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DBS Asian Insights

DBS Group Research • July 2019

KL-SG High Speed Rail

Riding the HSR Revival
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KL-SG High Speed Rail

Riding the HSR Revival

Tjen San CHONG, CFA

[email protected]

QUAH He Wei, CFA

[email protected]

Produced by:
Asian Insights Office • DBS Group Research

go.dbs.com/research
@dbsinsights
[email protected]

Wen Nan Tan Editor

Martin Tacchi Art Director
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04 Executive Summary

09 KL-SG HSR: Potential Migration

Impacts

11 Potential Parties for HSR Project

Structure
14 Potential Construction Beneficiaries
17 Case Study: Jakarta-Bandung HSR
22 Financing

23 Impact on Property Market

Malaysia property market needs to be
revitalised
Strong impetus for economic uplift?
Greater KL: Commercial development
Johor: Industrial development
Melaka: Tourism
Transit-oriented development: Residential
migration

41 Key Risks
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Executive Summary
Kuala Lumpur – Singapore High Speed Rail:
An Introduction
The initial idea for the Kuala Lumpur – Singapore High Speed Rail (KL-SG HSR) project took a
more concrete shape when leaders of both countries met at a leaders’ retreat in October 2013.
The idea was explored between both nations in the 1990s and was on the cusp of coming to
fruition until the conclusion of Malaysia’s 14th General Elections (GE14) in May 2018. After the
new government took over, this project was postponed until May 2020.

In September 2018, both Malaysia and Singapore agreed to postpone the construction of
the project until May 2020. Malaysia’ Minister of Economic Affairs Datuk Seri Azmin Ali and
Singapore Transport Minister Khaw Boon Wan exchanged legal documents pertaining to this,
postponing the start of HSR’s operations to 1 Jan 2031 instead of 31 December 2026.

According to a study, the economic benefits of the HSR is estimated at RM 21bn of Gross
Domestic Product (GDP) in the year 2060 with 442,000 jobs created. This is on top of the
multiple benefits of its construction estimated at RM 70bn, with direct and indirect GDP impact
of RM 29bn. It is estimated that the service will carry 22m passengers in year 10 of operations
for all travel routes.

The Prime Minister of Malaysia Tun Mahathir Mohamad said in early April 2019 that he was
exploring proposals to reduce HSR’s total cost. He admitted that the project has potential
economic benefits for both countries but it has to be feasible and sustainable.

However, in mid-April he changed his tune somewhat, focusing on improving the existing railway
system through electrification and double tracking. His main rationale is that the HSR service should
be for travel of more than six hours, such as services from Johor to Penang, or even Thailand.

Is revival of HSR imminent?

In our view, the revival of the HSR looks imminent given two key events in 2Q19. First, MyHSR
sought a TAC via an open tender. This TAC will be tasked to review the technical aspects and
recommendations following the Malaysian government’s revisions including alignment, stations
and HSR maintenance, as well as on the ground data collection activities such as topography
survey data, soil investigation and ground condition assessments.

In May 2018, MyHSR called for a tender to appoint a commercial advisory consultant (CAC).
The CAC will be required to develop a new business model that will enable optimal project life-
cycle cost, provide updated ridership forecasts and assessments of the HSR’s benefits.
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Second is the revival of the Bandar Malaysia project. On 19 April 2019, Mahathir announced
that the Bandar Malaysia project will be revived but with some changes. The original master
developer, a consortium of Iskandar Waterfront Holdings Bhd and China Railway Engineering
Corp Sdn Bhd (IWH-CREC), had 60 days to pay the original deposit sum of RM741m with an
additional RM500m.The plan will also now include 10,000 affordable housing units, a people’s
park, Bumiputra (indigenous Malays) participation throughout the project, and priority for local
content and materials.

Economic Affairs Minister Azmin added that the revived Bandar Malaysia project will be driven
by the private sector and not receive government funding. The key focus of this project is to
make Malaysia a financial hub, apart from the other commercial and residential content.

Bandar Malaysia and In our view, the success of Bandar Malaysia hinges on transport connectivity. Bandar Malaysia
HSR go hand in hand was initially earmarked for the HSR terminus (starting point). There were also supposed to
be two underground stations at Bandar Malaysia for MRT2 before this was put on hold. The
revival of Bandar Malaysia will likely be a precursor to the eventual continuation of the HSR
project in May 2020.

Further delays mean The key question now is if the Singapore government will allow further deferment of this
more compensation project beyond May 2020 without additional compensation from Malaysia. So far, Malaysia
has paid Singapore SGD15m in compensation for the project’s delay. Any further delays would
likely lead to much larger compensation.

Structure of HSR The bulk of the project’s structure will still be relatively intact. However, financing and cost
largely intact structure will likely take precedence. In this report, we will attempt to make reasonable
guesstimates on how the new government will structure this project. However, much of the
report is still based on the previous structure. We believe the entity that offers the most holistic
financing solution for this project will have an upper hand.

HSR offers shortest travel time Malaysia-Singapore

Source: MyHSR
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Shortest travel time The HSR is envisaged to provide the shortest travelling time between both countries,
inclusive of travelling time to the HSR Stations and clearing immigration. Compared to the
fastest alternative today of air travel, the time saved is estimated at two hours.

Still 7 stations The HSR project will include 7 stations in Malaysia – Bandar Malaysia, Sepang-Putrajaya,
Seremban, Melaka, Muar, Batu Pahat and Iskandar Puteri, before reaching its last destination
in Jurong East, Singapore. The total length of the rail will be 350km (335km in Malaysia and
15km in Singapore).

Three CIQs and one The estimated travelling time is 90 minutes for the 350km distance. Great emphasis has
immigration check been placed on better and more seamless Customs, Immigration and Quarantine (CIQ)
point connectivity. There are three CIQ check points in Bandar Malaysia, Iskandar Puteri and
Jurong East. There will only be one immigration check point. For example, if you board the
train in Bandar Malaysia, there will be only one immigration check point there and none in
Jurong East.

HSR alignment

Source: MyHSR
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Three services There are three HSR services expected:

1. Direct service (90 minutes)

2. Domestic service in Malaysia

3. Shuttle service from Iskandar Puteri to Singapore.

Passengers will only need to undergo one CIQ clearance in either Singapore or Malaysia at
their point of departure.

