Answers to ‘rail’ questions (Q & A with the speakers)

Participants of TheEdgeProperty.com’s “Symposium on Kuala Lumpur-Singapore High Speed Rail 2016” on Aug 27 were invited to email questions to the speakers after the symposium. Here are the questions and responses.

 

*Ho Chin Soon Research chairman Ho Chin Soon*

Looking at the land use and ownership pattern near each HSR station, which station offers the best land purchase opportunities for individual investors?

There is a vast number of Malay Reserve Land plots around the proposed Putrajaya Station which was reported by the media to be at Kampong Dato Abu Bakar Baginda. However, even though the lands are categorised as Malay Reserve, they are not considered agriculture lands as they are lands with development potential and quite a large number of plots have been developed into semi-detached and detached houses.

For agriculture smallholdings of around five to 20 acres, there are many opportunities to buy around each station. Let us now consider the five intermediate HSR stations: Labu in Seremban; Ayer Keroh in Melaka; and Pagoh in Muar, Batu Pahat and Gerbang, Iskandar Puteri — all in Johor.

For Labu and Ayer Keroh, agriculture land opportunities are located to the North. For the Pagoh HSR station, agriculture smallholdings are to the East and West. For Batu Pahat, the smallholdings are located to the East of Batu Pahat town surrounding Genting Bhd’s 8,000-acre landbank/Pura Kencana. For Gerbang, Iskandar Puteri, opportunities are located to the South of the HSR station.

Out of the five HSR stations mentioned, the station that has the most number of agriculture smallholdings nearby would be both Pagoh/Muar and Batu Pahat. It all depends on the price and whether the lands are available for purchase. Happy hunting.

 

Do you think the HSR will lead to a further decentralisation of property development to places like Seremban, Pagoh and Batu Pahat? How would this affect the property market in KL and Johor?

Decentralisation? No. The greatest impact would be at the two end stations, which are Bandar Malaysia and Jurong Country Club, Singapore. Meanwhile, the Putrajaya station will unlock more Federal Lands (various training centres) as pointed out by a sharp member of the audience.

In short, the Putrajaya station and both the end stations in Singapore and Malaysia will benefit. For the remaining five HSR stations, only land close to the HSR stations will stand to gain.

The land economics of how cities grow and prosper will still favour Greater KL and Singapore. Greater KL and Singapore have been growing at a faster rate than the smaller towns even before the HSR project, which will only come about in 10 years’ time. And when the train starts running, Greater KL and Singapore will grow even faster. As for the smaller towns, only selected locations will benefit.

 

You mentioned the shifting of the “centre of gravity” for KL to Bukit Bintang. Where was the centre before? What does this shift mean for individual investors?

A long, long time ago, the centre of gravity for KL’s Golden Triangle was where the old St Mary’s Girl’s School was. That location was surrounded by Jalan Sultan Ismail, Jalan Raja Chulan and Jalan P Ramlee. However, after the Petronas Twin Towers were completed, it was then obvious that the centre of gravity of the Golden Triangle moved and resided there.

With the Merdeka PNB118 tower, Bukit Bintang City Centre, Tun Razak Exchange, IKEA Cheras and Bandar Malaysia situated at the south of the Golden Triangle, it is only a matter of time before the centre of gravity for the Golden Triangle will move South. And a southward movement would mean the Bukit Bintang location/vicinity.

As such, real estate values would see faster capital appreciation around the Bukit Bintang location/vicinity. I actually wrote a book The Rise of Bukit Bintang about five years ago!

 

*KGV International Property Consultants executive director Samuel Tan*

Do you agree that growth would be concentrated more in Iskandar with only some spillover to Muar and Batu Pahat due to Iskandar’s proximity to Singapore?

I agree that Iskandar Puteri will gain a lot more than Batu Pahat and Muar due to its proximity to Singapore. One of the main inhibitors of investment flow into Johor Bahru is the constant traffic jam on both links. With the HSR, this problem will be resolved.

Having a regular shuttle service between Singapore and Iskandar Puteri in Johor means easier and regular flow (every 15 mins) of people between these two destinations. I believe many Singaporeans and Malaysians working in Singapore will shuttle to work while their homes are in Johor Bahru.

The other two towns will benefit if plans are made to attract investments there as the cost of doing business at these places is much cheaper.

 

What’s the immediate reaction/response from foreign investors to the HSR?

Actually the immediate reaction would be from the locals who have already started buying land in Iskandar Puteri for the past two to three years at least. This is probably due to the fact that they are more familiar with the area.

Foreigners who are responding so far are mainly Singaporeans. This is not surprising as they have been a major player in landbanking all along. With a stronger currency, the issue of affordability is less pressing. The issue is not whether the HSR will take place but rather when it will be operational.

