http://www.asiawise.com/mainpage.asp?mainaction=50&articleid=2006

Corridor To Where, Exactly?

By Leonie Karkoviata
AsiaWise 24 Jul 2001

Malaysians seem to be waking up to find their big IT dream squaring with reality. Their Multimedia Super Corridor (MSC), Malaysia's ambitious New Economy mega-development, seems more like a complex property development than a mighty economic launch pad to propel Malaysia onto the world media stage.

The project is supposed to fill a 15-kilometer tract leading south from the capital's storied Petronas Towers through the Klang Valley that surrounds Kuala Lumpur to the new International Airport (KLIA). Besides being populated by hundreds of companies set in campus-like spaces, the strip is reserved for conference, hotel and recreational facilities as well as housing.

Several big names, though not nearly enough of them, have signed up for MSC space in hopes of winning government favor. Oracle, Sun Micro and mobile giant Ericsson are all signed up. But Ericsson, to illustrate the problem, has taken only enough space to house its local R&D unit and is disinclined to move its main operation located elsewhere in the Klang Valley to the MSC.

The government's Multimedia Development Corporation (MDC) says it has already topped its 2003 target of recruiting 500 MSC status companies. But only 54 of the 535 companies have opted to locate in Cyberjaya, the project's supposed nerve center. Are most foreign recruits only here to set up glorified sales offices? Many doubt that the firms -- mostly hardware and software vendors, consultants and the like -- will make for much new technology or contribute greatly to the economy, for that matter.

As the MDC defines it, an MSC status company provides or is a "heavy user" of multimedia products and services, and employs a substantial number of knowledge workers. One requirement stipulates companies must locate operations in one of the four "cyber-cities" within the MSC. Besides the 54 companies in Cyberjaya, there are 39 in Petronas Tower 2, 20 at UPM Research Park and 71 at the Bukit Jalil Technology Park.

Among the government's incentives are tax breaks and R&D grants. But as executives at Malaysian MSC status companies point out, tax breaks really only benefit profitable companies, not start ups like these. The MSC's much trumpeted formal networking events are few and far between, they say, partly because people worth networking with are pretty sparse.

The unsuperlike pace of the MSC's development combined with declining IT investment and an economic condition that some analysts call recession has many wondering if the Prime Minister Mahathir Mohamad's vision has lost its luster.

Besides blaming stuttering MSC development on the economic slowdown, the project's detractors blame poor management by the MDC, who have succeeded in attracting only a few global technology players or export-oriented tech companies.

Microsoft's Bill Gates once commented that "outside the U.S., you will not find a project of [MSC's] scale, commitment and energy..." But stirring as his words were, Microsoft decided to put its first development center outside its Redmond, Washington base in Bangalore, which, unlike the MSC, is loaded with talent.

MDC executive director, Othman Yeop, brushed aside talk of Malaysia's lack of talent, saying MSC can attract multinational corporations (MNCs) interested in centralizing regional operations in Malaysia. He cited "positive responses from companies like Boeing who like Malaysia's cost of business equation, infrastructure -- and talent pool, apparently. But IT entrepreneurs say Malaysia suffers from a brain drain as people leave for better paying opportunities elsewhere. Omar Merican, CEO of venture capital firm Banyan Ventures, certainly believes that. "My staff hate me for saying this," he says, "but one can earn twice as much in Singapore, and maybe even more in Hong Kong."

Steven Hsia, CEO of Delerium Cybertouch, says the government should forget about all the MSC infrastructure hoopla and focus on cutting the talent drain to Singapore.

But, getting down to cases, what is the MSC really all about? "The MSC is a property play, an extension of Klang Valley growth," insists Ho Chin Soon, Principal of Ho Chin Soon Research, echoing comments often heard in Hong Kong about that city's Cyberport. "It has nothing to do with IT." Since 1993 when the decision to build a new airport south of the capital was announced, large tracts of land between the city center and the KLIA threatened to become speculative hot spots.

The government's decision to develop the 167,000-acre tract might have spurred a property boom, you would have thought. Besides Cyberjaya, the MSC comprises Putrajaya, the government's administrative capital, and other existing or new townships. Ho, whose company specializes in collecting property market data, recalls how homeowners in the corridor expected to see their investments double in value overnight.

