A revival of Southeast Asian manufacturing hubs revival of Southeast Asian manufacturing hubs 3...

April 2017

A revival of Southeast Asian manufacturing hubs

A revival of Southeast Asian manufacturing hubs 3

Southeast Asian countries are winning manufacturers over from China due to lower costs, rising in domestic consumption and improving infrastructure. We expect the trend to continue and gain momentum. Deloitte’s Global Manufacturing Competitive Index projects that Indonesia, Vietnam, Malaysia and India should attract a significant share of new investment from global manufacturers between 2016-2020.

In most Southeast Asian cities, wages are still the largest component of overall business costs, making up close to 50%. Other significant components include utilities, trade and transport costs. As China manufacturing wages doubled in the last five years, investors have shifted to Southeast Asia (SEA). For example, exports from Vietnam grew by 10% annually between 2011-2016 while Chinese exports grew by only 6% during the same period.

Our top picks for industrial property investment are Indonesia and Vietnam. Economists expect Indonesia’s manufacturing sector to grow by 6-7% annually in 2021, up from 5% in 2016, due to the improving political situation, stabilising currency and changes to economic policies. Indonesia’s middle-income population is expected to grow by 18% Compounded Annual Revenue Growth (CAGR) per year in the next five to ten years, driving consumption and manufacturing activities. Investor interest in Indonesia’s logistics sector is rising (see “Indonesia Logistics – Fast Track or Derail?” by James Taylor, June 2016). Vietnam’s edge in its young and skilled workforce, relatively low costs and stable political climate is likely to continue to drive

manufacturing sector growth of 7-8% annually (see “JLL City Momentum Index 2017”, February 2017).

In Indonesia and Vietnam, the yield on cost of developing industrial facilities can reach 10-12%, and rental growth is likely to be strong given average annual inflation of 3.5-4.5%. In the Philippines, yield on cost for industrial developments can reach 8-10%. As cities urbanise and develop and less land is available for conversion from agriculture to industrial and residential uses, we expect industrial land to appreciate.

We have identified new industrial growth areas in each Southeast Asian market in this report. We have also flagged key government policies in each country that would affect industrialists and real estate investors.

In the medium term, further expansion in Southeast Asia’s economies will be influenced by education quality and physical urban infrastructure. Thailand and Indonesia are two markets that seem to underperform the rest of the region in education quality. Real estate transparency for all Southeast Asian countries has improved in the last 12 years, with the largest strides being made by Indonesia in the last five years.

This paper would not have been possible without the contributions from James Taylor, Andrew Gulbrandson, Le Trang, Greg Ohan, and Veena Loh. We also want to acknowledge the research teams across Southeast Asia for their invaluable support.

Executive Summary

Source: IMA Asia, 4Q16

Source: Global CEO survey by Deloitte, 2016

Figure 1 Real manufacturing GDP growth (%)

Figure 2 Global Manufacturing Competitiveness Index

China

Vietnam India

Indonesia Malaysia

Philippines

0

2

4

6

8

10

12

14

2010 2011 2012 2013 2014 2015 2016

2016 2020 Change in rank (RHS)

0

20

40

60

80

100

120

-3-2-101234567

US

Chin

a

Germ

any

Japa

n

Indi

a

Sout

h Ko

rea

Mex

ico

UK

Taiw

an

Cana

da

Sing

apor

e

Viet

nam

Mal

aysi

a

Thai

land

Indo

nesi

a

4

1 Export growth shifting from China to SEA

In 2000-2010, China’s economy expanded strongly on the back of high export growth. Manufacturing GDP increased by 12% annually in real terms in China during this decade as China became the factory of the world. Low labour costs, operational efficiency and technology adoption aided the rise. By 2010, China exports reached over USD1.5 trillion annually.

Over the last five years, China has restructured its economy towards domestic consumption, services and higher value exports. Manufacturing exports slowed as costs of labour, land and other factors increased significantly.

