Conquering Foreign Landbanks

Developers should venture overseas to ensure sustainability

Malaysian developers need to venture overseas if they want their brands to have a larger footprint and survive for the long term.

The challenges of the past four decades have equipped them well to build in developing nations and they should capitalise on the opportunities presented in new markets with prospective investors, said Malaysia Property Incorporated chief executive officer, Kumar Tharmalingam.

“In the overall scheme of things, Malaysia probably has one of the best track records in South East Asia in terms of providing affordable housing for its people,” he said.

Enviable track record

In the first four decades of the Malaysian property cycle, private developers together with the various state economic development corporations, succeeded in providing some 4.2 million houses to house 65% of the population, a feat only matched by Singapore.

However, while the property sector as a whole has grown steadily and evolved in terms of marketing concepts and products, some of the big-name developers who contributed to its maturity have shrunk into obscurity, most notably after every downturn in the economic cycle. “The history of property development in Malaysia is littered with fallen names after every downturn,” Kumar commented. He attributes this to three major reasons:

• Limited landbanks

• Absence of an effective corporate strategy to ensure sustainability

• Lack of skills to take their companies to the next level.

“Many developers were unable to replace their landbanks and carry on doing business. One reason was the shortage of available land near urban growth centres, which pushed prices beyond the reach of these developers,” he said.

Others, he said over-extended themselves by borrowing large sums of money to purchase land to build in anticipation of a property boom.

“The 1984 to ’86 [economic] crisis practically wiped out a large number of property companies that borrowed big sums to build, thinking there would be a boom that would translate into high demand,” he said. This crisis, he added, was far more damaging to private sector developers than the one that happened 10 years later.

However, the 1997 economic crisis did have its fair share of casualties, but it also had a silver lining of sorts. The bad apples that fell by the wayside and took down many property investors with them succeeded in pushing the Ministry of Housing and Local Government to tighten regulations governing the industry.

Malaysia probably has among the most stringent regulations on the conduct and operations of property developers. Such regulations are practically nonexistent in many other South East Asian countries,” Kumar commented, adding that the Housing Development Act in Malaysia has now swung the other way in favour of the consumer.

Taking on new challenges

Kumar is of the opinion that the ups and downs of the Malaysian property market, coupled with tighter legislation to govern the industry, has resulted in developers who are equipped to face the challenges of the 21st century.

“Over the past four decades, Malaysian developers have built and enviable track record of experience in handling tighter government regulations, changing consumer sentiments and increased expectations in terms of construction quality. This has put them on par with developers in city states such as Singapore and Hong Kong,” he said.

Kumar said that it is imperative for developers to export their expertise to less developed markets if they want to ensure sustainability.

“In the past, few developers set their sights on foreign shores, simply because there was ample land here and a crying need for property that had to be fulfilled. However, as we enter the second decade of the 21st century, it has become apparent that Malaysia has achieved equilibrium in the supply and demand of residential housing in urban areas and developers need to realise that if they want their brands to have a larger fooprint and survive for the long term, they need to take their business overseas,” he pointed out.

There had been attempts to do this in the past, he said, as evident by the early attempts when Malaysian developers were urged by the government to participate in the building of cities in South Africa and Eastern Europe. “Many were doomed to failure due to a lack of understanding of the local market and culture as well as property development operational procedures and legal framework,” he said.

The move to spread their wings in the hope of mitigating the impact of any slowdown in the Malaysian real estate market has already begun. Notable amongst the developers that have moved into regional markets are Sunway City Bhd, IJM Land Bhd, Berjaya Group and SP Setia Bhd.

Kumar says that generally, the benefits of moving into foreign markets are quite obvious. They include:

1. Increased profitability
2. Stronger branding and image
3. Exposure to international markets and standards
4. Cross-border opportunities for attracting investment back into Malaysia.

“When developers go overseas, it opens up the opportunity for a whole bunch of Malaysians to get international experience. It helps raise salary structures to be more competitive, and imparts understanding on the wants and needs of the different markets,” Kumar elaborated.

