The Middle East is actively involved with Iskandar in Malaysia - but will investors be as forthcoming as the global slowdown intensifies, and how will the wider Medini project affect Singapore?
There's a bit of an Abu Dhabi effect going on in South East Asia. Singapore is the Dubai equivalent, the established high-rise financial centre that has proved the regional magnet for global trade. But now southern Malaysia, much like the UAE capital, is emerging from the shadows with plans on the table for a major new city, Medini, which includes the Iskandar Financial District (IFD), recently launched at Cityscape Dubai.
Early signs have been encouraging. Iskandar is eyeing up to US$2bn of investment from Gulf investors - and the fact that many of the region's top financial and property firms are already on board stands it in good stead.
Land and infrastructure costs, totalling around US$1.2bn, are being financed by consortia led by Mubadala Development Company, Kuwait Finance House and Millennium Development International Company.
Gulf interest doesn't end there. The investor of the Iskandar Development Region is Global Capital, an investment entity led by Abu Dhabi's Mubadala and includes Aldar Properties, Malaysia Ventures (a subsidiary of Saraya Holdings), Unity Capital and Iskandar Investment Berhad (IIB) from Malaysia - an investment holding company which holds a 30% stake across the collaborations in the wider Medini development - and United World Infrastructure from Dubai.
Ronald Barrott, former CEO of Aldar and now adviser to the chairman, said it is pursuing an aggressive planning and design schedule, to match the infrastructure implementation schedule. "We decided to launch within Cityscape Dubai a limited number of IFD parcels for commitment in response to the pressure we are seeing from financial institutional developers and equity funds, to secure an early position in this promising economic development region of South East Asia."
Oussama Kabbani, Vice Chairman and Managing Director of Millennium Development International, the appointed development managers of the project, said the unique geographical location of the project as well as the strong governmental support in infrastructure execution and the provision of business incentives will ensure success.
"The government has already commenced the infrastructure, and they expect to start delivering plots for IFD's investors and developers within the coming 12 to 14 months."
With that kind of commercial strength behind it, it's tempting to think it's all going to be plain sailing - were it not for the fact that, across the straits, lies Singapore.
Adlan Ahmad, Executive Director of Iskandar Investment, recognises it has a tricky balancing act trying to position itself as independent of Singapore while recognising its economic, geographic and historical links. The ties are tangible, with two traffic-teeming bridges linking Johor Bahru with Singapore.
Medini aspires to be a ‘world-class master planned city center' complete with financial institutions, banks, corporate headquarters, commercial office buildings, shopping centers, condominiums, serviced apartments, five-star hotels, conferencing and meeting facilities - but they're all features you can find across the water. Just how big will the investor appetite be for all these services in such close proximity to Singapore?
Ahmad said construction won't proceed until it chalks up 45% of sales, to prevent over-supply. "If sales don't come, then we will scale down - but equally, if they do, we could accelerate. We realise it's a daunting task, but we are putting pressure on our sales teams to be very aggressive in the next few years."
The main areas of focus in the first six years will be Medini North and the IFD. Global Capital wants 20% of the 198 million sq ft of Medini's gross sales area built within the first six years, which might prove ambitious if the global slowdown is prolonged.
Singapore is feeling the pinch with year-on-year demand for office space down 62% in the first half of this year, according to UBS property analyst Regina Lim in a recent report.
Although Singapore is bracing itself for the market fall-out, it can't be accused of sitting still. The amenity-filled Sentosa Island, due for completion in two years, aims to house up to 10,000 residents and it has around eight ‘mega projects' in the pipeline worth tens of billions of dollars.
The ‘Lion City' is becoming more crowded though, with two million more people set to descend, and that could turn to Medini's advantage. Its population target is 50,000 in six years, rising to 300,000 by 2025. Around 10,000 residential units are planned across 40m sq ft, with around the same amount allocated to offices.
As things stand, Malaysia's main edge over Singapore is that rents and cost of living are far cheaper, with rates of around US$10 per sq ft, compared with barely US$1 in Malaysia. But perhaps the differentials will close once the markets stabilise and Medini is built.
"We have to provide the right lifestyle, security and facilities for people to live in southern Johor," said Ahmad. To achieve this, it has identified lifestyle, cultural and leisure ‘clusters' on the masterplan, which is now being finalised.