HSR: CIQ Analysis

Passengers’ route Service(s)

Kuala Lumpur to Singapore Express

Singapore to Kuala Lumpur Express

Anywhere in Malaysia to Singapore Domestic + Shuttle

Singapore to Anywhere in Malaysia Domestic + Shuttle

Iskandar Puteri to Singapore Shuttle

Singapore to Iskandar Puteri Shuttle

Source: MyHSR
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KL-SG HSR : Milestones

Date Event
19-Oct-13 Joint Statement by both Malaysia and Singapore Prime Ministers at the Leaders' Retreat in Singapore to build the
HSR
7-Apr-14 Both Prime Ministers at Leaders' Retreat in Putrajaya reiterated commitment for the project
19-Jul-16 Joint SPAD and LTA on MOU for HSR
29-Jul-16 MyHSR appoints CH2M as technical advisor
13-Dec-16 Joint SPAD and LTA releases fact sheet on HSR which is similar to the MOU
19-Sep-17 MyHSR and LTA to conduct ticketing and fare collection discussions
28-Sep-17 Second industry briefing for HSR
2-Nov-17 Public inspection commences for a period of three months
20-Nov-17 MyHSR to launch PDP tender
20-Dec-17 Launch of AssetCo tender
26-Dec-17 EIA ready for public viewing
5-Jan-18 Social Impact Assessment contract awarded to ERE Consulting
23-Jan-18 MyHSR and SG HSR successfully held a briefing for the AssetsCo tender in KL.
8-Feb-18 Public inspection exercise concluded where 95% of public feedback received were supportive of the project,
with an overwhelming 98% of positive response received from Kuala Lumpur and Johor. Most of the total
respondents were represented by the 21-40 age group.
7-Mar-18 MyHSR will call for a tender to appoint the Final Survey Consultants (FSC) on 9 March 2018. The FSC tender
will be divided into 6 packages, with 3 packages reserved for Bumiputera firms. The main scope of the FSC
are to conduct land survey and provide land administration support for the land acquisition process. Upon
approval of the Railway Scheme, the identified land will be acquired by the government in accordance to
Section 8 of Land Acquisition Act 1960 (‘Act 486’). The land acquisition application is expected to commence
in June 2018 with the first land to be acquired for the main infrastructures (i.e.: stations, maintenance
facilities, tunnel portals, etc.).
5-Apr-18 Two PDPs appointed for the Northern and Southern section.
5-Apr-18 Environmental Impact Assessment Study approved.
19-Apr-18 AssetCo tender extended by six months and will close on 28 December 2018. Results by 3Q19
May 18 New Prime Minister of Malaysia Tun Mahathir said project will be scrapped
July 18 Tun Mahathir said project is deferred instead
5-Sep-18 Both Malaysia and Singapore Governments agree to postpone the construction of the project until May
2020. Malaysia' Economic Minister Azmin Ali and Singapore Transport Minister Khaw Boon Wan exchanged
legal documents pertaining to this. The express service is supposed to start by 1 Jan 2031 instead of 31
December 2026.
Hence, the international tender for the AssetCo has also been called off
8-Apr-19 MyHSR Corp is seeking a Technical Advisory Consultant (TAC) via an open tender. This TAC will be tasked
to review the technical aspects of the recommended option following its revision by the Malaysian
Government
9-May-19 MyHSR called for a tender to appoint a commercial advisory consultant (CAC). The CAC will be required to
develop a new business model that will enable optimal project life-cycle cost, provide updated ridership
forecasts and assessments of the benefits of the HSR.
Source: MyHSR
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KL-SG HSR:
Potential Migration Impacts
This report will dissect the following issues:

• Potential impact and risks of HSR construction, as well as companies that may benefit
(PDP, AssetsCo, InfraCos, Opcos) from the project

• Comparison with Jakarta-Bandung HSR, the first in ASEAN

• Potential impact on economic development along the rail’s alignment. There could be
significant changes in demographics, migration between cities and property value

• Detailed analysis on key Malaysian property developers with sizeable land bank along
the HSR alignment. We also assess if the proposed HSR may revitalise the local property
market which has been plagued by unprecedented overhang

HSR corridor is vital to Malaysia’s economy

The HSR corridor is already an important economic component in the country, regardless of
the project’s commencement. According to a study, the HSR corridor collectively contributed
to 54% of national GDP in 2016 and accounted for 46% of total employment. This is
largely due to the fact that three of the states involved in the HSR Kuala Lumpur, Selangor
and Johor are major economic centres of the country.

Bandar Malaysia It remains to be seen if Bandar Malaysia will still be picked as the HSR terminus in Malaysia.
terminus? The 486-acre Bandar Malaysia’s positioning as a key transportation hub and Transit-Oriented
Development (TOD) will be strengthened further if this happens. Besides having the main
HSR station in Malaysia, it would also provide connectivity to MRT Lines 2 and 3, KTM
Komuter Lines and the Express Rail Link (ERL).

This may ultimately reduce the high level of existing inventory in the KL office market,
estimated at 96m square feet (sq ft) in 2018 with another 13m sq feet by 2020. Smaller
cities such as Seremban, Ayer Keroh, Muar and Batu Pahat should benefit too. There could
be more migration inland which may eventually lift property value.

HSR is more than just another transportation project connecting two major cities. It will be
a key catalyst in transforming economic clusters and cities along the corridor. Besides the
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intra-country impact in Malaysia, it will strengthen regional economic integration between

Malaysia and Singapore and could see more work migration between both countries.

SG-KL is busiest Aviation industry consultants OAG recently revealed that the Singapore-Kuala Lumpur route
international air link is the world’s busiest international air link. This is based on the number of flights between
the two cities in 12 months up to February 2018. This route had 30,537 flights, while
second was Hong Kong-Taipei was 28,887 and Singapore-Jakarta was 23,704. This is a
strong indicator of demand for alternative and faster travel routes linking Singapore and
Kuala Lumpur.
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Potential Parties for HSR

Project Structure
KL-SG HSR structure

Source: MyHSR

The diagram above depicts all the parties involved in the HSR structure.

• AssetsCo: Building, financing and maintaining all rolling stock, as well as designing,
building, financing, operating and maintaining all rail assets (e.g. trackwork, power,
signalling and telecommunications)

• InfraCos: Paying AssetsCo an “availability payment” which covers the capital expenditure
(capex), cost of operations, maintenance and renewal of HSR Assets (excluding rolling
stock) in return for AssetsCo making HSR assets available to the OpCos

• OpCos: Paying AssetsCo train lease fees which cover AssetsCo’s train-related costs, as
well as operational, maintenance and renewal costs of equipment in return for AssetsCo
making the trains available to OpCo International to operate the express and shuttle
services, and OpCo Domestic to operate the domestic services
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AssetsCo
Prior to GE-14, MyHSR and SG HSR jointly called for the AssetsCo PPP Project International
Tender on 20 December 2017. The tender was initially supposed to close on 29 June 2018 but
was extended to 28 December 2018.

With the postponement of this project to May 2020, the international AssetsCo tender was
called off.

The previous tender notice mentioned that the AssetCo will be responsible for:

1. Designing, building, financing and maintaining all rolling stock

2. Designing, building, financing, operating and maintaining all rail assets (track-work,
power, signalling and telecommunications)

3. Coordinating the system’s network capacity for operations and maintenance needs

The revival of Bandar Malaysia will enable the master developer Iskandar Waterfront Holdings
(IWH) and CREC to acquire 60% of equity in Bandar Malaysia for RM7.4bn from 1MDB Real
Estate. The site spans 196.7 ha and could be the main HSR terminal. CREC was supposed to
invest US$2bn to build its own regional centre in Bandar Malaysia.

Once the project is revived in 2020, we think that it will be a close race between the Chinese
and Japanese for the AssetCo tender. Similarly, the Jakarta-Bandung HSR was won by the
Chinese.