Gradually, multi-national companies have relocated their manufacturing facilities to lower cost locations, including India and Southeast Asia. As a result, export growth from Indonesia, Malaysia and the Philippines accelerated to 5-6% annually, while exports from Vietnam and India increased by 9-10% p.a. in the last two years.

We expect the trend to continue and gain momentum. Deloitte’s Global Manufacturing Competitive Index projects that Indonesia, Vietnam, Malaysia and India should attract a significant share of new investment from global manufacturers between 2016-2020. The index is gleaned from a survey of CEOs of manufacturing firms as well as subject matter specialists.

For example, as early as 2014, Samsung reportedly had plans to turn Vietnam into its manufacturing hub with factories in both Ho Chi Minh City and Hanoi. Other technology firms that have also shifted supply chains to Vietnam include Nokia, LG Electronics, Intel and Wintek Corp. In 2014, Taiwan-based manufacturer Foxconn announced plans to move its low-end manufacturing from China to Indonesia to enjoy cost savings and provide diversification.

Source: IMA Asia, 4Q16

Source: JLL estimates

Source: Arcadis, “Construction Costs Handbook, Singapore 2016”, JLL

Figure 3 Manufacturing wages in USD/hour

Figure 4 Industrial land price index

Table 1 Estimated cost of construction USD psm

City 2010 2015 Change in Cost of Construction

Shanghai 450 563 113

Jakarta 220 299 79

Kuala Lumpur 370 345 -25

Manila 360 455 95

Singapore 785 843 58

Thailand (Eastern Seaboard)

545 505 -40

HCMC 378 343 -35

Malaysia Indonesia Philippines

Thailand Vietnam China

0.02010 2011 2012 2013 2014 2015 2016

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jakarta Shanghai Ho Chi Minh City

Kuala Lumpur Singapore Thailand (Eastern Seaboard)

02010 2011 2012 2013 2014 2015

100

200

300

400

500


2 Rising costs are the key reason

China topped Deloitte’s Global Manufacturing Competitiveness Index not only due to its low-cost value proposition, but also the development of innovation infrastructure and advanced technology in its manufacturing sector.

As China moves up the value chain, costs are rising. IMA Asia estimates that manufacturing wages in China rose from USD 2.0/hour in 2010 to USD 3.9/hour in 2016. In comparison, manufacturing wages in Vietnam and Indonesia are still close to USD 1/hour to USD1.4/hour.

Besides the labour cost, the growth in industrial land prices in key cities such as Shanghai in China have also risen more than those recorded in other Southeast Asian cities, except Jakarta. Based on JLL data, estimated land prices in Thailand’s Eastern Seaboard, as at end-2015, were USD 90 per sqm and USD 162 per sqm in Jakarta, compared to Shanghai, which recently saw some sites going for more than USD 180 per sqm. Overall, industrial land costs are comparable across most other emerging Asian countries and this could further support the business case for the relocation of operations into the member states of ASEAN, such as Vietnam, where costs range between USD 100-USD 140 per sqm.

In terms of cost of construction, Shanghai is facing similar pressure. The change in the cost of constructing a conventional single-storey framed factory unit has increased quite substantially, exceeding USD 100 per sqm between 2010 and 2015. Overall, the costs of construction in Southeast Asian cities, with the exception of Singapore, look more affordable than Shanghai.

