At an initial cost of M$4.3 billion ($1.5 billion), the Iskandar project is currently the largest development project in Malaysia. The aim is to build a new manufacturing, economic and social hub for the country and MalaysiaÆs leaders are deploying their competitive advantages to make it a success. At the centre of that plan is the Iskandar Financial District, which is slated to become an Islamic finance hub, as well as an offshore banking centre and a back office to Singapore.
Richard Polkinghorne, Malaysia country manager for Millennium Development International, which is part of the consortium of developers building the Iskandar Financial District, shares his views on the status of the development amid the ongoing economic crisis.
What are the goals and objectives of the Iskandar Financial District?
The Malaysian government wants to build a better Malaysia, a better home for Malaysians with better job opportunities and more wealth creation; Iskandar is part of its plan to do that. We are involved as developers with long-term commercial objectives that we want to achieve through building a sustainable city û financially, socially and ecologically.
Iskandar will effectively be an offshore banking centre and a back office to financial institutions. What that hinges on is putting a lower cost base operation right next to the fourth biggest financial district in the world. The attraction is youÆre not putting the back office in India or China or somewhere where your senior executives are several hours away by plane. Companies will be able to put their back and middle office operations in a lower cost-base centre in a place where the senior management is 35 to 40 minutes away.
For example, imagine New Jersey was a greenfield site that happened to have an Islamic government, so New York could have an Islamic banking centre at a lower cost on its doorstep. ThatÆs essentially what weÆre doing.
How is Iskandar Financial District being developed?
The Malaysian government conceived the general structure for the project. It then selected a number of developers from the Middle East to come and participate. Iskandar Investment, which is developing the Iskandar Financial District, is a public-private partnership in the true sense of the term. The project was broken up into zones and the group I work with [Millennium] ended up being part of a large consortium of Arabian developers. In Medini Iskandar Malaysia, where the Iskandar Financial District will be located, there are three big zones û the Iskandar Financial District, a northern precinct and a southern lifestyle and leisure district.
The way the project is organised, the Malaysian government has financial involvement in the deal so it is motivated to make the project succeed û if we donÆt make money, the government doesn't make money. If the project makes lots of money, it shares in the upside. The consortium of Arabian investors û Aldar and Mubadala from Abu Dhabi and Jumeirah Capital and Saraya from Dubai û are all very heavy hitters in development who take a long-term view and know how to deliver. If I had to say whatÆs the legacy of Middle Eastern developers over the past five years it would be their ability to deliver on mega-projects like Medini.
Lots of mega-projects are being conceived but few are delivered under the same guise as they started out with. There is a management strategy and technical prowess thatÆs required to think on a mega scale and deliver on a mega scale. So weÆre here to ensure that the overall concept and the value generated by all the pieces come together. How do you fund it, how do you conceive it, how do you time it, how do you plan it, who do you bring in, who is strategic and whose not û thatÆs what we bring to the Iskandar project.
What is the current status of the project?
Last week, the fully developed master plan was submitted to the Malaysian government. We expect the plan to be approved during the first quarter of next year and then we will begin issuing individual property titles. Next February, the contract for all of the infrastructure works will be let. The roll-out of the entire infrastructure is planned in two to three years but the financial district infrastructure will probably be done in 12 to 18 months. Medini in total will be finished in two to three years.
Those who purchase land now will be able to get the title during the second quarter of next year and, based on my experience in development, I suspect that by the third quarter of next year we will start to see the initial structures going up. Within 24 to 30 months from the third quarter of next year we will see people working and living on-site.
We just launched the Iskandar Financial District six weeks ago in Dubai. The board directed us to put our toes in the water and test whether there is market appetite, whether the pricing structure is right, whether the plots are right and I wouldnÆt be exaggerating if I said we were overwhelmed by interest in the project.
Earlier this year, FinanceAsia reported that Iskandar needs ôcommitment, not just fancy wordsö. Do you believe these commitments have been made?
Of course. This is a multi-billion dollar deal and you can either do it quickly or you can do it correctly. It took several months more than we hoped to get the commercial structure in place to make sure it works, but we have just completed the master plan and are moving forward. We will suffer penalties if 20% of the built-up area is not completed within seven years so we have economic incentives to complete the project.
Developments are sometimes like making sausages û you donÆt need to see the entire process but what you do need to see is what comes out at the end is right. We were probably making sausages for the first six-months of this year and now have a consortium of strong, long-term, deep pocketed, technically able people and companies who are investing real money.
Why are you launching the Iskandar Financial District in the midst of a global economic crisis?
We're launching now because it is the right time to put this sort of product into the market. I would hate to be selling apartments or villas or leasing completed office buildings right now, but if I look at the current cycle, it may take six months, nine months or 18 months before economies start to accelerate again. And if you look at our development cycle, it will take one to two years before the retail product will enter what will then be a rising market. So I think we fortuitously struck the market at exactly the right time and there seem to be quite a few investors out there who agree.