Prior to the GE14, a Chinese consortium consisting of eight companies including CRRC, China
Railway Construction Corporation, China Railway Signal and Communication, and Export-
Import Bank of China was believed to be bidding for the project. This will cover the design,
construction, telecommunication, financing, operation and maintenance for HSR.

In January 2018, Japan was also strongly rumoured to bid for this project, including a total
transfer of technology and local vendor development to benefit Malaysian and Singaporean
companies.

Mr. Miyagawa, Japan’s ambassador in Malaysia stated that Japan offers the most competitive
financing package, full-fledged training for officials, operators and engineers and its
impeccable reputation for safety. Japan’s bullet trains (Shinkansen) have operated for almost
50 years without any fatal accidents or human capital problems.
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PDP
The PDP will be responsible to develop detailed designs for the infrastructure works including
station and the alignment structures (i.e. bridges, tunnels and embankments) within Malaysia
and construct them within budget and on time. It remains to be seen if the PDP approach will
still be used but we think this will be unlikely.

In addition to detailed design and delivery of the infrastructure works, the PDP will also be
required to assist with interface management, land acquisition processes and stakeholder
engagement activities.

According to the previous tender documents, the project is open to firms meeting the
following pre-requisites:

1. Have undertaken railway projects in Malaysia and demonstrated the following:

• omprehensive knowledge of local railway construction best practices, regulatory

C
requirements and supply market conditions and;

• Ability and experience in railway project management, design and construction.

2. Experienced in high speed railway infrastructure project management and design (may be
demonstrated by appointment of specialist consultants

3. Registered with Malaysia’s Construction Industry Development Board (CIDB) under

Category G7
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Potential Construction
Beneficiaries
The KL-SG HSR project will be vital for the revival of the construction sector in 2020. The new
government’s emphasis will be on greater transparency, higher local content ensuring a high
multiplier effect and more competitive pricing.

Are previous winners still contenders?

The jury is still out on this. The two key differentiating factors will be; i) experience and, ii)
balance sheet strength. This would favour larger public listed contractors such as Gamuda,
IJM Corp, YTL Corp and Sunway Construction as top contenders. In the months leading up to
the project’s revival in May 2020, we foresee strategic JVs or tie-ups between some of these
contractors and potentially foreign contractors/financiers.

Two previous winners To recap, there were two winning consortiums before the project was deferred. The Malaysian
Resources Corporation Berhad (MRCB)-Gamuda consortium won the PDP Package 1 (northern
section) from Kuala Lumpur to the state border between Melaka and Johor. The other letter
of appointment (LOA) was awarded to YTL-TH Properties for the southern portion in Johor.

Project packages It is probable that work could be accelerated once the project kicks off in May 2020.
remain fluid Environmental and heritage assessments have been received. The state governments have
also worked with MyHSR to freeze land transactions in accordance with Section 4 of the Land
Acquisition Act 1960. In total, more than 60 civil packages and more than 5,000 subcontract
packages were expected. However, this situation is fluid now.

Civil works could be The previous indicative value for the Malaysian portion of civil works was RM35-40bn.
scaled down However, this could change once tenders kick off in 2020. It is unlikely that the project will be
rolled out using the PDP model. We have seen two major transportation projects (LRT 3 and
MRT 2) switched to fixed price turnkey contracts.

This was the previous breakdown of the estimated RM60bn cost of the project.

1. RM35bn civil works for the Malaysian portion which would be reserved for Malaysian
contractors

2. RM10bn for the Singaporean portion of civil works

3. RM15bn for AssetsCo which will be for rolling stock, systems and signalling works
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Malaysia and Singapore to manage civil works

independently
The civil engineering portions will be managed independently in each country. There could
also be two levels of funding – the civil engineering portion funded by the respective countries’
governments and foreign funding for the other works.

Before the project’s deferment, the Singapore Land Transport Authority (LTA) had called for
tenders for the design and construction of tunnels and associated facilities for Singapore’s end
of the project on 11 April 2018. This is the portion leading to the Jurong East terminus.

Refer to the table below for potential beneficiaries of the civil works for the HSR. Contractors
with previous experience in railway projects such as MRT and LRT would have some advantage.

Contractors: Potential winners of HSR civil works

Source: Bursa Malaysia; Company , Total work is an estimate of cumulative rail based experience
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HSR contractors: PDP and AssetsCo (pre-GE14)

Company Prior experience (PDP or AssetCo) Role for HSR (Previous)
Gamuda PDP for MRT Line 1 and 2 Letter of Intent with MRCB for PDP
(converted to turnkey) Role Northern portion (KL to Johor)
which has lapsed
MRCB PDP for LRT 3 Letter of Intent with Gamuda for
(converted to turnkey) PDP Role Northern portion (KL to
Johor) which has lapsed
YTL ERL Letter of Intent with TH Property
for Southern portion (Johor) which
has lapsed
IJM None
Sunway None
Construction
MMC MRT Line 1 and 2 (converted to Interested in AssetCo role
turnkey)
George Kent PDP for LRT 3 Likely interest in AssetCo role
(converted to turnkey)
Source: Bursa Malaysia; Company

KL-SG HSR: Tenders underway and awarded pre-GE14

Type Status Date Awarded/Closing Company

Advance Works To be called n/a n/a

Independent Checking Engineer To be called n/a n/a

Geospatial Data Consultant In progress n/a n/a

AssetCo In progress 29-Jun-18 n/a

Project Delivery Partner Awarded 30-Jan-18 MRCB-Gamuda and YTL-TH
Technical Advisory Services Awarded 26-Jul-16 CH2M/PwC
Joint Development Partner Awarded 16-Feb-17 WSP Engineering, Mott Macdonald
and Ernst & Young
Civil Reference Design Consultant 01 Awarded 3-Apr-17 Systra S.A.
Civil Reference Design Consultant 02 Awarded 3-Apr-17 Jacobs Engineering Services
Civil Reference Design Consultant 03 Awarded 3-Apr-17 Systra S.A.
Civil Reference Design Consultant 04 Awarded 3-Apr-17 Ranhill Consulting
Civil Reference Design Consultant 05 Awarded 3-Apr-17 HSS Integrated
Civil Reference Design Consultant 06 Awarded 3-Apr-17 AECOM Prefunding
Ground Control Point Survey Package 1 Awarded 13-Jun-17 Jurukur Perunding Services
Ground Control Point Survey Package 2 Awarded 13-Jun-17 Teraju Ukur
Public Inspection Data Collection and Awarded 21-Sep-17 Acorn Marketing & Research
Reporting
360 Hawkeye View Programme Awarded 21-Sep-17 Innate Ideas
Source: MyHSR
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Case Study:
Jakarta-Bandung HSR
The Jakarta-Bandung HSR is an interesting case study, providing insights on potential execution
issues that other countries may encounter.