But despite the corridor's rich lattice of fiber optics, property values in the MSC hardly moved. "Property value is governed by supply and demand," Ho says, not unreasonably. "And right now, there is an oversupply in the whole Klang Valley."

Take Putrajaya's attempt to launch a project comprising 1.2 million sq. ft. (113,636 sq. m.) of commercial space this year and its plans to develop 4 million sq. ft (378,787 sq. m.) of commercial property by 2003. According to the December 2000 data, the most recent available at the National Property Information Centre (NAPIC), there was an oversupply of 268,573 sq. meters in Kuala Lumpur where occupancy averages 76%. Currently available commercial space is pegged at 1.411 million sq. meters in KL. And with 36 more shopping complexes approved for development in the city, the glut promises to last a long time.

Little wonder that Putrajaya Holdings, the master developer of Putrajaya, admits that the targeted 2010 completion of the administrative capital may be delayed by up to five years. Yet, Putrajaya CEO Hashim Hassan thinks the company can still achieve an 80% occupancy rate. He says the oversupply is compounded by inadequate project monitoring and indiscriminate development. Putrajaya, he says, will avoid those pitfalls because it is "a planned city with strict development controls".

Property analysts are unconvinced that the MSC will overtake the older established city centre known as the Golden Triangle. A JonesLangWootton analyst says, "You can't compare the two. [The Golden Triangle] has all the facilities that make it a real hub -- the malls, movies, embassies, commercial areas and residential cachement. The MSC's market is one dimensional. You've got Putrajaya and CyberJaya. No one is prepared to go to Cyberjaya or Putrajaya when they're already in the more central Golden Triangle." Despite the MDC's assurances that the MSC surpasses expectations, the organization knows it needs help. It paid McKinsey and Co. 1.5 million Malysian ringgit to rethink MDC strategy based on realistic market conditions and provide and assessment of the corridor's completion. Unfortunately for the MDC, details of a draft of the McKinsey and Co. findings were leaked to the Asian Wall Street Journal.

Ho says, " From a real estate point of view, the MSC can't go wrong. They are in the right area to meet the growth flowing out of the city center. They just can't expect to do it overnight." Furthermore Ho says, "The MSC is a mindset. It's about growth, development, progress." So when the government starts making noises about censoring Internet content, Malaysians like Ho feel such actions defeat the spirit of the MSC. "If they do that, then there's nothing in the MSC. And it becomes little more than just another township."

Oracle, Sun Microsystems, and Ericsson have either a token office within the corridor or have moved into Petronas Tower II, speaking of property plays. Rentals at Tower II hover around RM 80 per sq. meter, compared to RM 25 per sq. meter elsewhere in the neighborhood. Tower II is much preferred to Cyberjaya off in the boonies by companies who can afford the rents. For many companies, meeting MSC location requirements is enough to justify Tower II scale rents. Though Tower II is still only 50% occupied, there are no plans to scale back rents. But why bother, given the alternative the captive MSC market is faced with.

http://www.asiafeatures.com/current_affairs/0111,2915,01.html

Malaysia's Property Market Expected To Weaken

November 15, 2001

MALAYSIA'S property market is expected to weaken due to a decline in consumer confidence as a result of recent global events, an international property consultancy firm warns.

C H Williams Talhar & Wong Sdn Bhd's managing director John S C Loh said property market conditions are expected to worsen next year after a difficult year in 2001, with investors expecting further falls in price and rent levels.

Loh, who launched the company's CEO Opinion Survey Property Sector 2002 on November 13, said there is an urgent need for market stimulus.

According to the survey, the conventional housing sub-sector is expected to continue to grow, with increasing capital values. Over two-thirds of the respondents are of the opinion that capital values for conventional and low-cost housing will increase.

Rental values are expected to decrease for all sub-sectors except conventional and low cost housing. Greater pressure on rents is expected for office and industrial premises with some CEOs expecting rents to be reduced by more than 20 per cent.

More than 50 per cent of respondents feel that the transaction volume and values of Malaysian investors would likely decrease in 2002. Only one-third thinks the transaction volume and values of foreign investors would decrease in 2002.

The oversupply situation for offices, retail and industrial space in 2001 has become more serious, with the hotel and condominium sub-sectors also experiencing a glut.

However, the survey found that the outlook for conventional and low-cost housing in 2002 remains healthy, due to a continuing demand for such products. The sector is expected to remain stable over the next three to five years. - Asiafeatures.com