 

Will the HSR be a threat to Johor in any case?

It will be a threat if we are unable to attract investments that offer a better pay and working environment. The ease of travelling will mean many will resort to working in Singapore, earning the stronger currency and shuttling back. In this sense, it is still good as the money earned will still be spent in Johor. However, the loss of human resource will affect our manufacturing and services sectors. There is a need to transform the entire investment matrix in Iskandar Malaysia to retain talents.

The nett-nett conclusion is that the HSR will benefit Johor as it will enjoy the conglomeration of two larger economies, ie Singapore and the Klang Valley. Both are high-cost centres. Iskandar Malaysia stands in good stead to offer an alternative but yet able to enjoy the best of both worlds.

 

When will we see the impact of the HSR on Johor’s property market?

We have already seen the increase of land values when the HSR idea was mooted. Raising property values is a way of wealth creation. Moving forward, there will be an increase in land prices due to a combination of speculation and investment.

When construction starts, demand for residential and shophouses will also increase to cater to the workforce. Hotel occupancy will be enhanced. Certainly, there will be a positive impact on the Iskandar Puteri property market.

In Muar and Batu Pahat, I expect an immediate positive reaction when the exact locations of the stations are announced. The impact will be on the immediate areas. Other towns will enjoy the spillover if the inter-town and intra-town connectivity are properly done. The creation of new investments must start now to retain the young from moving away. New investments will also create job opportunities which in turn will create demand for houses.

 

*Savills (M) executive chairman Chris Boyd*

The HSR has been described as a “game-changer”. What do you think are the three industries that would be greatly impacted by the project and three that would be least impacted? Why?

If one could briefly summarise the research papers that have analysed the HSR impact on real estate in many other countries, it would appear, firstly, that the service industries might see a gradual re-shaping. This is a continuation of a trend that has already started; in particular, moving cost-sensitive service providers into Kuala Lumpur as well as Iskandar where operating costs are very competitive. Of course, it is unlikely that many of the staff will actually use the HSR to commute. In my view, it is just that the added connectivity will tip the scales a little further in favour of Malaysia.

Secondly, there may be some impact on the housing industry but this depends a lot on the fare structure. The French TGV high speed rail which runs from Paris to Lyon promoted the development of sub-urban Paris to relieve pressure of demand for housing in the city centre. It turned the area around the first stop from Paris into a “dormitory town” by use of a fare subsidy. Can this happen in Putrajaya, Seremban or Iskandar Puteri? We may not have the answer for a long while. It depends on the fare-pricing structure, both initial and long-term. It is possible that the HSR will be reluctant to encourage short-distance commuters to load up their trains at either terminus.

Thirdly, I believe another winner will be the tourism industry. Inevitably, Singapore and Malaysia are part of the same circuit for many overseas visitors, and to get from one to another, a ride on the HSR will become a “must”. Possibly a stop-over at Ayer Keroh will become an integral part of the itinerary, and Melaka needs to gear up for one-day and half-day tours.

The fourth industry — retail — will also benefit since Malaysia is already known for bargain shopping.

Industries that will see minimal impact are those that are unrelated to passenger movements, including for example logistics, manufacturing and agriculture.

 

A similar hype was generated when KLIA was first launched. We now know that growth around that area has not been up to expectations. What do you think happened?

There is a tendency in Malaysia for all signature infrastructure projects to be viewed as real estate opportunities! Some, such as highways, often are, but let’s apply some common sense. Have Changi and Heathrow become residential epicentres? Did Subang house prices go through the roof when Firefly started a Singapore service from the Subang airport? How priceless are condominiums in KL Sentral where you can walk to the KLIA Express? Both KLIA and the future HSR are enormously important to the long-term viability of Malaysia’s economy but they should not be seen as a chance to make a killing overnight.

 

After the HSR terminal, the MRT2 and the Express Rail Link (ERL) in Bandar Malaysia are completed, what will happen to KL Sentral? Would it impact the values of properties (office, business suites and condo) there?

KL Sentral is already a huge success and it will of course be completely built-out by the time the HSR starts running. Since HSR terminates in Bandar Malaysia and since there will be excellent connectivity from the HSR terminus via MRT and probably ERL, then I think some of the pressure will be taken off KL Sentral and you will see more development focused on the South and East of the city including, of course, Bandar Malaysia itself.

 

Do you think the market is over-excited about the HSR?

Well, it’s a very exciting and significant development and one which Malaysia can be justly proud. But I think one should be wary of excessive and illogical land speculation. Just sit back and enjoy the ride!

 

*Henry Butcher (M) chief operating officer Tang Chee Meng*

How’s/what’s the immediate reaction/response from foreign investors to the HSR?

