Longer gestation period for developments along now-scrapped HSR line

This article first appeared in The Edge Malaysia Weekly, on January 11, 2021 - January 17, 2021.
Work on Bandar Malaysia, which  has a gross development value of RM140 billion, is expected to commence early this year (Photo by Suhaimi Yusuf/The Edge)

Work on Bandar Malaysia, which has a gross development value of RM140 billion, is expected to commence early this year (Photo by Suhaimi Yusuf/The Edge)

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THE termination of the Kuala Lumpur-Singapore high-speed rail (HSR) project is a setback for the property developments that had hoped to tap the potential of the mega transport endeavour.

While there has been talk of having a domestic HSR from KL to Johor Baru, there is no certainty as to whether it will materialise in the near term. Thus, the gestation period for Bandar Malaysia — the HSR terminus in KL — and Vision Valley 2.0 projects could take longer than planned.

However, a corporate observer familiar with the Bandar Malaysia development is unfazed by the possible delay as a result of the termination. “This project is not going to happen in five years. So, what is the difference if it is extended by another five years? After all it is a 20- to 30-year project,” she tells The Edge.

Despite the scrapping of the HSR project, she is confident Bandar Malaysia will remain a transit-oriented development based on the approved plan. “Bandar Malaysia is meant to be a transport hub. You can still have a train, but whether it will link to Singapore, it is up to Singapore to decide.

“Is it so damaging if we don’t proceed with the HSR with Singapore? There will be more freedom for Malaysia as we can decide on what to do. But Singapore is always welcome to join us because they only have 15km. Eventually, Singapore will be included as the city state is in a more desperate position to link to mainland Malaysia.”

Bandar Malaysia would have two mass rapid transit (MRT) underground stations — Bandar Malaysia North and Bandar Malaysia South — along the MRT Line 2 or Putrajaya Line. These two stations are considered provisional as the mega project has not taken off yet. Phase 1 of the MRT Line 2 was slated to be operational by July this year and Phase 2, two years later.

Work on Bandar Malaysia, which has a gross development value of RM140 billion, is expected to commence early this year, following the settlement of a RM1.24 billion payment last September that was due to the federal government from the project’s master developer IWH-CREC Sdn Bhd.

IWH-CREC — a joint venture between Iskandar Waterfront Holdings Sdn Bhd (IWH) and China’s state-owned enterprise China Railway Engineering Corp (CREC) — holds a 60% stake in Bandar Malaysia while the remaining 40% is held by the Ministry of Finance via TRX City Sdn Bhd.

Kenanga Research analyst Lum Joe Shen says although Bandar Malaysia will take a longer time to complete, the location is quite strategic with two MRT stations. “The HSR is not the only key for Bandar Malaysia. With proper planning, it will be able to get good demand. Of course, with the HSR, there will be more pent-up demand as foreigners may choose to stay there.

“I personally feel that it is fine without the HSR. Instead, projects such as the MRT 3 will serve us better. The economic impact of the HSR is debatable as there is no certainty in terms of fund flows.”

He is also sceptical about the KL-Johor Baru HSR being talked about, given that there is already a double-track railway connecting the two cities.

Impact on Vision Valley is more significant

Lum is of the view that Sime Darby Property Bhd’s Malaysia Vision Valley project could be affected more significantly by the termination of the HSR. “It [Vision Valley] is being built on the idea of commercial and industrial purposes. The marketability of the development will see more impact,” he opines.

Vision Valley, covering 153,411ha in Port Dickson and Seremban, Negeri Sembilan, is expected to attract RM290 billion worth of investments over 30 years. It is poised to be a new growth corridor south of Greater KL.

When contacted, Sime Darby Property declined to comment on the matter. The property developer kick-started its first project in Vision Valley in February last year with the groundbreaking of XME Business Park in Nilai Impian.

An analyst who declined to be named still believes that Bandar Malaysia will be the terminus station for the HSR project. “Based on our channel checks, the KL-Johor Baru HSR is something that is in the works. I think the government just wants to get the upper hand because the final connection to Singapore can be constructed much later.

