Growth for second-tier cities

THE KL-Singapore high-speed rail (HSR) will have a significant multiplier effect on Malaysia's economic growth, said Sarkunan Subramaniam, managing director of Knight Frank Malaysia, during a panel discussion titled "The Impact of the KL-Singapore high-speed rail" at The Edge Investment Forum on Real Estate 2013.

The construction of the HSR is expected to add RM6.2 billion to the gross national income, stimulate the nation's GDP by 0.5% per annum during its construction period, impact the construction and manufacturing sectors, and raise foreign direct investments (FDIs) in Malaysia.

It will also impact the country's socio-economy, real estate and tourism sectors among others, and fuel the growth of transit-oriented developments (TOD), said Sarkunan.

From a socio-economic viewpoint, the HSR may alleviate congestion costs associated with urban growth in the main cities as it will trigger the growth of nearby second and third-tier cities. "Nearby lower-tier cities are a 'safety valve' for the over-populated cities," he said. "An example is when the downtown of US and European cities reaches capacity; the greater employment growth will likely be absorbed by the outlying areas."

This spread and growth of the population will reduce the disparity of income between the main cities and secondary towns, he said, adding that the HSR will allow for more efficient allocation of business activity across space.

Upon completion, Sarkunan said there will be an increase in movement of Malaysian professionals and labour into Johor and Singapore while Malaysia will receive more high net worth individuals from Singapore.

The HSR has the ability to expand labour markets and increase business travel opportunities as well as support the growth of key professional services, he added, citing the London-Paris HSR and the HSR in China as examples.

The real estate sector will see a new growth driver emerge as developers start building housing areas close to new public transit stops. Demand for commercial real estate will also be stimulated as upscale retail and shopping areas will be located close to these transit stations. TODs in the form of compact, walkable communities centred on high-quality train systems will provide a window of opportunity for investors.

"Although the locations of the HSR stations are still uncertain, developers may start acquiring land in towns where the proposed stops have been announced leading to speculation in land prices while developers with existing landbanks in Johor and prime locations in the Klang Valley such as S P Setia Bhd, UEM Land Holdings Bhd and Dijaya Corp Bhd, are likely to benefit," Sarkunan said.

More integrated developments with homes, shops, restaurants and entertainment outlets will emerge, catering for a higher quality of life without the need to depend on cars for mobility.

The potential TODs in line with the HSR's proposed stations in Kuala Lumpur would be at the upcoming mega projects Tun Razak Exchange and Bandar Malaysia in Sungai Besi.

In terms of tourism, Singapore and Malaysia may start to be considered as a single destination as travelling between both countries will be seamless. Besides Kuala Lumpur and Johor, Melaka is anticipated to benefit as a tourism hot spot as it is located between the two states. The retail and hospitality industries as well as commercial office spaces will see a rise in value.

Impact on Iskandar

A major beneficiary of the HSR will be Iskandar in Johor. Sarkunan noted that even before the announcement of the HSR, the property market in Iskandar, and by extension Johor, was already seeing significant growth.

The launch of the Iskandar Malaysia growth area in 2006 stimulated the growth of the residential property market in Johor Baru while development land transactions have increased in terms of volume since 2006, based on data from the National Property Valuation and Services Department. The highest total value of transactions for development land in Johor was recorded in 2008 due to landbanking by investors. Landbanking activities were also active in 2011.

Meanwhile, the volume of transactions for all residential property types in Johor saw consistent growth from 2006 to 2012. Although there was a 19.9% decline in volume compared with 2011, the total value of residential transactions had risen by 3.4% from 2011.

Knight Frank's data shows that the price range of detached houses in Johor Baru in 3Q2012 was at RM570,000 to RM2.4 million while 2 and 2½ -storey semi-dees were between RM690,000 and RM1.45 million. Terraced houses of 2 and 3-storeys ranged from RM270,000 to RM690,000 while condominiums and apartments were priced at RM230,000 to RM680,000.

Of FDIs and capital appreciation

When asked about Iskandar rivalling Kuala Lumpur city's status as the country's growth centre during the question-and-answer session, Sarkunan said, "Kuala Lumpur will attract its fair share of FDIs but a lot of FDIs are now shifting to Iskandar and thus, we will definitely see the area coming up to rival Kuala Lumpur, possibly in the next 10 to 15 years." He added that as far as Iskandar is concerned, the scene has been set with government incentives and benefits for investors.

A member of the audience sought Sarkunan's opinion on the capital appreciation of residential properties in Selangor in the past three years, and whether growth will continue. Sarkunan said the population in Selangor is still growing, which will translate into increased demand for accommodation. "Therefore, we will continue to see the average 16% to 20% capital appreciation that we have seen over the past three years."

He added that the value of landed properties will rise much higher than certain stratified properties.

This story first appeared in The Edge weekly edition of May 20-26, 2013.

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