Source: Brookings Institute

Source: World Competitiveness Index 2016, WEF

Source: World Competitiveness Index 2016, WEF

Figure 5 Middle income population (millions)

Table 2 Quality of overall infrastructure based on a rating of 1-7 (best)

Table 3 Change in level of education in the last decade

Year 2010 2015

China 4.0 4.4

Indonesia 3.1 4.2

Malaysia 5.4 5.6

Philippines 3.1 3.7

Singapore 6.7 6.3

Thailand 4.8 4.1

Vietnam 2.8 3.3

ASEAN 3.1 3.4

Year % of population over 25 years with a minimum education level

China 52.2 (2000) 46.5 (2010)

Indonesia 43.2 (2006) 47.3 (2014)

Malaysia 56.5 (2000) 68.2 (2010)

Singapore 70.8 (2005) 78.6 (2014)

Thailand 33.2 (2004) 41.4 (2013)

Vietnam 64.9 (2009) No data

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3 SEA consumption, infrastructure to drive trend

The pace of growth of Southeast Asia as a manufacturing hub depends partially on the extent to which China’s costs increase, but also on the rise of domestic consumption in Southeast Asia alongside the provision of physical and talent infrastructure in the region.

Domestic consumption: Southeast Asia enjoys strong demographics with a median age of 30 years, with 40% of the population in the 15-39 year-old age group. As more of the population moves from agriculture into manufacturing and services jobs, we expect the middle-income population to rise by 9% CAGR in the next five years. About half of these people will be in Indonesia, where the middle-income population is expected to increase to 80 million by 2020 (from 46 million in 2015).

Minimum local content laws in Indonesia apply to the telecommunications, energy and modern retail sectors, which are likely to drive manufacturing activities in the country. For instance, from 2017, laws require at least 30% of the components in smartphones sold are made in Indonesia.

Infrastructure: According to the World Economic Forum (WEF), the quality of infrastructure, which includes transport, electricity and telephony, in Southeast Asia is still weak. But the situation is improving. Japanese firms Sumitomo Corporation, Mitsubishi Corporation, Itochu and Marubeni, have committed to the construction of power plants in Malaysia, Vietnam, Indonesia and Thailand. Shimizu has committed to development support for Vietnam’s first metro line construction. Changchun Railway Vehicles and China Communications Construction Company have committed to construct transport infrastructure across Jakarta. Lotte Engineering and Construction is constructing the first section of the 14.6-km Da Nang–Quang Ngai Expressway in Vietnam.

With strong commitments, the quality of the infrastructure in ASEAN countries should improve over time. China’s “One Belt One Road” initiative and ASEAN economic integration should also facilitate trade flow within ASEAN and with China.

Talent management: Southeast Asian countries have educated workforce that supports the industrialisation trends we have seen so far, but it is still weak compared to China. Policies to improve availability of talent will help to expedite systemic progression of the industrialisation in these countries.

Indonesia Thailand Philippines

Malaysia Vietnam Singapore

02015

124 mil

193 mil

2020

50

100

150

200

250

Source: IMA Asia

Source: IMA Asia

Market yields for all markets. Debt costs are based on investment grade borrowers fixed pricing on typical market maturities. Source: JLL, 4Q16

Figure 6 Real manufacturing GDP growth (%)

Figure 7 Personal consumption growth

Table 4 Indicative average funding costs and returns for development cost of industrial assets

Market Typical cost of debt (%)

Typical LVR Yield on cost (%)

Yield spread over debt cost (bps)

Cash-on-cash yield (%) Inflation

Indonesia 10-12% 50-70% 10-12% 0-200 bps 10-15% 3.5%

Vietnam 10-11% up to 70% 11-12% 100-200 bps 11-14% 4.7%

Singapore 3-3.5% 50-70% 7-8% 350-500 bps 12-15% 0.8%

Philippines 8-12% 60% 10-12% 0-400 bps 10-15% 4.0%

Malaysia 6.5-7.5% 50-70% 9-11% 150-350bps 11-16% 2.2%

Thailand 5-6% 40-50% 7-8% 200-300bps 8-11% 0.7%


4 Our top picks are Indonesia and Vietnam

Our top picks for industrial property investments are Indonesia and Vietnam.