“Once they establish a reputable presence in a foreign country, it assures investors from that country of their reliability and they in turn, will want to come here and invest.

“To illustrate, we know of companies that went overseas to build, then had investors from the other countries come in here and buy equity in their Malaysian outfits, injecting the capital that will allow them to grow,” Kumar said.

Sunway Gung Ho about Overseas Projects

Sunway City Berhad (SunCIty) managing director of international property development Ngian Siew Siong supports the view that developers should market their excellence overseas. In an email interview with MPI, Ng said there are numerous advantages for developers venturing forth to build in other countries aside from the obvious financial ones.

SunCity has moved in a big way into China and India, currently recognised as the world’s most vibrant markets. The group’s projects in China include the development of 102 acres in the 7,400-acre Sino-Singapore Tianjin Eco-City Project (SSTEC) and the 17-acre mixeddevelopment Sunway Guanghao project.

The SSTEC project will have a gross development value of RM5 billion and is expected to be developed over a period of five years and will see the introduction of Lifestyles of Health & Sustainability (LOHAS) into China. The Sunway Guanghao project, located within the central business district of the Jiangyin New Harbour City, has an estimated gross development value of RM492 million and is expected to be completed by 2012.

In India, SunCity has embarked on partnerships with local players to develop two projects in Hyderabad. Sunway Opus Grand is an exclusive 35-acre development set amidst a lush landscape in the suburb of Ameenpur and developed with the Opus Group. The other is a jointventure residential development with MAK Projects Private Limited in the growing southern corridor of Hyderabad and with a gross development value of about RM200 million.

Here are excerpts of Ngian’s interview:

MPI: Should Malaysian developers venture overseas to market their products and expertise?

Malaysian developers that have the necessary expertise and experience should definitely venture overseas as there is a huge market potential to tap into.

Sunway City has chosen China and India as they are the world’s fastest growing economies with a combined population of 2.4 billion or 60% of the world’s population. Our foray into these countries is aligned with the Group’s strategy to become a leading regional property developer. There is also low home ownership, big and increasing middle class and both countries have stable economies.

MPI: What are the advantages for developers who venture overseas?

Is it just a question of increasing profits alone or are there other benefits? There are numerous advantages for developers to venture overseas. They include:

• Strengthening the Group’s presence and reputation in the overseas market
• Diversifying revenue sources and increasing profits
• Exchanging expertise with strategic partners
• Obtaining new knowledge and insights by working in new markets
• Positive learning experience and exposure for staff working overseas

MPI: What are the challenges facing developers who want to venture overseas? In every new business venture there are always a set of challenges such as understanding the local culture, market requirements, regulatory standards, recruiting new talent and others.

As a foreign investment entity, another challenge is that high capital is required. There is also a time frame on when the project must be completed. Another interesting point is that different countries have different building requirements. For example, all buildings must face South in Northern China to avoid the extreme cold North-South wind from Siberia.

The Missing Link: Branded Budget Hotels

Rising tourism activity and interest in Malaysia have opened up opportunities in the branded budget hotels segment.

The need for branded budget hotels in Malaysia has increased over the years, thanks to cheap travel offered by lowcost carriers (LCC), Air Asia and FireFly.

The rapid expansion of local and international routes has also contributed to the growth of budget travelers and even business travellers looking for more economical fares. The LCCs have become a transit mode to other destinations. Air Asia has expanded its routes to 78 destinations around the world, including the recent additions of Seoul, Paris and Christchurch.
Firefly, on the other hand, flies to 18 destinations and will be expanding its routes in the coming years.

Besides the emergence of LCCs, the success of the Malaysia ‘Truly Asia’ campaign has also contributed and placed Malaysia on the map as a ‘must go’ destination to experience a melting pot of different cultures and authentic cuisines.



The total number of tourists that entered the market increased 7.3% yearon- year from 22 million in 2008 to 23.6 million in 2009.