Jakarta-Bandung HSR: Case Study

Proposed Actual
Length 150.5km 142.3km
Number of stations 8 4
Speed 350km/h 250km/h
Construction period Mid 2016 Expected 60% completion by end 2019
Shareholding 40% China; 60% SOE Companies 40% China; 60% SOE Companies
Contract size US$5.5bn US$5.6bn
Precast supplied by Indonesian contractor Rp6-7tr Rp2tr

Source: Wijaya Karya

In July 2015, the Indonesian government announced plans for the HSR connecting Jakarta to
Bandung in West Java. There was also mention of an extension later to Surabaya in East Java.

Both Japan and China expressed keen interest in the project but it was eventually awarded
to China in September 2015. The deciding factors were China’s non-requirement of a
government guarantee and faster completion of the project.

In October 2015, Chinese and Indonesian state-owned enterprises (SOEs) officially signed the
deal at an estimated project cost of US$5.5bn. China Development Bank committed to fund
75% of the project with a loan tenured at 40 years and an initial grace period of 10 years at a
fixed loan rate. The balance 25% will be funded by equity from the PT Kereta Cepat Indonesia
China (PT KCIC). The shareholding structure of PT KCIC (the JV vehicle incorporated for this
project) is 60% from the Indonesian consortium and 40% from China Railway International.
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Jakarta-Bandung HSR: Funding structure

Source: Wijaya Karya

PT KCIC: Shareholding structure

Source: Wijaya Karya

Indonesia’s President Joko Widodo (Jokowi) officiated the groundbreaking ceremony in January
2016 while the construction permit was issued in July 2016. However, China Development
Bank took longer than expected to disburse the funds, citing incomplete land acquisition as
the main reason. As such, no meaningful construction work started till late 2018. Besides
land required for construction, the main sweetener to make the project more viable is the
associated TOD.

Other issues which have hampered progress of this project include lack of proper environmental
impact studies, consistency with regional spatial plans and inconsistent tender processes.
Internal politics between key ministerial figures have also made the process more difficult.
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As of now, the project has reached 9% progress completion with a target of hitting 60% by
end 2019. The target completion date has been moved to 2021. The project’s internal rate of
return (IRR) and equity IRR are estimated at 6.5% and 13% respectively.

More interestingly, the payback period of the project (without TOD contribution) is estimated
at 47 years. With TOD contribution, payback is expected at 18-20 years. The total TOD
revenue accumulation from strata and recurring income until 2070 is estimated up to Rp266tr.

In conclusion, the foreign party in the Jakarta-Bandung HSR (China) appears to have an end-
to-end role in the project. It is financing 75% of the total project. As a consortium partner
in KCIC it also takes on ridership risk but this is somewhat compensated by the TOD factor.

TOD: Revenue projections (Rptr)

Source: WIKA

KL-SG HSR: A different structure

The Jakarta-Bandung HSR has been delayed for two years as China Development Bank has
delayed the disbursement of funds citing land acquisition issues.

However, the KL-SG HSR project is different with a clearly defined structure (AssetsCo, PDP,
OpCos and InfraCos). The Malaysian government will also likely fund the civil works portion
and foreign funding will only likely be required for the AssetsCo which receives a fixed train
lease fee and availability payment, taking no ridership risk. This is contrast to the Jakarta-
Bandung HSR where 75% of the total project is financed by China Development and balance
25% by equity from PT KCIC, in which China Railway International is also a shareholder.
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The KL-SG HSR is structured so that foreign funding is only earmarked for the AssetsCo
portion. This may alleviate concerns over potential project delays. The Malaysian government
will likely finance civil works for the project.

In terms of potential land acquisition delays/risks, Section 4 (Act 486) of the Land Act states
that compulsory land acquisition of land for public purposes cannot be objected.

Land acquisition
Land acquisition is a thorny issue in the Jakarta-Bandung HSR. To analyse how progressive
local land acquisition laws are, the following data is extracted from the MyHSR website.

The land acquisition process is governed by the Land Acquisition Act 1960 (Act 486 and is
consistent across all states). The government is currently in the process of conducting the
Section 4 (Act 486), which reserves an approximately 500m width of land along the KL-SG
HSR corridor for study purposes (i.e. soil investigation, survey, etc).

Upon completion of the study, identified lands which are required for the construction of the
HSR structure (average width is approximately 30 – 50 metres) that sits within 500m of land
along the KL-SG HSR corridor will be acquired permanently under Section 8 (Act 486).

The project is for public purposes where the compulsory land acquisition of land under the Act
486 cannot be objected. However, any interested person(s) may object to the compensation
value, area, compensation allocation and the person(s) receiving the compensation through
channels provided under Act 486.

Land Acquisition Act (Section 4 and 8)

Section 4
Preliminary Property owners will be informed that their properties may be acquired
Notice on (may not be at the end) given their properties are located along the
Potential proposed alignment of the HSR line. The Section 4 (Act486) will allow a
Acquisition detailed study to be conducted by MyHSR Corp or its contractor by allowing
them to enter the land for soil investigation purpose. This public notice will
be posted at the District Land Office, public notice boards, etc.

Section 8
Declaration The land or property owner will be officially notified via registered post
that land/ / notice server by Pejabat Tanah on the acquisition. Repeated attempts
property is to contact the owner will be done too. Land acquisition under Section
required for 8 (Act 486) is a permanent land acquisition, whereby each stakeholder
public purpose of the land will be called during the hearing process to determine the
compensation payment.

Source: MyHSR
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Upon approval of the Railway Scheme, the identified land will be acquired by the government
in accordance with Section 8 of Land Acquisition Act 1960 (‘Act 486’). The land acquisition
application is expected to commence in June 2018 with the first land to be acquired for the
main infrastructures (i.e. stations, maintenance facilities, tunnel portals, etc.).
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Financing
The main barrier to a successful and timely rollout of this project post May 2020 is financing,
especially on the Malaysian side. This was the main reason why the project was suspended
post GE14. The federal government’s debt-to-GDP ratio is currently 56%, but including
contingent liabilities it rises to 69%. This gives the federal government little flexibility in rolling
out large scale infrastructure projects, especially with lower revenue due to the abolishment
of the goods and services tax (GST).

Malaysia acknowledges the HSR project’s significant economic benefits for both countries
but insists that it has to be feasible and sustainable. The project’s structure entailing a holistic
end-to-end financing, or some form of public and private financing initiative, will be key. This
would also mean that contractors with balance sheet strength such as Gamuda, IJM Corp and
Sunway Construction should be front runners.
Malaysia: Government debt-to-GDP ratio

Source: BNM
Malaysia: Government debt value

Source: BNM
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Impact on Property Market

Malaysia property market needs to be
revitalised
Market slowdown The Malaysian property market has been on a downtrend since 2015. Take-up rates have
been hovering at around 30-35% over the past three years, markedly lower than the
average over the past 10 years. Concerns over affordability, prolonged weak sentiment
and large incoming supply continue to plague the market. It will take a long time for the
sector to recover.

Property market: New launches and sales (by units)

Source: NAPIC, AllianceDBS

Lack of catalysts Total property transactions in Malaysia remained uninspiring in 2018, registering 1%
growth after declining by 12% and 3% in 2016 and 2017 respectively. Residential
properties, which account for ~65% of total transactions, have been similarly lacklustre
over the past few years. Unsurprisingly, the property market remains in the doldrums due
to low affordability.

