Land Price Hits A High At Johor's Iskandar Region

Source : The Business Times, January 03, 2008

LAND prices in the Iskandar Development Region (IDR) continue to spurt, with a transaction done last week at RM50 (S$21.7) per square foot (psf), compared with RM43 psf four months ago and several times the price two years ago.

It was announced last Friday that a consortium between Dubai's Limitless Holdings (60 per cent) and Malaysia's state-owned UEM World (40 per cent) would embark on a high-end, waterfront development on 45ha of land at Nusajaya that it had bought for RM242 million, or RM50 psf.

Nusajaya, almost in the middle of the IDR, is where a new state administrative capital is being constructed.

The IDR - a special economic zone three times the size of Singapore - has been made a development priority by the administration of Prime Minister Abdullah Badawi. Special incentives, including tax holidays, liberal investment rules and the absence of affirmative action policies that favour ethnic Malays, are aimed at drawing in foreign investment.

The Dubai-UEM World transaction is the third sizeable land purchase in the IDR in as many months.

Recent land purchases totalling RM5.8 billion epitomise a mindset shift by the policy-makers in Kulala Lumpur, who are trying to attract new foreign investment by opening up Malaysia's property markets in selected areas like the IDR.

So far, the new investors have all been well-heeled Middle Easterners with a development track record in other countries.

This influx of predominantly Islamic investment into predominantly Muslim Malaysia has obviated criticism from ethnic Malays disgruntled by Mr Abdullah's suspension of affirmative action policies in the IDR.

The continuing inflow of foreign investment into the area could also jump-start the relatively slow-moving project as it will not only diminish execution risk but, in the nature of a virtuous cycle, also attract other investors beguiled by rising land prices.

The authorities certainly seem to think so. Last week, New Straits Times quoted Johor Chief Minister Ghani Othman as saying at least RM7 billion of projects in the IDR will begin by April this year. They include highways, river clean-ups, residential and office complexes and leisure facilities.

Analysts are excited by the effect of rising land prices in Johor on the share prices of companies with large land banks there. The biggest beneficiary is reckoned to be UEM World, a listed entity that still owns 4,137ha at Nusajaya.

'Its current share price (around RM3.90) imputes an average valuation (of its land bank) of RM12.50 a square foot despite the fact that bungalow and industrial lots are already transacting above RM20 a square foot,' a recent UOB KayHian report estimated. 'At RM50 a square foot, UEM World's real net asset value would jump to RM12.46 a share.'