• Maintain OVERWEIGHT. We maintain our positive view on the Iskandar Malaysia property market. Forest City, which is next to the MalaysiaSingapore Second Link, has been designated as special financial zone. We think more catalytic developments may potentially shift towards the Second Link area given the vast land resources and well-developed infrastructure and connectivity. UEM Sunrise remains the best proxy for this Johor thematic play, followed by Sunway, given their sizeable exposure to the state’s property market.

• A special financial zone in Forest City. Last Friday, Prime Minister Datuk Seri Anwar Ibrahim announced that Forest City has been designated as a special financial zone to spur the economy in Iskandar Malaysia. Amongst the incentives that have been announced include multiple entry visas, fast track entry for those working in Singapore and a flat income tax rate of 15% for knowledge workers. He said this should spur the growth of those involved in the healthcare, education and tourism sectors.

• Reviving Forest City. We think this move should help to revitalise the Forest City township, which has received lots of negative publicity over the last few years. Located right next to the gateway of southern Malaysia, this special financial zone aims to attract corporates experiencing high operating costs in Singapore, and at the same time, residents that are suffering expensive housing and education costs in Singapore. While details are still lacking, these incentives should help to encourage more business activities around areas near to the Second Link going forward.

• Who are the neighbours? Nearby Forest City, major landowners include UEM Sunrise (Gerbang Nusajaya 2,419 acres) and Sunway (Sunway Iskandar, 1,602 acres) and SP Setia (Tanjung Kupang, 307 acres). Depending on the extent of the spillover, these few developers should benefit from greater commercial activities and population flow as more job opportunities are created at Forest City in future.

• What about the special economic zone? We believe industry players will be looking forward to the announcement of special economic zone, as it should cover specific industrial and new economic sectors (such as data centres and renewable energy). In our opinion, we think the focus of catalytic developments in Johor may shift to the Second Link area. The Johor and Singapore governments are also in discussion to launch additional ferry services and will access the viability of potential new service between Puteri Harbour and Tuas. Unlike Johor Bahru city centre or vicinity surrounding the causeway that is already crowded, the Second Link area has plenty of landbank, and well-developed infrastructure and amenities. Moreover, it is also close to a major sea port ie Port of Tanjung Pelepas, while the proposed Kuala Lumpur-Singapore High Speed Rail (HSR) station may also be located at Gerbang Nusajaya once again (as it initially was under the previously planned project). This should enable proper planning for future developments.

Source: RHB Securities Research - 28 Aug 2023