Recovery unlikely in As the property market continues to grapple with issues of affordability and supply glut,
2019 the challenging condition is expected to persist in 2019. The risk of subdued economic
growth arising from financial market volatility and incessant trade tension may continue
to be a dampener on the property market. This is reflected in the weak property price
growth which has decelerated to its slowest pace since 2010 at a meagre 1.6% in 4Q18.
The much talked about gloom and doom continues to affect buying sentiment. We
believe 2019 could mark the seventh straight year of decelerating property price growth
since its peak of 13.4% in 2012.
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House price index: Slower y-o-y growth

Source: AllianceDBS, NAPIC

No quick fix for More time is required for the market to absorb the large property overhang, which has
property overhang depressed rental yields for property owners and making the asset class unviable as an
investment. The property market is highly dependent on genuine home buyers who are spoilt
for choices given the supply glut of properties. Developers have been trying hard to monetise
their unsold inventory with various attractive rebates/discounts/incentives which effectively
reduce net selling prices.

Oversupply of high-rise New supplies could peak in 2019 with completions from 2016-2018 projects adding on to
units the property overhang. This is more prevalent in high-rise units which accounted for 43% of
completed but unsold residential properties of 32,313 units as at end-4Q18. If we include
completed but unsold serviced apartments which are categorised as commercial properties,
unsold high-rise units would surge to 58%. This is also the primary reason that high-rise
property price growth swung into negative territory in 2H18.

Residential property: Completed but unsold units

Source: AllianceDBS, NAPIC

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Serviced apartments: Completed but unsold units

Source: AllianceDBS, NAPIC

*Only units completed and issued with certificates of fitness for occupation but remained unsold for more than nine months

Declining property sales is expected to remain the key challenge for the sector, although
individual developers with niche expertise and brand names could buck the trend. Developers
have been facing difficulties in converting their initial high bookings into sales because of
stricter bank lending policies. Banks are more cautious towards the property sector despite
keen interest by potential home buyers, especially genuine home-occupiers who may be
purchasing properties for the first time or upgrading to better homes.

In the near term, potential price appreciation of property will be capped due to stiff competition
and rising incoming supply. This has been reflected in slower growth over the past few
quarters. Healthy consolidation has resulted in developers being more prudent and selective
with their launches and product offerings in the current buyers’ market.

Developers may suffer from lower margins and find it challenging to pass through incremental
cost via higher selling prices amid weak market sentiment. At the same time, developers that
have accumulated land bank at high prices during the property boom times may have to
revise their master plans. High-end properties are not likely to fare well under current market
conditions.

Imbalanced supply- As at end-2018, Malaysia’s total residential stocks grew by 3%, compared to 8% and 4% in
demand dynamics 2016 and 2017 respectively. The huge incoming supply, which is increasingly being converted
into unsold inventories, will continue to pressure the property market resulting in weak
property sales

For the residential property segment (including serviced apartments), we believe Johor and
Penang will be more vulnerable. This is due to incoming supply that is higher than the national
average, relative to the respective state’s existing stock. The commercial property segment in
Klang Valley and Johor will be particularly more exposed to high incoming supply.
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Strong impetus for economic uplift?

HSR a much needed The landscape of Malaysia’s property market in Malaysia will be significantly transformed by
catalyst the HSR. The project is expected to boost not only the local economy, but also redistribute
the burgeoning population in the Klang Valley to surrounding areas. This will in turn further
enhance economic development in suburban areas along the HSR line.

Generally, better accessibility to new transport infrastructure should have a positive

influence on property prices. Some of the impact of transportation investment includes
better transportation accessibility, higher property value and changing local economy and
development dynamics. Nevertheless, the effect of positive property value appreciation may
be driven by various other dynamic factors brought about by new transport infrastructure.

Not all HSRs are equal However, research by the Australasian Railway Association on the impact of high speed rails
on land and property value concluded that “HSR does not always lead to (or is positively
correlated with) growth in property or land values”. The research also found that smaller
cities tend to enjoy greater spillover from the HSR with better property value uplift. Improved
accessibility will drive stronger growth in smaller compared to larger cities which are already
much more developed.

Various academic research studies have been conducted globally to examine and evaluate
the impact of HSR to the local economies. It is extremely difficult to find apple-to-apple
comparisons to the Malaysia-Singapore HSR. There are vastly different local dynamics in
Malaysia compared to other more developed countries.

The Taiwan HSR, a 350km rail line along the west coast of Taiwan linking the national capital
Taipei and the southern city of Kaohsiung was opened in Jan 2007. It significantly altered
the transportation landscape in the country. The first HSR in the country revolutionised travel
between the north and south of Taiwan by shortening the journey to one and a half hours
from four hours previously. Ridership has also increased substantially from 15.6m in 2007 to
56.6m in 2016, a whopping 260% surge over the period.

Similar to Taiwan HSR, the Malaysian portion of the HSR connects Kuala Lumpur and Johor
Bahru, the two most populous cities in Malaysia. However, Malaysia’s GDP per capita is only
~40% of Taiwan’s which may make it difficult to draw comparisons.

Malaysia-Singapore The impact of HSR on Malaysia’s property sector will vary across the cities given the different
HSR is unique economic dynamics in various localities. The seven HSR stations in Malaysia will spread over
four states. The project’s economic significance will be greater in five stations:

• Bandar Malaysia, KL

• Sepang-Putrajaya, Selangor
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• Seremban, Negeri Sembilan

• Melaka, Melaka

• Iskandar Puteri, Johor

Greater KL and Johor are among the most populous areas in Malaysia, collectively consisting
of ~40% of the nation’s 32m population.

Malaysia: GDP contribution breakdown (by state)

Source: CEIC, AllianceDBS

Malaysia: Population growth (by state)

Source: CEIC, AllianceDBS

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As the first cross-border HSR in ASEAN, the huge income disparity between both countries
will help Malaysia benefit immensely in various aspects. We highlight four key thematic
impacts on Malaysia’s property sector which will have varying degree of changes on
geographical economic developments:

• Commercial development

• Industrial development

• Tourism development

• Residential migration

Greater KL: Commercial development

Commercial development in the west coast of Peninsular Malaysia is set to receive a huge
impetus from the implementation of the HSR project. Improved transport accessibility with
much shorter traveling time will help revolutionise the landscape of commercial activities.
There will be significant economic spillover to less developed cities along the HSR line,
with potentially huge cost savings potential from improved transport accessibility.

KL-SG HSR covers two countries with vastly different economic landscapes. Singapore
boasts a GDP per capita of ~US$58k while Malaysia is at ~US$10k. This is expected to
drive more foreign direct investment into Malaysia to take advantage of its relatively lower
business cost.

According to ECA International, the cost of a business trip to Singapore in 2018/2019

is becoming increasingly expensive at an average daily cost of US$468/ day, the most
expensive in Asia after Hong Kong, Tokyo and Seoul. On the other hand, Malaysia is Asia’s
cheapest region for international business travel.