Economists expect Indonesia’s manufacturing sector to grow by 6.5% in 2021, up from 5% in 2016. This is based on the improving political situation, currency stabilisation and socio-economic policy changes that are being put in place. Indonesia’s middle-income population is expected to grow by 18% CAGR in the next five to ten years, driving consumption and manufacturing activities. Vietnam’s edge in its young and skilled workforce, relatively low costs and stable political climate is likely to continue to drive manufacturing sector growth of 7-8% annually.

Yield on cost and cash-on-cash yieldsIn Indonesia and Vietnam, the yield on cost of developing industrial facilities can reach 10-12%.

While these figures are not much higher than the cost of debt, rental growth is likely to be strong given average annual inflation of 3.5-4.5%. In the Philippines, yield on cost for industrial developments can reach 8-10%.

In more mature markets, such as Singapore and Malaysia, yield on cost of developing industrial facilities is lower, at around 7-10%. As most developers take on loans equivalent to 50-70% of development cost, effective cash on cash yield can be attractive at 11-15%.

The key drawback for Singapore industrial land is that most sites have remaining land tenures of 20 to 50 years. In most other Southeast Asian markets, industrial land is still freehold or renewable in perpetuity. Personal Consumption Growth 2016-2021

Real GDP growth 2016-2021

0.00%

1.00%

2.00%

PhilippinesVietnam

IndonesiaMalaysia

SingaporeThiland

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

IndonesiaChina PhilippinesMalaysia Vietnam

02015 2016 2017 2018 2019 2020 2021

2

4

6

8

10

12

Source: JLL

Source: JLL

Source: JLL, World Bank

Figure 8 Industrial land price index (USD terms)

Figure 9 Industrial land price at outskirts of Southeast Asian cities

Figure 10: Industrial land price USDpsm (RHS)

% in agriculture % in industry% in services Industrial land price USDpsm (RHS)

0%10%20%30%40%50%60%70%80%90%

Malaysia Philippines Indonesia Thailand Vietnam

100%

050100150200250300350400450500

Jakarta HCMC ManilaKuala Lumpur Thailand (Eastern Seaboard)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0

50

100

150

200

250

300

Indu

stria

l lan

d pr

ice

USDp

sm(e

xcl S

inga

pore

)

8

5 Urbanisation should drive land price growth

Land prices should appreciate as cities urbaniseSince 2010, industrial land prices in Thailand’s Eastern Seaboard, Manila and Kuala Lumpur appreciated by 60-80% in USD terms, despite 20-40% depreciation in their respective currencies.

Jakarta industrial land prices appreciated by 300% in USD terms over 2010-2016, as with office and residential prices, as the country’s economic prospects turned positive in 2010 due to political issues being resolved and FDI starting to increase consistently. Industrial land prices in Ho Chi Minh City have been relatively stable in both VND and USD terms over the last six years. In more developed Southeast Asian cities, such as Kuala Lumpur, industrial land prices are 50-90% higher than the rest of Southeast Asia. But as cities urbanise and develop, we expect land to become more scarce and industrial land to appreciate.

In most Southeast Asian cities, wages are still the largest component of overall business costs, making up close to 50%. Other significant components include utilities, trade and transport costs.

Lease tenures could change in future, enhancing scarcity: Freehold land is available for most Southeast Asian markets. As cities urbanise, governments tend to limit land price appreciation by limiting land lease tenures for newly allocated industrial land plots. For instance, in Singapore, land tenures have been shortened to 60 years, then 30 years. In China, new industrial land leases have been shortened from 50 years to 20 years from July 2014.

Jakarta

Manila

HCMC

Kuala Lumpur

Singapore

Thailand (Eastern Seaboard)

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

S. A

fric

a

Braz

ilM

axic

oM

alay

sia

Swed

en

Indo

nesi

a

Thai

land U.S.

Italy

Fran

ce

Aust

ralia

Germ

any

Switz

erla

ndU.K.