The tourism industry in Malaysia continues to show resilience, despite the recent global financial crisis and the H1N1 outbreak experienced throughout 2009. Total receipts in 2009 increased to RM53,368 million in 2009 compared with RM49,561 million in 2008. The World Tourism Organisation pojected that the tourism activities in the Asia Pacific region would increase 7 to 9% in 2011.

The rise in budget travelers has fueled demand for more budget hotels in the country. These price-sensitive travellers often look for hotels that offer value-for -money accommodation on the back of comfort and convenient locations. The branded budget hotel is fast becoming the preferred choice as it offers all the above -mentioned benefits and more, such as consistent accommodation standards, centralised reservation system and promotional room rates. The branded product concept, which thrives on service consistency and standardised offerings, presents ‘no surprises’ to the tourist, as the brand name creates familiarity and fixed image perception.

Although there is a range of budget hotels available, there is still a gap in the branded budget hotels segment in Malaysia. Currently, Tune Hotels and Grand Paradise Hotels are the only two branded budget hotel chains in Malaysia.

The chains operate nine and two hotels respectively in various states in Malaysia. The average room rates and occupancy rates of budget hotels in the Klang Valley are approximately RM80 to RM110 and 55 to 60% respectively. The occupancy rate for budget hotels in Kuala Lumpur are higher, at an average of 80 to 90%.

According to Mr. Previn Singhe of Zerin Properties, the hotspots for budget hotels are Kuala Lumpur, Penang, Johor, The Missing Link: Branded Budget Hotels Source: Tourism Malaysia Page 4 He also commented that there is a distinct shortage of foreign brand names in Malaysia.

The Malaysian budget hotel segment is a far cry from the more mature UK budget hotel segment in terms of product offerings and service standards. In the UK, this segment has been experiencing tremendous growth and success over the decade, leading to a healthy competition for market share dominance.

Branded budget hotel chains such as the Holiday Inn Express, Premier Inn, Travel Lodge, Ibis and Jurys Inn are the top five brands that have expanded throughout the years and managed to develop into household brands in the tourist circle. That sort of phenomenon is almost nonexistent in Malaysia and in Asia.

Malaysia urgently needs to complete the value chain linking LCC and branded budget hotels to satiate the appetite of a burgeoning tourism industry. Another encouraging point to note is that the hospitality industry is investor-friendly, with no restrictions on foreigners owning any type of hospitality asset. At present, 58% of four and five star hotels in Kuala Lumpur are owned by foreign entities.

Industrial Sector Enjoys Healthy Growth

It’s good news for the industrial sector of the Malaysian property market as things are looking up and the sector is expected to enjoy healthy growth this year, spurred by the stable economy and the government-initiated Economic Transformation Programme (ETP).

Factors that are contributing to the attractiveness of industrial properties for investors include: Green Building Index (GBI) certification, halal park accreditation, free trade zone status and proximity to bustling commercial precincts and highway networks. Features such as gated and guarded concepts, supersized terrace factories, underground cabling and covered drainage are valueadded propositions that are raising the profile of new industrial developments coming onto the market.

It is not just manufacturing concerns that are registering interest in the new breed of industrial parks, but also companies looking to locate their corporate offices in industrial properties that offer more value for money than three-storey shop offices in the central business district. Custom-designed industrial units offer more land and a bigger built-up area, allowing companies to house their corporate offices, showroom, light manufacturing activities and processing facilities under one roof.

A big catch phrase these days amongst multinationals looking to invest overseas is “Green is in”, hence developments with GBI certification are their preferred choice when it comes to setting up operations, as green buildings help minimize energy consumption and allow them to avail of incentives offered by the government. These incentives include: stamp duty exemption on instruments of transfer of ownership and 100% tax exemption for the additional expenditure incurred to get GBI certification.

Given the current market situation, which indicates a shortage of supply in most prime industrial parks, especially in the Klang Valley, industrial properties promise good returns to potential investors. A look at the pricing trend of vacant industrial land in the Klang Valley over the past five years shows increases of almost 100% in some areas!

