Revival of Johor-Singapore SEZ: New era of growth?

According to Edgeprop Malaysia, Iskandar Investment (IIB), which owns the freehold land in Medini, was behind this scheme. Hence, Tom did not buy the property outright. Instead, he had acquired a leasehold interest, meaning he only had the right to use the property for a specified period instead of owning it permanently. The strata title belongs to Distinctive Resources, the developer of the 650-unit Iskandar Residences. Like many Singaporeans then, Tom was initially captivated by Medini’s promise, unaware that he was purchasing a lease rather than outright ownership. “At that time, there was a palpable sense of energy and excitement about these projects,” Tom recalls, having bought Iskandar Residences for RM1 million.

MIM is home to several ambitious projects developed by various real estate giants. One project within MIM was developed by a joint venture between Temasek Holdings and Khazanah Nasional in 2011. Documents from 2013 revealed that the IIB, an entity established by Khazanah Nasional, the Employees Provident Fund and the Johor state, held a 20% stake in Iskandar Residences’ developer Distinctive Resources.

Buyers at the Iskandar Residences showroom in 2013. Photo: Plantiffs' photo 

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Tom’s investment, meant to be a lucrative venture, has taken a dramatic turn. A decade later, he and his neighbours received shocking news: Tom does not own the property despite the 2013 sale and purchase agreement. Instead, under a revised scheme, they are leaseholders, with IIB retaining ultimate control and ownership.

Tom and 44 other disgruntled property owners have launched a class action lawsuit against IIB and Distinctive Resources, accusing them of misrepresentation. They are also pressing the Singapore Council of Estate Agencies (CEA) to investigate Huttons Asia for allegedly conducting the sale without proper licensing. Despite signing purchase options and paying non-refundable deposits to Huttons in May 2013, Iskandar Residences did not secure the necessary advertising approval from the Malaysian Ministry of Housing until October 2013.

In an interview with The Edge Singapore, Tom says this is typical of Malaysia. He adds: “The phrase ‘Malaysia Boleh’ [a popular local slogan that translates to “Malaysia can” in English] is still unfortunately ongoing where you do something very big. When it doesn’t work, you quietly strip it away and start something new again.”

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The Iskandar Residences has seen its rental prices drop from RM4,000 ($1,151) to RM2,500 a month and its property value has fallen by 30% to 40%. Despite this decline, the Johor-Singapore Special Economic Zone (JS-SEZ) revival has renewed optimism among investors and developers. Tom notes that EcoWorld Malaysia, a major developer, has purchased land adjacent to Medini in anticipation of the economic boost expected from the SEZ. He adds: “But for us? We’ll be stuck as lessees of this property for the next 99 years.”

Undeniable buzz 

Six months after Singapore and Malaysia signed the MOU to establish the SEZ, there has been a significant buzz among investors and businesses. This excitement prompted two major investor forums in Kuala Lumpur and Singapore on July 10 and 11. These events saw the participation of government officials, investors and enthusiastic small and medium enterprise owners, all of whom gathered to assess the potential of the new economic zone.

The surge in enthusiasm is due to the recent update on the Johor Bahru-Singapore Rapid Transit System (RTS) Link, which reported 77% completion of civil infrastructure on the Singapore side and 65% on the Johor side. Announced in 1991, the RTS is a 4km light rail shuttle connecting Bukit Chagar in Johor Bahru with Woodlands North in Singapore.

The completion of the RTS will see the travel time between Singapore and Johor cut down to just 15 minutes, including customs and immigration, says the CEO of Malaysia’s Mass Transit Corp. This is a significant improvement compared to the nine-hour delay experienced on Sept 1, 2023, during Singapore’s Presidential polling day.

RTS, long remembered for its delays and suspension until new agreements were made, is now back on track. With this key development, past concerns have dissipated.

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SBF chairman Lim Ming Yan describes the Johor-Singapore Special Economic Zone as an exciting new chapter, combining Johor’s resources with the city-state’s infrastructure and connectivity. Photo: Singapore Business Federation  

On July 11 at the Amara Singapore, Lim Ming Yan, chairman of the Singapore Business Federation (SBF), proudly declared in his opening speech: “The JS-SEZ represents an exciting new chapter in our economy by leveraging Johor’s resources and competitive advantages together with Singapore’s infrastructure and connectivity, we can create a dynamic economy that will attract investments, foster trade and generate employment opportunities.”

“Collaboration between Singapore and Malaysia is a no-brainer,” the High Commissioner of Malaysia to Singapore, Azfar Mohamad Mustafar, continues. “We need to look at Singapore and Malaysia, especially Johor, as a unit so that investors looking at this region can look at the two as one place to invest in, where regulations are streamlined and movement of goods and people are smoother.”

‘Been here before’ 

Kok Ping Soon, CEO of SBF, says the drive for increased cross-border collaboration between Singapore and Malaysia is “certainly strong”. He adds that both governments can achieve immediate benefits and meet long-term policy goals by improving the movement of people and goods and enhancing investment facilitation.