Viet

nam

Japa

nSi

ngap

ore

Kore

aEs

toni

aH

ong

Kong

Singapore Malaysia ThailandIndonesia Philippines Vietnam

1.502010 2012 2014 2016

2.00

2.50

3.00

3.50

4.40

4.50

Source: OECD, 2015

Source: JLL

Figure 11 Percentage of 15-year olds with PISA math/science scores below level 2 (basic skills)

Figure 12 Global real estate transparency score

Source: World Bank, 2016

Table 5 Regional ranking for ease of doing business

World Rank

Construction permits

Getting electricity

Registering property

Getting credit

Paying taxes

Enforcing contracts

Resolving insolvency

Protecting minority investors

Trading across

bordersSingapore 2 10 10 19 20 8 2 29 1 41Hong Kong 4 5 3 61 20 3 21 28 3 42Malaysia 23 13 8 40 30 61 42 46 3 60Thailand 46 42 37 68 82 109 51 23 27 56China 78 a 97 42 62 131 5 53 123 96Vietnam 82 24 96 59 32 167 69 125 87 93Indonesia 91 116 49 118 62 104 166 76 70 108Philippines 99 85 33 112 137 115 136 56 137 95


6 Medium term issues that need to be addressed

Quality education and skills In the medium term, the ability of Southeast Asian countries to move up the value chain will depend on quality of education, availability of infrastructure and ease of doing business.

For quality of education, Vietnam is ahead of Thailand and Malaysia, while Indonesia needs to do more, especially in the rural areas, where children are less likely to attend schools and schools are less likely to have trained teachers or appropriate facilities. 74% of Indonesian 15-year olds lack basic mathematics and science skills, according to PISA international tests. This is the 5th worst score out of 82 countries.

Ease of doing businessAmongst developing Southeast Asian countries, Malaysia and Thailand rank highest in terms of ease of doing business, followed by Vietnam and Indonesia. Philippines’ ranking fell in 2016, with firms there encountering difficulties in registering property, getting credit, enforcing contracts and protecting minority investors. Indonesia has improved its ranking from 109th in 2015 to 91st in 2016, due to Jokowi’s reforms.

Global real estate transparency scoreOver the last 12 years, real estate transparency across Southeast Asian markets has improved, giving international investors more confidence to enter these markets. Indonesia and Vietnam have made the largest improvements, with Indonesia now being almost as transparent as Thailand and Philippines.

10

7 Country snapshots

IndonesiaIndonesia is the largest economy in Southeast Asia. Its main industries include agribusiness, automotive, electronics, textiles and food & beverage. The government plans to develop 13 industrial estates outside Java right across the archipelago in the next five to seven years to facilitate job creation and boost regional development economic growth. Aligning these projects with the sea toll programme has been recommended by President Jokowi.

Two emerging areas outside of Jakarta – Subang West and Kendal – have been identified:

Subang, West Java, IndonesiaSubang is accessible by the Cikopo-Palimanan Toll Road, with connectivity to International Airport of West Java in Kertajati (2017); Patimban Seaport (2019). The Subang Regency Government has prepared 11,000 hectares of land to be developed for industrial use.

Kendal, Central Java, IndonesiaKendal is located 21 km west of Semarang, with connectivity to: Ahmad Yani International Airport (20 km); Tanjung Emas Seaport – the only port serving central Java and the third largest deep sea port in Indonesia after Tanjung Priok (Jakarta) and Tanjung Perak (Surabaya) (25 km). Kendal Industrial Park is a joint venture (JV) between PT Jababeka Tbk and Sembcorp Development Ltd from Singapore, and Singapore’s first industrial park in Indonesia outside of Batam-Bintan-Karimun region. This 2,700-hectare industrial park is positioned to attract spill over manufacturing demand from Jakarta. 30 companies have already taken up tenancy agreements and made investments which are expected to generate at least 4,000 jobs by end-2016.