In Balakong, Selangor, and Section 23, Shah Alam, the prices of industrial land increased by 67% and 71% respectively between 2005 and 2010. Industrial land in Glenmarie registered a price hike of 77%, from RM62 per square foot (psf) in 2005 to RM110psf in 2010. The most whopping increase was registered in Kota Kemuning in Shah Alam, Selangor, where prices shot up 100% from RM35psf to RM70psf in the last five years. This was followed closely by Bukit Jelutong’s industrial land, which achieved a price increase of 97%, from RM43psf to RM85psf.

Up north, limited supply versus growing demand have pushed prices of industrial land up, too. The new state government’s attractive policies for investors appears to have caused a revival in demand. Transaction figures indicate an increase of more 60% in the price of leasehold industrial land on Penang Island in the last three years. On the mainland, limited supply has caused a price hike, too. Industrial land in some areas such as Bukit Minyak Industrial Park has shown an increase from an average of RM12.20psf to RM18 psf.

The shortage of industrial properties coupled with increasing demand provides an opportunity for both local and foreign property developers. Those with large landbanks, or the capacity to acquire them, may want to capitalize on the chance to develop industrial parks near to existing highways that provide easy access to ports.

The opportunities are supported by the initiatives introduced under the Third Industrial Master Plan, in which 12 industries in the manufacturing sector have been earmarked for further development and promotion by the Government. The non-resource-based industries include electrical and electronics, medical devices, textiles and apparel, machinery and equipment, metal and transport equipment, while resourcebased industries consist of petrochemicals, pharmaceuticals, wood-based, rubber- based, oil palm-based and food processing. In line with the Master Plan, Malaysia approved RM32.6 billion worth of investment in the manufacturing sector in 2009, which exceeded the original target of RM27.5b.

Keen Interest from Koreans

As some Korean investors lament the strengthening US dollar against the Won, which saw its heyday pre-Asian Financial Crisis, others are still looking abroad to invest in real estate due to the slowdown in the Korean real estate market, which has seen a 10 to 20% decrease in value in Seoul and surrounding areas. Korean construction companies have also expressed a keen interest to work with their counterparts in Malaysia.

While China is a popular market for Koreans, Malaysia is a market that provides a level of comfort for them, being home to the 16th largest community of Koreans overseas, with approximately 20,000 of them residing here. This figure also ranks it the fifth largest community in the South East Asian region.

The majority of Korean expatriates in Malaysia are employees attached to Korean companies or international students concentrated in Kota Kinabalu, Sabah and Ampang, Kuala Lumpur. Education- wise, Malaysia is Korea’s third most popular destination for English language courses such as IELTS & TOEFL, after the Philippines and Singapore.

Commencing November 2010, the opening of daily direct flights to Seoul on the Malaysian low-cost carrier, AirAsia, has improved connectivity to Kuala Lumpur. The airline forecasts take-up by over 100,000 passengers for its Seoul service in the first year of operations. Generally, Koreans have a preference for housing units between the size of 900 and 1500 sq ft with a budget of between RM500,000 and RM1.5 million. They also prefer to put their money where there is access to public transportation and convenient access to facilities. For those with families, international schools are an important factor for consideration.

Malaysian property developer, IJM Land Bhd recently reported overwhelming sales to Korean purchasers at its US$160million Pearl Regency development on Penang Island. Purchases in this project include a commercial en bloc sale comprising 83 commercial units worth US$29million and the sale of 40% of the total 574 condominiums within this development. On the construction end, MPI also organised meetings with construction companies like Samsung, Hyundai, Daewoo and they have expressed keen interest to work with Malaysian development companies. Entry points would be via joint-venture or as turnkey contractors. Discussions are underway for some of the projects. Korean construction companies have had a long presence in Malaysia. To date, notable projects include:

• Ssang Yong Engineering’s development of a low-rise, low-density condominium project in the Taman UThant area.
• Daewoo Engineering & Construction in the development of KLCC Lot C
• Al Hidayah Group joint-venture with Kukdong Engineering & Construction for the development of Olive 108 on Jalan Ampang.