The notion of relocating businesses from Singapore to Malaysia has been put forward
by business owners over the years. This is in view of the huge cost differentials between
both countries. The KL-SG HSR will accelerate the paradigm shift. Shortened traveling
time between both countries will make it viable for businesses to have more commercial
presence in Malaysia.

Greater KL (Selangor Greater KL is already the key employment hub for Malaysia by virtue of its status as the
+ Kuala Lumpur) capital of the country. Unsurprisingly, Greater KL is the most populous area with the
highest GDP in Malaysia. KL-SG HSR will have two stations in Greater KL, namely Bandar
Malaysia and Sepang-Putrajaya.
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KL-SG HSR line

Source: MyHSR

Bandar Malaysia station The 485-acre prime tract of land in KL is touted as an urban redevelopment of the old
airport in Sungai Besi to support Greater KL as the new growth engine.

Apart from being the terminus for KL-SG HSR, Bandar Malaysia is set to be a transportation
hub, integrating the MRT, KTM Komuter, ERL and other major highways. In addition, the
Digital Free Trade Zone (DFTZ) where KL Internet City will be located will also be part of
Bandar Malaysia.

Bandar Malaysia is estimated to carry a gross development value (GDV) of RM160bn over
a development period of 20 years.

Sepang-Putrajaya This station is located south of KL city, in an area which has seen strong prospects in
station recent years. This is due to the increasing traction of KL-south migration, driven by MRT
connectivity, strong population growth and larger supply of affordable homes. The
proposed location of Serdang-Putrajaya HSR station is in Precinct 14, Putrajaya next to
Kampung Abu Bakar Baginda.

The government could be constructing two tram service loops from Putrajaya Sentral
which will connect to Cyberjaya and the Serdang-Putrajaya station.
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Office space Office real estate in Greater KL is set to be among the biggest beneficiaries from the KL-
SG HSR project. Enhanced connectivity and low-cost advantages may help draw in more
corporations to set up offices. For perspective, office buildings at central business districts
(CBDs) in Kuala Lumpur and Singapore are fetching rentals at stark differentials, due to the
huge income disparity between both countries. Grade A offices at Singapore CBD could fetch
SG$8.50-9.50 per square foot (psf) per month, three times higher than KL Grade A offices
which range from RM7-9psf per month.

Multinational corporations (MNCs) may be driven to relocate some of their offices to KL to

cut down their operating expenses where savings could be quite substantial. Apart from the
~70% cheaper office rentals in KL, MNCs will be able to secure human talent at a fraction
their counterparts in Singapore. We believe the KL-SG HSR project will be a game-changer
to revitalise the KL office market. The ease of commuting between KL and Singapore will
definitely make it economically viable for business owners to relocate part of their operations
to KL from Singapore.

We estimate that a MNC that chooses to relocate its Grade A offices to KL from Singapore
will be able to enjoy up to RM2.2m savings per annum just from office rental alone. Assuming
that the MNC’s rental expense is 15% of its annual revenue, the corporate’s profit margin
could be boosted by an additional 10%, just by having a KL office instead of a more expensive
Singapore office.

This will translate into substantial long term savings. While certain quarters may argue that
Singapore is still a more business-friendly country despite higher costs, we believe that seamless
transport integration between both countries via KL-SG HSR could justify the relocation of
certain business functions to Greater KL, in view of the huge cost discrepancy.

The fact that Greater KL offices are having a relatively high vacancy rate of 23% compared
Singapore’s 13% bodes well for potential office tenants that may capitalise on low office
rentals. Currently, Greater KL is suffering from a supply glut and low occupancy for a number
of new office towers, unlike the office market in Singapore. There is strong pressure for office
landlords to cut down office rentals to keep occupancy at healthy levels. There would be
plenty of choices for corporates searching for office space within Greater KL.

On top of Grade A office buildings in KL CBD areas, there is also a wide selection of Grade A
office buildings in KL’s fringe areas. These may fetch lower rentals despite boasting excellent
transport accessibility. In addition, the completion of three MRT lines within Greater KL when
the HSR is operational by 2026 will further enhance the appeal of having offices in KL.
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Corporate rentals: Huge potential savings

Greater KL Singapore
Population (mil) 8.2 5.6
Office space (mil sq m) 14.7 7.9
Vacancy rate 23.3% 12.6%
CBD office rent (psf/month) RM7-9 SG$8.5-9.5
Savings potential 70% cheaper in KL

Illustration
Leasing space (sf) 10,000 10,000
monthly rental rate (local) 7 8.5
monthly rental rate (US$) 1.8 6.4
total monthly rental (US$) 17,949 64,394
Difference per month (US$) 46,445
Difference per month (RM) 181,136

Rental savings per annum (RM) 2,173,636

Source: Various, AllianceDBS

Greater KL and Malaysia: International rankings

6 th
Most Business Friendly Country
Baseline Probability Index (BPI) 2015
25 th
Most Competive Country
World Economic Forum Global Competitiveness Report 2018

5th
Most Attractive Destination
ET - Capital Confidence barometer (Southeast Asia) 2016
15th
Ease of Doing Business Ranking
World Bank’s Doing Business Report 2019

3rd
Best Global Offshoring Location
A.T Kearney Global Services Location Index 2017
15th
For Financial System Market
World Economic Forum Global Competitiveness Index 4.0 2018

Source: Invest KL, AllianceDBS

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Malaysia: Office space

2018 KL Putrajaya Selangor Johor Penang Others Malaysia

Existing space (s.m.) 8,890,157 2,233,381 3,749,814 1,195,057 1,123,156 4,651,837 21,843,402
% of Msia 41% 10% 17% 5% 5% 21% 100%

Incoming supply (s.m.) 1,149,235 364,565 337,284 142,084 11,612 305,963 2,310,743
% of stock 13% 16% 9% 12% 1% 7% 11%

Occupancy 80% 91% 74% 76% 84% 91% 82%

Planned supply (s.m.) 645,914 31,545 10,276 48,039 9,468 28,843 774,085
% of stock 7% 1% 0% 4% 1% 1% 4%

Source: NAPIC, AllianceDBS

According to data by the National Property Information Centre (NAPIC), office supply in
Selangor and KL increased by 60% and 31% in 2010-2018, compared to the national growth
of 31%. With the huge incoming supply over the next few years, office market rentals in
Greater KL are unlikely to escalate in the near-to-medium term. The KL-SG HSR could be
a much needed boost to reduce the supply glut and offer a win-win scenario for business
corporations.

Greater KL: Accelerating office supply since 2010

Source: NAPIC, AllianceDBS

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Malaysia: Occupancy of office space

Source: NAPIC, AllianceDBS

With better connectivity via KL-SG HSR, MNCs without presence in Malaysia and Singapore
could be attracted to set up their operations in Greater KL. This could address business
opportunities for two countries at one go. Malaysia can also be a hub for untapped business
opportunities in ASEAN.

Local Malaysian companies with operational bases in Melaka, Johor and Negeri Sembilan could
also explore setting up additional offices in Greater KL with the shortened traveling time. The
KL-SG HSR will transform the economic landscape of Greater KL with the entry of more foreign
corporations, which will in turn create more business opportunities for local companies.