“But, simultaneously, I think a little suspension of disbelief is happening. And I will say, in the spirit of being candid and frank, that many of the companies we talk to have a bit of a deja vu,” says Kok. “Haven’t we been here before, they ask?”

He references past ambitious plans to turn Johor-Singapore into a thriving economic zone, resulting in lacklustre outcomes. In the late 1980s, then-Deputy Prime Minister Goh Chok Tong proposed the Singapore-Johor-Riau (SIJORI) growth triangle to connect Singapore’s infrastructure and expertise with Johor and Riau’s resources and land.

Following the Asian Financial Crisis, the economic zone faced difficulties as each country recovered at different rates. A research paper attributed SIJORI’s failure to uneven regional economic performance, conflicting national interests, rising social issues and an uncertain external environment. Today, the unrealised potential of the plan is evident in the slow development of neighbouring Batam and Bintan.

In the mid-2000s, the Iskandar Economic Zone was established based on a study by Khazanah Nasional which highlighted the potential for economic growth through the development of Johor Bahru, Iskandar Puteri, Kulai, Sedenak and parts of Pontian. However, projects like Forest City, Country Garden Danga Bay and R&F Princess Cove remain underdeveloped, indicating that the economic zone has not succeeded. Given this history, Kok questions what makes the current effort different and why it might succeed where previous attempts have failed.

For Vinothan Tulisinathzan, director of MIDA, Singapore, one key factor that will ensure the success of the SEZ this time round is that Iskandar is already an area with strong infrastructure and ongoing development. “We’re not starting from scratch, coupled with tax incentives, that will attract businesses and investors to be based [in the SEZ],” he adds.

The ongoing geopolitical tension between the US and China has led to the necessity of supply chains shifting elsewhere in the world. The SEZ is well positioned to be a neutral zone for this, as Johor can be a region to support the larger MNCs headquartered in Singapore, Tulisinathzan adds.

Speaking for the Singapore Manufacturing Federation (SMF), which has 5,300 members, chairman Lennon Tan highlights Johor’s appeal as an attractive option for local manufacturing companies looking to internationalise due to its proximity. He notes that the government has been urging the manufacturing sector, which accounts for about 20% of Singapore’s GDP, to expand its business operations abroad amid geopolitical tensions.

Established businesses with factories in China and Southeast Asia and new companies are also enthusiastic about Johor’s potential as a destination. “I think everyone is very excited, everyone is encouraged and that’s why you have such a big turnout here,” he adds, speaking to a crowd of more than 200 participants.

Kok: Many of the companies we talk to have a bit of deja vu [about the upcoming SEZ]. Haven’t we been here before? Photo: Singapore Business Federation 

Businesses voice concerns 

After signing the MOU in January, the SBF formed a working group in February to address the concerns of businesses related to the SEZ. At the JS-SEZ investor forum in Singapore on July 11, the working group’s chairman, Teo Siong Seng, presented the perspectives of the approximately 160 businesses within the federation.

The working group identified four main concerns: The availability of labour, the movement of people, the movement of goods and the facilitation of investments. Teo points out that many Johor residents commute daily to Singapore for work, leading to challenges in retaining and developing talent. He adds that attracting the right talent to Johor is also problematic due to difficulties obtaining work passes and general infrastructure issues.

Then, there is the challenge of moving people across the border. “Overall, there’s still a lot of room for improvement regarding border crossing, including the use of better technology or a proper integration model and plan,” says Teo.

“The working group recommends a harmonised workforce regulation where a single foreign worker policy framework is applicable within the SEZ, which could look like a clear, streamlined and fast-track process of work permit recertification and a set of common rules throughout the SEZ to standardise employment standards,” he adds.

Businesses also recommend enhancing people’s movement by improving infrastructure for smoother travel. They suggest projects like free clearance systems and RTS links to cities such as Kuala Lumpur or Penang. Other recommendations include passport-free immigration crossings and dedicated travel lanes for SEZ travellers.

Teo also notes that many businesses that have already invested or are exploring investments in Johor reported that obtaining permits and licences can be complex and opaque. The lack of infrastructure readiness also presents an obstacle businesses are unwilling to finance.

He proposes streamlining customer and border procedures using a one-stop electronic platform for customs clearance and harmonised tax and tariff policies. He also suggests a “one-stop centre” in Malaysia to simplify business registration and administrative processes.

The 160 businesses made over 40 recommendations in total. SBF’s Kok notes that not all of these will be addressed immediately. He asked his panel members which recommendation they believe would be the easiest to tackle first.

SMF’s Tan and Tay Lide, the deputy director of Southeast Asia and Oceania at Singapore’s Ministry of Trade and Industry (MTI), agree that addressing the movement of people and goods is crucial. Tan suggests exploring free trade agreement options, which could grant the SEZ its own certificate of origin and status as a separate free trade zone. He also encourages the first 30 to 50 companies ready to start operations in the zone.

While there is optimism about these developments, MTI’s Tay offers caution in managing expectations. He adds: “Perhaps I could encourage us to look at it from this perspective: [the success] is not a light switch flip, whereby once the terms of the agreement are in place, the lights will come on, and suddenly, it’s a huge success. We’re counting on many of the successes we’ve done before, but now, I think the minds are coming together, not just on the government level, but with businesses.”