Happenings.....

MPI plans to return to South Korea this April. We are planning a seminar on “Risk and Rewards of Investing in Malaysian Real Estate” working with the EUCCK Real Estate Committee targeting both the institutional investor and also an event on the last weekend of May targeting the home buyers. For more information on these events, please contact: lalitha@malaysiapropertyinc.com

Malaysian Stamp Duty: Simplified

Stamp duty is a form of taxation first levied in the United Kingdom in 1694. Originally, the tax covered items such as “vellum, parchment and paper”. This was extended during the 18th and 19th centuries to cover more goods, including newspapers, insurance policies, gold and silver plate and even hair powder. In 1808, the stamp duty was extended to property sales.

In Malaysia, the assessment and collection of stamp duties is sanctioned by statutory law under the Stamp Act 1949. The underlying principle in the application of stamp duties is that the subject matter of tax is the INSTRUMENT and not the TRANSACTION.

The duty is also payable where the instrument of transfer constitutes a DEED OF ASSIGNMENT executed on sale or gift of the contractual interest on the property.

The Stamp Act 1949 provides for the imposition of Ad Valorem Duties (that is, according to the value) on:

1. Instruments of transfer (implementing a sale or gift) of property including marketable securities (meaning loan stocks and shares of public companies listed on the Kuala Lumpur Stock Exchange), shares of other companies and of non-tangible property, for example, book debts, benefits to legal rights and goodwill;
2. Instruments creating interests in property, for example Tenancies and Statutory Leases;
3. Instrument of security for monies including instruments creating contracts for payment of monies or obligation for payment of monies (generally described as "Bond");
4. Certain capital market instrument, for example, Contract Notes.

Zooming in on the implication of the stamp duty on property purchase, transfers must be registered at the land office registry. Following this, the sale and purchase agreement must be stamped at the stamp office and the stamp duty paid to the stamp office.

Stamp duty for sale & purchase agreement

The prescribed tiered rate of duty is shown below, followed by an example of stamp duty incurred on an RM1,000,000 property transaction, calculated on the Valuation & Property Services Department’s (JPPH) online calculator:



First RM100,000: 1%
RM100,001 to 500,000 :2%
RM500,001 and above: 3%

For foreign property purchasers, the minimum stamp duty to be paid will start from a minimum of RM9,000 as calculated for the purchase of property valued at RM500,000 (minimum purchase value for foreign purchasers).

Stamp duty for tenancy agreement

A lease or tenancy instrument which secures annual rent not exceeding RM2,400 is exempted from stamp duty. The prescribed rate of duty on the instrument which secures annual rent exceeding RM2,400 is as follows, illustrated by a sample calculation below.

• For every RM250 or part thereof in excess of RM2,400, lease period not exceeding one year: RM1.00
• Exceeding one but not exceeding three years: RM2.00
• Exceeding three years or for any indefinite period: RM4.00

Example:
Property X rents out for RM900 monthly rental for a one year lease period.
Annual rental: RM900 X 12 = RM 10,800. Deduct the exempted amount: RM10,800 - RM 2,400 = RM8,400

For lease period of one year and not exceeding 1 year, the rate of stamp duty will be RM1.00 for every RM250 in excess of RM2,400: RM 8,400 / RM 250 X RM1 = RM33.6 If the consideration for tenancy constitutes or includes a premium, additional duty is chargeable and is calculated on the amount of the premium at the rate chargeable on immovable property. If the lease provides for differential rent, the deputy collector of stamp duty should be contacted for further information.

Time of stamping instruments

Something to bear in mind is the time of stamping or time when payment of stamp duty is made. Essentially, instruments should be stamped on or before the time of execution.