Generally, the response from foreign investors has been positive. Investors from China have had first-hand experience on how HSR has impacted economic growth and property values back home while Singaporean investors are generally excited about the significant savings in travel time to key cities in Malaysia. Nevertheless, we have not seen any significant increase in interest in real estate investment yet from foreigners arising from the latest development on the HSR. In any case, the main investment focus of foreigners has always been KL, Iskandar Malaysia and Penang and to a small extent, Melaka.

 

Seremban seems to be pressing ahead in its property development regardless of the HSR — most probably due to demand and its proximity to KL. Do you agree?

Yes. All the townships that have been launched to date have been planned well before the HSR became certain. Seremban has always been looked upon as a satellite city for KL in view of its proximity although the heavy traffic on the highway and access roads into KL city during peak hours has been somewhat of a deterrent to daily commuting. Nevertheless, there is already a good linkage between KL and Seremban via the North-South Highway, express bus services and rail links (KTM Komuter and ETS). The HSR, when completed, will be an added bonus. If we are to look at the size of the townships in Seremban which generally range from 500 to more than 5,000 acres, it is clear that they have been planned to accommodate demand emanating from more than just Seremban.

 

What do you think are the critical success factors for the HSR project?

For people to travel frequently on the HSR, the fares have to be competitive to other modes of transport currently available.

The last mile connectivity must be there. There is no point saving time travelling on the HSR to end up being frustrated by the lack of public transport or spending hours on the road just to get to the end destination.

The frequency and scheduling of the trains must be done to accommodate the travel patterns of the bulk of the users as much as possible. The actual location of the HSR station must not only be convenient and accessible, but to gain the most advantage out of the HSR, it should be located in an area which will benefit from the enhanced accessibility and infrastructural improvements that the HSR can bring.

 

What kind of business opportunities do you foresee coming up in Melaka and Seremban in view that many more tourists will be visiting these two areas once the HSR starts?

With more tourist arrivals, F&B businesses will definitely be a major beneficiary and so will hotels and serviced apartments. Shopping malls located near the HSR stations or in areas which are frequented by tourists should also see an increase in business as will tourist attractions/theme parks.

 

*BBCC Development Sdn Bhd CEO Datuk Richard Ong*

Do you think the HSR development will cause KL property values to be deemed unaffordable?

I don’t think the HSR will inflate KL property values to the extent that properties in KL become unaffordable. In many advanced cities, the HSR is one of the critical infrastructures that elevates a city to international status by connecting such cities to international borders. Once this happens the property prices no doubt will rise but likewise their rental yields and capital values will also correspondingly rise. Affordability is also a measure of the value of the property versus the returns it can generate.

 

Is there still space for developers to thrive in the KL city centre?

Yes, I believe there is. Though land is increasingly scarce in the city, there are opportunities to “regenerate” old sites. BBCC (Bukit Bintang City Centre) is one good example.

 

Where was the centre of gravity in the KL city centre before the BBCC development? And what does this shift mean for individual investors?

In my view, the KLCC precinct has always been the centre of gravity. The Bukit Bintang precinct (in which BBCC is located) is fast creating its own gravitational pull arising from major development projects taking place here. The Merdeka PNB118 tower is touted to be the next tallest building in KL and the mega Tun Razak Exchange are iconic projects that will attract commercial activities as well as city dwellers to the Bukit Bintang/Pudu belt. For individual investors, the Bukit Bintang area presents a viable option as launch prices for initial phases of new projects here are very attractive given the potential in the uplifting of values when the area matures and the ongoing iconic projects are completed in a few years’ time.

 

*TheEdgeProperty.com product and business development director Alvin Ong*

You mentioned that appreciation in land values due to the HSR are best captured post announcement to five years after the opening of the HSR. How high will the value appreciation be in five years?

Studies on the HSR’s impact on property prices have shown that the results are mixed (ie some cities see appreciation, some see no impact, and some even see negative impact). Given what we know now, it will be hard to estimate how high the value appreciation will be in five years, if any.

 

How true is your data? How well does it tell the current situation?

The data is based on actual transactions from the National Property Information Centre (Napic) over the past four years. It provides a good overview of how the subsale property prices were trending, but it is by no means a way to predict how property prices will move in the current situation.

 

According to your presentation, existing HSRs have some positive impact on property values. What is your forecast for Malaysia?

Studies on the HSR’s impact on property values have shown that the results are mixed (ie some cities see appreciation, some see no impact, and some even see negative impact). However, personally, I think that if the HSR stations are well embedded into the surrounding area’s redevelopment strategy, property prices will benefit. Question is by how much, and when will the effect kick in. Given the little details we know now, it will be hard to place a forecast.

 

This story first appeared in TheEdgeProperty.com pullout on Sept 2, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free.

 

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