The spillover impact from a thriving business environment should translate into a more
dynamic economy. Various value chains across Malaysian industries may enjoy stronger
growth prospects.

Johor: Industrial development

Johor is strategically located next to Singapore and has modern infrastructure. It has direct
access to five seaports in Johor and Singapore - Port of Tanjung Pelepas, Pasir Gudang Port,
Tanjung Langsat Port, Jurong Ports and Port of Singapore Authority. The city is a 30-minute
drive from Senai International Airport in Johor and 45 minutes from Changi International
Airport in Singapore. The second link to Singapore is only a 15-minute drive away.

Iskandar Puteri. This will be the last HSR station in Malaysia before entering the terminal
station in Jurong East, Singapore. The station is located at the western corridor of Iskandar
Puteri, Johor. It is one of the five flagship zones of Iskandar Malaysia which is envisioned to be
the economic growth driver in the south of Malaysia.
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Muar and Batu Pahat are the two proposed HSR stations before reaching the Iskandar
Puteri station from KL. These are two relatively smaller towns compared to Iskandar Puteri.
Nevertheless, the three HSR stations in Johor will likely attract more investments into the state
which has always been known for its manufacturing/industrial prowess. It has a strategic
geographical location as well as large parcels of industrial land.

The fact that three out of the seven HSR stations are located in Johor underlines the southern
state’s economic importance. Unlike Greater KL where availability of vast land bank at strategic
locations is increasingly limited, Johor is still able to offer large tracts of industrial land at
affordable prices. Economic activities surrounding the three HSR stations in Johor are likely to
enjoy a huge boost when HSR eventually starts operations.

Batu Pahat is already one of Johor’s key manufacturing industrial towns, encompassing a
wide range of industries including textiles, electronics, food-processing and plastics. Muar
is globally renowned for its furniture-making industry. Several public-listed furniture makers
have enjoyed robust growth over the years, exporting high quality products worldwide.

Iskandar Puteri is a relatively new growth corridor. It was created in conjunction with the
establishment of the Iskandar Malaysia region in 2006. It houses the administrative centre
of the Johor state government as well as EduCity, a 600-acre educational hub, comprising
various leading universities.

Iskandar Malaysia: Development zones

JOHOR

SENAI - SKUDAI
SULTAN ISMAIL
E INTERNATIONAL
AIRPORT
A JB Central Business District
JB Conservation & Heritage Zone
Dango Bay ISKANDAR MALAYSIA
B Kota Iskandar
JOHOR BAHRU
Puteri Harbour
CITY CENTRE EASTERN GATE DESARU
EduCity@Iskandar
DEVELOPMENT
Medini Iskandar Malaysia
A
C Port of Tanjung Pelepas (PTP) CAUSEWAY D TANJUNG
LANGSAT PORT
Free Trade Zone ISKANDAR PUTERI
RAMSAR SITES JOHOR PORT
PENGERANG
RAMSAR World Heritage Park
WESTERN GATE
B
D Tanjung Langsat Industrial Park DEVELOPMENT
Pasir Gudang Port C SINGAPORE
Tanjung Langsat Port CHANGI
SECOND LINK CENTRAL INTERNATIONAL
ACCESS TO AIRPORT
E Airport City BUSINESS
PORT OF SINGAPORE DISTRICT PORT OF
TANJUNG
SINGAPORE
PELEPAS
AUTHORITY Source: UEM Land
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According to Malaysian Investment Development Authority’s (MITI) trade statistics, Singapore

is one of the largest sources of foreign direct investments (FDIs) in Malaysia’s manufacturing
services. The appeal of Malaysia has always been its much lower cost of doing business despite
having first world infrastructure. In this respect, Johor has emerged as the biggest beneficiary
of strong capital investment inflow. This is evident with the proliferation of various modern
and state-of-the-art industrial parks in the state.

Manufacturing sector: Total capital investment (2018)

Source: MIDA, AllianceDBS

The realisation of the much anticipated KL-SG HSR will create stronger spillover effect in
Iskandar Puteri than Muar and Batu Pahat, by virtue of the former’s larger population base
and economic activities. Iskandar Puteri also enjoys a huge advantage due to its positioning
within the wider Iskandar Malaysia region which has strong endorsements from the state and
federal governments in the form of tax incentives and huge infrastructure investments.

Much anticipated The Iskandar Puteri HSR station at Gerbang Nusajaya is set to be the biggest catalyst for the
catalyst entire Iskandar Puteri. The area already has great infrastructure since Iskandar Malaysia started
in 2006. Industrial activities are expected to take off in spectacular fashion as healthy supply-
demand dynamics in the industrial sector will be further boosted by accessibility to the HSR.

KL-SG HSR will make Johor an ideal area for industrial developments. Its strategic location and
low cost advantages will make Johor the natural choice for corporations in Greater KL and
Singapore.
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Malaysia: Industrial units

2018 (Units) KL Selangor Johor Penang Melaka Negeri Others Malaysia

Sembilan
Existing Stock 5,138 40,380 16,840 9,169 6,987 5,503 31,380 115,397
% of Msia 4% 35% 15% 8% 6% 5% 27% 100%

Incoming supply - 1,053 1,676 176 934 22 1,056 4,917

% of stock 0% 3% 10% 2% 13% 0% 3% 4%

Planned supply 37 1,598 975 438 793 561 2,655 7,057

% of stock 1% 4% 6% 5% 11% 10% 8% 6%
Source: NAPIC, AllianceDBS

Industrial property: Healthy development growth

Source: NAPIC, AllianceDBS

Johor has the largest industrial units in Malaysia after Selangor. Collectively, the two states
contribute 50% of Malaysia’s total industrial properties. Compared to the residential and
commercial property markets, outlook for the industrial property market remains robust.
Selangor and Johor’s industrial markets recorded positive growth in 2017 and 2018 despite
the property market’s general downtrend.

The additional transportation mode via HSR will help to stimulate more industrial developments
in Johor which is already a manufacturing powerhouse in Malaysia. Committed investments
in Iskandar Malaysia reached RM253bn as at Dec 2017, compared to RM11m in 2006 when
it was first introduced to the world.
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56% of the total cumulative committed investment has been realised, according to the
Iskandar Regional Development Authority (IRDA). Local investors are the largest contributors
to investments in Iskandar Malaysia, accounting for 62% of investments, while foreigners
make up the remaining 38%.

Iskandar Malaysia: Cumulative committed investments

Source: IRDA

Melaka: Tourism
Melaka’s booming Melaka City achieved its United Nations Educational, Scientific and Cultural Organisation
tourism (UNESCO) World Heritage status in 2008. This award has been a strong catalyst for the city’s
tourism industry. The city has rich historical and cultural background with a vast number
of ancient sites and buildings presenting a kaleidoscope of architectural styles containing
Peranakan, Portuguese, Dutch and British elements. Melaka’s tourist arrivals (including
domestic travellers) have been growing by leaps and bounds at a compound annual growth
rate (CAGR) of 10% in 2008-2017, compared to just 1.8% growth of overall tourist arrivals
to Malaysia.