Instruments executed in Malaysia
In general, all instruments executed in Malaysia should be stamped on or before the time of execution.

Instruments executed out of Malaysia
Instruments other than cheques or promissory notes must be stamped within 30 days after they have first been received in Malaysia. Penalty If an instrument is not stamped within the period stipulated, the following penalty may be imposed:

1. RM25.00 or 5% of the deficient duty, whichever is the greater, if stamped within 3 months after the time for stamping;
2. RM50.00 or 10% of the deficient duty, whichever is the greater, if stamped after 3 months but not later than 6 months after the time for stamping;
3. RM100.00 or 20% of the deficient duty, whichever is the greater, if stamped after 6 months from the time for stamping.

Recent Amendments to the Stamp Act 1949
(With effect from 1 January 2001)

1. All fixed duty documents (other than cheques, articles of association of a company, memorandum of association of a company) are subject to duty of RM10.
2. All documents constituting a charge or mortgage, agreement for a charge or mortgage (including that under the Syariah), bond, covenant, debenture etc. being the principal security for the payment or repayment of money are subject to duty of RM5 for every RM1,000 or part thereof.

Stamp Duty Relief Examples:

Malaysia’s Green Building Index (GBI)
Buildings and residential properties bought from real property developers and awarded the GBI certification are eligible for stamp duty exemption on instruments of transfer of ownership of such buildings.

This incentive is only available to the first owner of the building and effective for sales and purchase agreements executed between 24 October 2009 and 31 December 2014.

Bio-XCell, Iskandar Malaysia
A BioNexus status company undertaking a merger and acquisition with a biotechnology company is eligible for exemption of stamp duty and real property gains tax within a period of five years until 31 December 2011.

Stamp Duty Trivia
During Gordon Brown’s administration in the United Kingdom, the Council of Mortgage Lenders (CML) pressed for reform to the stamp duty. The CML argued that this tax unfairly constrains first-time buyers and encourages “price bunching” just below the various tiers of taxation.

Rising Interest from GCC

Despite the wealth of opportunities available to the robust Middle Eastern private equity sector, its players consider Malaysian assets to be an attractive avenue for portfolio diversification and first mover advantage into a rapidly expanding service-industry economy.

A recently concluded Ministry of International Trade & Industry (MITI) Trade & Investment Mission to Doha & Abu Dhabi affirmed continued levels of interest in Malaysia from Gulf Cooperation Council (GCC) investors, whose main focus appears to be the banking and finance, real estate and construction.

Strong factors encouraging GCC investors to diversify into Malaysia include the availability of Islamic financing options and stable yields.

An Islamic banking hub
Malaysia is currently the largest Islamic finance market outside the GCC countries. According to financial publication The Banker, Malaysia commands 10% of global Islamic banking assets.

Continued demand for Shariah– compliant products has seen foreign Islamic banks entering the Malaysian market, viewed as an important entry point to tap into increasing interest from the Asia-Pacific region’s fundraisers.

Abu Dhabi Commercial Bank recently entered the local market with an acquisition of 25% stake (USD1.25billion) in RHB Capital Berhad, Malaysia’s fifthbiggest lender by market value. Other foreign banks that were granted licences to offer full range Islamic Banking activities as at end May 2010 are:

• Al Rajhi Banking & Investment Corporation (Saudi Arabia)
• Deutsche Bank Aktiengesellschaft (Germany)
• PT. Bank Syariah Muamalat Indonesia, Tbk (Indonesia)
• Unicorn International Islamic Bank Malaysia Berhad (Bahrain)



Real Estate Interest
Initial interest registered through the MITI mission included enquiries for potential hotel acquisitions in Kuala Lumpur city centre and Kota Kinabalu. There were also enquiries on the East Coast Economic Region’s Kuala Terengganu City Centre development.