“Eventually, Singapore will come to the table. This will force it to take up the modifications proposed by Malaysia.

“The commercial viability of mega projects along the HSR line will be severely affected if there is no HSR. I don’t think it will turn out to be very successful without an HSR station in Bandar Malaysia. Developers may not go in if the HSR is not there.”

Ekovest seen committed to Bandar Malaysia

The analyst also believes that the HSR termination will not affect Ekovest Bhd’s participation in Bandar Malaysia, given its executive chairman Tan Sri Lim Kang Hoo’s relationship with the government.

Industry sources say Ekovest’s investment in Bandar Malaysia will remain intact. A definitive agreement with full details will be signed by the parties involved in the next two weeks. “Bandar Malaysia is a standalone investment and the HSR termination is a ‘temporary’ thing,” says a source.

Last September, Ekovest received an offer to acquire a 40% stake in IWH-CREC held by IWH. If the deal goes through, the joint-venture company will have three shareholders, namely Ekovest (40%), IWH (20%) and CREC (40%).

The estimated total investment commitment of Ekovest for its participation in the Bandar Malaysia project is RM1.48 billion. Lim is the controlling shareholder of IWH and Ekovest, with 63% and 32.4% equity interest respectively.

Meanwhile, another analyst stresses that the success of Bandar Malaysia is highly dependent on foreign participation in view of the saturated property market. “If not, it would be very hard to get off the ground regardless of the HSR project. The key is to get Chinese investors in together with their multinational companies.”

Property consultant CBRE | WTW group managing director Foo Gee Jen says investors should look at the property projects in the long term. “Even with the HSR, you would not feel the actual impact immediately. For those who want to buy in Bandar Malaysia, Vision Valley and Iskandar Puteri, they will have to see the long-term value. I am positive that the government will revisit the HSR project in the future, supported by China’s Belt and Road Initiative.”

Shares of Ekovest and Iskandar Waterfront City Bhd (IWC) came under heavy selling pressure last Monday after the termination of the HSR project was announced. Last week, Ekovest and IWC fell 11.54% and 15.65% respectively.

Lim is executive vice-chairman and a major shareholder of IWC, with direct and indirect stakes of 0.66% and 37.72% respectively.

HLIB Research said in a Jan 4 note that a domestic HSR should take place in the longer term. However, based on its estimates, the project would cost roughly RM50 billion, which is more expensive as the systems cost would now be fully borne by Malaysia. However, post-cost-cutting measures, the figure could fall considerably.

The original HSR was estimated to cost about RM60 billion, comprising RM35 billion for Malaysia’s construction cost, RM10 billion for Singapore’s construction cost and RM15 billion for systems and rolling stock.

Meanwhile, CGS-CIMB Research expects the feasibility studies for the KL-Johor Baru HSR to be expedited in 2021 and will focus on reducing the original civil works cost of RM50 billion to RM55 billion (60% to 70% of the total 350km HSR development cost, excluding systems and rolling stock). “We believe the revised cost of the new HSR line would still be sizeable as the distance is only about 10% shorter,” it says.

RHB Research does not rule out that the physical works for the twice-delayed HSR could kick off as early as next year if it is given the green light. “This is despite a possible change in the final alignment, which could lead to more regulatory approvals,” it says.

“In the original proposal, the value of the project delivery partner’s (PDP) job scope was about RM35 billion to RM40 billion. We estimate that construction could take around seven years to complete (excluding trial operations), if the target completion date remains in 2029.”

Another analyst says that overall, the HSR project does not change the construction sector’s outlook for the next one to two years. “If we don’t have the HSR, then we can expect the rollout of MRT 3 to be quicker rather than stretching it out to seven to eight years.”

MRT 3, or the Circle line, was cancelled by former prime minister Tun Dr Mahathir Mohamad in 2018. It has a stop in Bandar Malaysia.


See also Cover Story on page 58



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