Will Singapore lose its appeal? 

Investors have already been pouring capital into Johor, particularly data centres. In the last two years alone, many data centre operators and hyperscalers have announced over 100 megawatts of facilities to be built (read Johor data centre’s boom — or bust? inThe Edge Singapore, issue 1146, July 15).  

A report by CapitaLand Investment released this July found that Asia Pacific has seen an especially evident shift in institutional investor interest in data centres. From 2019 to 2023, transactions involving Asia Pacific data centres rose to approximately US$22 billion ($29.5 billion) — or almost 2.4 times the level recorded over the preceding five years — even as markets stagnated during the pandemic.

Anushirwan Tun-Ismail, senior manager (Malaysia) at data centre operator K2 Strategic, notes that Sedenak Tech Park, which had only one data centre in 2018, now hosts five. One of these, operated by Princeton Digital Group, was set up within 12 months. “I think that’s a testament to the collaboration involved between the data centre operators, the local government, state government, to facilitate the planning and development of that and with their one-stop centres,” he adds.

After signing the MOU in January, the Singapore Business Federation established a working group in February to address business requests concerning the Johor-Singapore Special Economic Zone. Photo: Singapore Business Federation 

Sam Cheong, managing director and Head of Foreign Direct Investment (FDI) Advisory at UOB, notes a significant development: Since the announcement of the SEZ, land prices in Johor have surged by 30% to 50% on average. This spike highlights increasing investor interest in the region, a trend reflected in UOB’s growth. The bank, which established its first Johor branch in 1960, now operates seven branches across the border, underscoring Johor’s rising importance in regional investment strategies.

“I don’t think [the price of land is] going to come down,” says Cheong. “Think of us at FDI Advisory as what I like to call the super multi-plug that will help you plug into that business opportunity, regardless of the size of the company.”

With strong investment flowing into Johor, the question is whether Singapore will lose its appeal and become hollowed out. John Foo, CIO of Valverde Investment Partners, compares the situation to Switzerland and its neighbouring countries. Residents of Zurich often drive across the border to Germany and France to buy produce, which can be up to half the price of Swiss goods. Despite this, Foo notes that people value Switzerland’s neutrality and stability.

He also notes that Johor’s development may affect retailers, who must adapt and reinvent themselves. Meanwhile, Singapore will need to attract new types of businesses as it advances up the value chain to remain competitive with other high-cost economies.

Foo believes Singapore can learn from Switzerland’s established industries, such as pharmaceuticals, watches and chocolate. Similarly, Singapore has already applied this approach to develop its global wealth management industry.

“So on whether we will hollow out, I don’t think so. I think we’ve had a fantastic run for the last 50 years. Like what Singapore reinvented itself from the 1980s when we lost all the manufacturing to Malaysia, perhaps we need to do it again and this integration with Johor will give us a way to have a symbiotic relationship,” he adds.

An artists' impression of Iskandar Residences. Photo: Medini Iskandar Malaysia 

Legal fight 

Today, Tom and his 44 neighbours await a trial date for their class action lawsuit against IIB. Meanwhile, the CEA’s investigation into Huttons in Singapore is still ongoing.

For many, taking legal action against a sovereign wealth fund over alleged fraud might seem like an uphill battle. “Most people facing something this daunting feel powerless and prefer to walk away,” he says, noting that he has managed to rally only 44 of his 650 neighbours at Iskandar Residences to join the lawsuit. The issue extends further, as Medini is home to 7,000 property units with owners who signed the private lease scheme years ago.

Still, Tom is undeterred and aims to turn this into a cautionary tale for future investors. He believes federal law supports his case. “I’ve spent a lot more time and money than anyone to dig out the [relevant] reports,” he says.

Residents who bought Iskandar Residences 10 years ago will find that the original bank is no longer financing the project. Tom explains that new lenders offer loans with lower value ratios due to ownership changes, which have significantly decreased the property’s value.

“Should I just dump this as a loss? Then I don’t have to deal with this for the next 99 years,” says Tom. The main issue is that he and his other neighbours will no longer have representation at any of the property’s annual general meetings. Instead, Iskandar Investment will take over and “no one wants to take on these annoying operational matters and then it becomes a shitty maintenance project”.

The loss of representation and the takeover by Iskandar Investment could also accelerate the property’s decline. However, Tom’s biggest concern is that if he and his neighbours lose their lawsuit, they will be bound by their leasehold status for the next 99 years — unable to alter it due to legal constraints.

See also: 

• Is the SEZ a sure bet or wild card for RWS and RWG?
• Why Genting Singapore and Q&M Dental are undervalued
• Bursa-listed property and infrastructure stocks to gain from SEZ
• SMRT, the vital connector between RTS and the rest of Singapore
• How ComfortDelGro can ride on the coat-tails of the SEZ
• FCT feels positive and negative vibes from RTS
• In the zone: Data centre development of telcos to benefit