The focus in terms of real estate portfolios appears to be centred around urban centres and fast-growing areas. Major real estate project investments in 2010, for example, have been linked to the development of defining projects close to the city. Worthy of note is the Kuala Lumpur International Financial District (KLIFD), which will be developed by 1 Malaysia Development Berhad (1MDB), a strategic development company owned by the Malaysian Government and Mubadala Development Company (MDC), a subsidiary of the Abu Dhabi Investment authority.

Modeled after the Dubai International Financial Centre, KLIFD spreads across 34.4 hectares and will cost around USD8.3billion. Positioned to become a new global Islamic financial hub, work for KLIFD is on schedule, with construction expected to begin in mid-2011. A design competition for the development’s Master Planner has attracted renowned names, including Foster+ Partners, Sasaki, BDP, Machado and Silvetti, Broadway Malyan, Atkins, Cox Richardson, Adrian Smith + Gordon Gill, Nikken Sekkei Ltd and OMA.

To date, Qatar Investment Authority (QIA) and Kuwait Finance House (KFH) are the two most active GCC investors in Malaysian real estate. QIA via QD Asia Pacific Ltd and KLCC (Holdings) Sdn Bhd will jointly develop a mixed commercial hub comprising office, hotel & retail spaces with a net lettable area of 2 million sq ft (Lot 185 & Lot 167/K), next to the Petronas Twin Towers.

KFH Malaysia, via its subsidiary Medini Central Sdn Bhd, will inject USD329 million to develop Medini at Iskandar Malaysia in Johor. This development will be anchored by a trade and logistics zone, creative zone and heritage zone. KFH Malaysia is also involved in the development of a 45-storey high-end residential project with a development value of USD177 million at KLCC, Kuala Lumpur.

Other areas of interest

Mubadala Industry (part of MDC) and 1MDB have announced a strategic invest partnership worth USD6.92billion for the development of the aluminium sector based on hydro-power in the Sarawak Corridor of Renewable Energy. The two state-owned companies are starting preliminary assessment work on the project, projected to create more than 10,000 jobs during construction and another 2,000 specialist jobs over the course of the project.

Tanjong Agas Supply Base and Marine Services Sdn Bhd , the developer of the Tanjong Agas Oil & Gas and Logistics Industrial Park, entered into a joint venture with Dubai’s Oilfields Supply Centre Ltd (OSC) in October 2010. The initial RM620 million investment entails building, managing and operating a multifunctional common user supply base in the East Coast Economic Region (ECER). Full operation is scheduled for 2013.

Notably, this is the first major Middle Eastern investment in the East Coast of Malaysia. According to ECER Development Corp chief executive officer Datuk Jebasingam Issace John, ECER’s attractive incentives include 100% corporate tax exemption for up to 10 years and investment tax allowance of 100% on qualifying capital expenditure for five years.

The outlook for further GCC investments in 2011 is predicted to continue down the path of finance, transport and construction, sectors that have seen the most deals this year. The trend in government- to-government cooperation is also expected to continue to drive this year’s joint ventures into Malaysia.

Investor Concerns

Although some Middle Eastern investors have been actively investing in Malaysia, the majority are still unaware of the investment benefits. The lack of information on investment opportunities and data has been a barrier to these investors entering the market. Most of them favour entering into joint ventures with a strong credible partner or investing through a Government to Government partnership.

Government to Government partnerships are a value add, as they bestow confidence to an investment proposition. On investment on the real estate sector, these investors prefer to invest in completed buildings for en bloc purchase opportunities rather than engaging in development projects.

Transactions of iconic real estate and significant corporate acquisition from GCC countries has been on an increasing trend globally, beginning in 2010.

In May, Qatar Holdings, an investment arm of the Qatar Investment Authority, acquired Mohamed Al Fayed's Harrods department store in London for USD2.2 billion.

In June 2010, Qatar-based developer and investor Barwa Real Estate acquired the Park House development in London from UK developers, Land Securities Group at almost USD370 million.

Most recently, a consortium of Gulf investors headed by the Global Banking Corporation of Bahrain have been in talks to acquire the UK frozen food retailer Iceland Foods for up to USD2.3 billion.