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Saturday, July 2, 2011

Malaysia-Singapore joint venture a win-win enterprise

The involvement of the Malaysian and Singaporean governments in the development of real estate in Johor and Singapore is significant in more ways than one. It is not only a move that harnesses the benefits to be reaped from real estate development in both countries; there is also the political side of it, besides the social aspect.

The following may not be the best analogy, but it does sum up the relationship between the two countries. Imagine two lads from different countries, with no political, historical and economic baggage, coming together to build sand castles on the beach. It could be a beach in Singapore or Johor.

There is healthy competition and both lads benefit from their time together. You watch how I build, and I watch how you embellish your sand castles. Who will build the most impressive sand castles? Who gets to use the spade and pail first, if there is only one spade and one pail? These are little things, but sometimes little things can blow up to big ones and friendships are lost in the process.

Iskandar Malaysia, Marina South and Ophir-Rochor are the beach. Iskandar, by itself, already has a lot of superlatives. It is the first of several economic zones being promoted by the Government and so far, it has been the most successful, although it did not have an effervescent start in 2006. At 2,217 sq km, it is three times the size of Singapore. It is Khazanah Nasional's largest property investment.

This joint venture (JV) between the two governments will make this RM30bil real estate development one of the biggest in Malaysian real estate. Khazanah, incorporated in 1993, has investments in banking, steel, power, infrastructure, real estate, telecommunicaitons, healthcare and port development. The guardians of Iskandar Malaysia could not be more illustrious. The Prime Minister and the Johor Mentri Besar are co-chairmen, and they are advised by the Iskandar Development Regional Authority (Irda).

Established in 2007, Irda is the agency that regulates, plans, promotes and strategises Iskandar Malaysia's growth. The corporate motor that drives it is Khazanah, whose managing director, Tan Sri Azman Mokhtar, sits on the Irda board. There are two other GLCs involved in Iskandar, Iskandar Investment Bhd (IIB) and Danga Bay Sdn Bhd.

Let's go across the causeway. The personalities behind Temasek is no other than Ho Ching, who is executive director and CEO. She is also the wife of Singapore premier Lee Hsien Loong. At one time, Ho Ching was ranked third among the world's 100 most powerful women. Incorporated in 1974, Temasek Holdings is an Asia investment company headquartered in Singapore. Temasek owns a diversified S$186bil portfolio as at March 31, 2010, concentrated principally in Singapore and the emerging economies.

Temasek's investment covers a broad spectrum of industries: financial services, telecommunications, media and technology, transportation and industrials, life sciences, consumer and real estate, and energy and resources. Personalities aside, Singapore is one of the most vibrant economies in South-East Asia and our closest neighbour geographically. Our political and social ties go back a long way. In terms of infrastructure, financial services, logistics, the city state is far ahead.

In terms of real estate, its properties command a higher value than Malaysia's on a per sq ft basis. Residential developments in district 9 and 10, considered as prime areas around Orchard, are priced between S$2,000 and S$3,000 per sq ft. In less prime areas, it is about S$1,200 per sq ft. Our KLCC condominium prices have not come up close to that range; it is instead very project specific, from RM1,000 to RM1,800 per sq ft. Average prices for high-end condminium development in Johor Baru is about RM500 per sq ft.

In the rental market, while the occupation cost (gross rental rate) for prime office space in KL City Centre range between RM6 and RM8 per sq ft (psf), the cost in Singapore range between RM25 and RM30 psf.

In Johor Baru, where most of the buildings are more than 10 years old, the current rental rate 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.

Valuers are indignant when asked to compare Johor Baru prices with the city state. It is not possible to compare the two. With property prices having escalated so much in Singapore, Iskandar offers an alternative.

When the Iskandar idea was first mooted, the target audience were Singaporean investors. The city state's presence, in the form of Temasek and its portfolio companies like CapitaLand and Mapletree will lend credence and confidence to Singaporean investors, both large and small.

Assistant news editor Thean Lee Cheng hopes this JV will be another oppportunity to cement ties.

By The Star (by Thean Lee Cheng)

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