Spillover from Melaka The Ayer Keroh HSR station is located 13km away from Melaka City and is poised to serve
station as a significant catalyst to boost Melaka’s tourism. Accessibility to HSR will greatly reduce
traveling time and increase convenience for travellers. Currently, tourists typically travel to
Melaka by road via the North-South Expressway. It is a relatively short distance from both KL
and Singapore.

KL-SG HSR will help attract international tourists travelling to both Malaysia and Singapore
in one trip. This will be made possible via seamless transfer between both countries. Chinese
tourists contribute the largest tourist arrivals into ASEAN. They could be drawn to visit both
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Singapore and Malaysia. Chinese tourists love to visit several ASEAN countries within the same
trip. According to the ASEAN-China Centre, two-way tourism between China and ASEAN
reached 49m visitors in 2017, with 28m Chinese tourists visiting ASEAN and 21m tourists
from ASEAN visiting China. There is a huge untapped tourism potential that could be realised
with the arrival of HSR.

Melaka: Tourist arrivals

Source: Melaka state government

Malaysia: Tourist arrivals

Source: Tourism Malaysia

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Melaka: World Heritage City with unique tourism appeal

Source: Melakatravel.info, AllianceDBS

Transit-oriented development: Residential

migration
Property developers have been particularly eager to participate in the KL-SG HSR development.
The projects spillover impact could be immense, especially if development projects are located
within close vicinity to the HSR stations. Some of the public-listed corporations such as Sime
Darby Property and UEM Sunrise own large parcels of land bank surrounding the proposed
HSR stations. Malaysians, Singaporeans as well as expatriates are likely to consider settling
down in intermediate cities where the HSR transit stations are located. This is due to the
availability of cheaper homes which could significantly increase their disposable income and
lifestyle. This could also result in an increasing trend of employee migration to less mature
cities and in turn stimulate more property investments.

Transit-oriented developments with direct connectivity to HSR stations are likely to be well
received by property purchasers. The ease of commuting and considerably cheaper property
prices will be the compelling factors. Many may choose to work in Singapore or Kuala Lumpur
for better career opportunities while living in Seremban or Johor.

There are two potential migration scenarios ; i) Seremban to KL and, ii) Iskandar to Singapore.
Seremban and Iskandar could see the highest migration and population growth, which in
turn could result in the highest appreciation of property prices. The unrivalled advantages of
lower living costs and property prices in Seremban and Johor could be major catalysts to drive
migration into these areas which are expected to host four HSR stations.
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It is hoped that the seamless transport connections between the cities along HSR’s alignment
will create the much-needed incentives for households to maximise their disposable income.
This is possible by relocating to Seremban and Johor which have more affordably priced
property, while at the same time earning income at major cities such as KL and Singapore. This
is a likely win-win scenario for people leveraging on increased mobility via the proposed HSR.

HSR alignment: Property price disparity

KL Selangor Seremban Johor Singapore

Average property price 780,000 480,000 250,000 350,000 800,000
(local)

Household monthly 10,162 8,092 5,128 6,330 9,293

income (local)

Property price / annual 6.4 4.9 4.1 4.6 7.2

income

Source: Various, AlianceDBS

Land owners: Potential beneficiaries from proposed HSR stations

Proposed station Company Land bank (acre)

Bandar Malaysia Ekovest, Iskandar 485
Waterfront City
Sepang-Putrajaya IOI Properties 310
Seremban Sime Darby Property 3,196
Matrix Concepts 1,450
Melaka IOI Properties 1,070
Muar Sime Darby Property 3,300
Batu Pahat Genting Plantations 600
Iskandar Puteri UEM Sunrise 2,200
KL Kepong 501
Sunway 1,079

Source: Various, AlianceDBS
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Key Risks
Ridership and affordability
One of the key risks for the HSR is ridership. This will impact our thesis on potential migration
between cities and its knock-on effects on property value. The key determinant of ridership is
ease of use and pricing. With only CIQ check points to deal with, this is one of the strongest
incentives for consumers to use the HSR.

While pricing for HSR users is not known at this stage, there have been some previous media
reports quoting sources from the Land Transport Commission in Malaysia in 2015 that pricing
for a round-trip ticket could be under RM400 (US$103) or RM200 (US$51) for a one-way
trip. This is to accommodate all market segments, including business and leisure travellers.
While details are still unclear, HSR’s operator will likely be allowed yield management similar
to airlines. Pricing of tickets could fluctuate depending on timing, peak periods and festivities.

The table below is a comparison of different modes of transport to Singapore and the
corresponding ticket pricing. We also benchmark the probable RM200 one-way ticket pricing
against other HSR services in the region.

In comparison, the price of a standard full-fare HSR ticket from Taipei to Kaohsiung - a distance
of about 345km - is about US$51km.

HSR fares: Comparisons

Trip Distance Price (USD) One Price US$/ Time

way km (Minutes)
Taipei to Kaohsiung 345 51 0.15 96
Tokyo To Nagoya 366 101 0.28 100
Beijing to Jinan 419 30 0.07 82
Madrid to Valencia 391 41-72 0.11-0.18 100
Source: Various websites

Currently, travellers from Singapore to KL pay between S$25 and S$50 for a five-hour bus
ride; about S$80 for a 45-minute budget flight; and about S$250 for a full-service flight.

Timing risk
According to existing timeline, civil works on HSR were supposed to start in early 2019. The
HSR was expected to be operational by 2026. There are a myriad of factors such as red tape,
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land acquisition, weather, fluctuations in raw material costs and availablity of labour which
may throw this forecast off track.

Raw material prices

Fluctuation of raw material prices poses a risk to construction cost. Steel prices have been
on an uptrend since the start of this year, raising some concerns among contractors. It is
uncertain if the HSR project will have a clause where raw material cost fluctuations are borne
by the government.

Land acquisition issues

We expect land acquisition issues to feature more prominently in large scale projects such as
the ECRL and HSR which will be funded by foreign governments. While the Land Acquisition
Act allows compulsory acquisition, there could still be delays if landowners are difficult in
coming to terms with the compensation amount.

More competition from foreign contractors

We expect all large scale contracts moving to have some form of foreign participation which
will be packaged with lucrative financing terms. This changing landscape will eventually see
more contractors venture overseas or diversify into other recurring income streams.

Spillover effects of HSR stations

The spillover impact of the proposed HSR stations on the property market relies on higher
migration activities which will enhance overall economic developments. A weaker-than-
expected ridership may affect the anticipated real estate market boom negatively.

Seamless immigration between Johor and

Singapore
A seamless connectivity between Johor and Singapore with hassle-free immigration
procedures will be critical for corporations and commuters to fully leverage on the benefits of
the proposed HSR.

Warm bilateral relations between Malaysia

and Singapore
This will be crucial for the first cross-border HSR in ASEAN to succeed, given the various
potential issues that could arise including safety, immigration and security matters.
 DBS Asian Insights
SECTOR BRIEFING 77
43

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 Live more, Bank less

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