values by -19%. Imperial@Puteri Harbour registered the highest selling price at RM400 psf. I believe the HSR will add vibrancy to the high rise properties in Johor Baru. Current average rental rate at RM2 psf in Johor Baru is estimated to increase by 50% to 60% arriving at RM3 psf, which is still below Kuala Lumpur rental rates, averaging at RM4.50 psf. Therefore, it is timely for the HSR to be in place as it will help improve demand from locals and Singaporeans for high-rise residential properties.

The tourism industry has grown favourably, with tourist arrivals increasing from 5.2 million in 1997 to 24.6 million in 2010 in Malaysia and 10.2 million to 11.6 million in Singapore during the same period. The proposed HSR is also expected to create positive impacts to the tourism industry of both nations. With combined tourist arrival of about 35 million coupled with 90 minutes commuting time, Kuala Lumpur-Iskandar-Singapore will be able to position themselves as the transportation hub of South-East Asia as it will provide tourists a wider airline selection to choose from either in KLIA, LCCT or in Changi Airport hence, improving international access to the region. In addition, the HSR in Shanghai and Tokyo are one of the “must see” tourists' attractions in the respective countries.

Manufacturing will remain as one of the sources of income to both nations. As land in Singapore is becoming scarce with limited land for expansion, coupled with escalating business costs, the HSR would enable some companies to expand or relocate to Malaysia, particularly in the Iskandar region. Moving manufacturing activities to Iskandar would allow the land to be used for even higher value activities. Malaysia's relatively liberal immigration policies and substantially cheaper labour costs in Iskandar compared to Singapore will reduce the operating costs. The relocation of manufacturing activities to Iskandar via the availability of HSR is expected to raise the contribution of the manufacturing sector to the nation's GDP by 6.5%.

The closer cross-border link between Malaysia and Singapore will eventually position the region as the first South-East Asian “mega region” similar to Tokyo-Osaka via the Shinkansen Bullet Train, and Shanghai-Hangzhou via the Huhang High Speed Rail among others. While it is noted that existing mega regions are within the same country under the same political driver, with strong political determination, deeper mutual understanding and putting aside all long standing aggravation, Malaysia and Singapore can materialise the idea. We should learn from the European experience; the Eurostar train link has helped to strengthen economic activities in both London and Paris.

In essence, the HSR will economically benefit both nations and strengthen economic ties between the two nations. A larger joint economy will result in larger land area, larger population and larger market, offering greater economies of scale. In addition, larger joint economy with a more diverse mix of skills, types of companies, types of business activities and greater variety of business locations, could accommodate the diversity of talents, business activities, consumer preferences and skill sets. All this will be made possible via improved connectivity by the High Speed Rail, which has been proven to stimulate local economies and act as a driver of growth and thus help spur property prices.

Senator Datuk Abdul Rahim Rahman is executive chairman of Rahim & Co group of companies


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