Cengkareng JakartaRengasdengklok

Makasar

CiracasBeji Gunung putri

Bogor

Caringin

Cianjur

Bandung kuion

Jampang-kulonJava

Sindangbarang Singaparna

Cilawu

DayeuhkolotPangalengan

Ciputat

Parung

Ciampea

Cicurug

Cisaat

Sukanegara

CakungKlari Clasem

Losarang

Klangenan

Karangampel

Indramayu

Harjamukti

Ciledug Losari

LaranganBanjarharjo

MajenangCisaga

Banjarsari

Purwakarta

Karangtengah

Bandung

Subang

Ciparay

Karangpawitan

AHMAD YANIINTERNATIONALAIRPORT [ZPKM]

KENDAL PORT

JAKARTA

WEST JAVACENTRAL JAVA

EAST JAVAYOGYAKARTA

470km from Jakarta

300km to SurabayaBANTEN

TANJUNG EMASPORT [25KM]

SEMARANG (21KM)

UNGARAN

JAVA SEA

BATANG


CA MAUBAC LIEU

SOC TRANGTRA VINHHAU GIANG

KIEN GIANGCAN THO

AN GIANGDONG THAP LONG AN

TIEN GIANGVINH LONG

BEN TRE

VUNG TAU

DONG NAIBINH DUONG

TAY NTNH

BINH THUAN

LAM DONGBINH PHUOC

DAC NONG

NINH THUAN

KHANH HCA

DAK LAKPHU YEN

GIA LAI

BNH ONH

KON TUM

QUANG NGAI

QUANG NAM

QUANG TRI

QUANG BINH

HA TINH

NGHE AN

THANH HCA

SON LA

HOA BINHHA NAM

BAC NINHHUNG YEN

NINH BINH NAM BINH

HAI PHCNG

VINH PHUC

THUA THIENHUE

TUYEN QUANG

THAI BINH

DIEN BIEN

LAI CHAU LAO CAI

HA GIANG

YEN BAI

BAC CAN

QUANG NINH

LANG SON

CAO BANG

THAI HGUYEN

PHU THO BAC GIANGHA NOI

DA NANG

TP HO CHI MINH

QUANDAO TRUONG SA

QUANDAO HOANG SA

12

VietnamVietnam is one of the region’s fastest growing economies and is divided into 63 provinces and three key economic regions (North, Central and South). The Vietnam manufacturing sector has focused primarily on more labour-intensive segments, such as apparel, shoes, agribusiness and food processing. This accounts for 37% of its GDP, one of the highest in Southeast Asia. However, recent government incentives and policy are targeting a shift towards more sophisticated sectors such as IT and technology. Some key industrial hubs include:

Bac Ninh Province, North VietnamNotable industrial Parks: Que Vo IP, Yen Phong IP, VSIP IP Connectivity to: Hanoi (30 km); Noi Bai Airport (30 km)

An industrial area located in the Northern Key Economic Region catering to various sectors such as hi-tech industries (electrical and electronics, ICT), FMCG and logistics. Major tenants include Samsung, Canon, Nokia, Pepsico, Ariston and Mapletree Logistics.

Quang Nai Province, Central VietnamNotable industrial Parks: Tinh Phong IP, Quang Phu IP, VSIP Quang Ngai IP Connectivity to: Da Nang Airport (135 km); Dung Quat Port (within the area)

An industrial area located in the Central Key Economic Region, catering to FMCG, textile products, mechanical, metallurgical, oil refinery and chemical.

Major tenants include Saigon-Quang Ngai Beer Factory, Dung Quat Beer Factory, FVQ Electronic Component Factory, Rieker Shoe Vietnam and Vinasoy Milk.

Binh Duong Province, South VietnamNotable industrial Parks: VSIP IP, My Phuoc IP Connectivity to: Ho Chi Minh City (30 km); Tan Son Nhat Airport (15 km); Ports (10-15 km)

An industrial area located in the Southern Key Economic Region, catering to various sectors such as textile products, electronics, FMCG and mechanical components, paper and plastic packaging.

Major tenants include Colgate, Unilever, P&G, Wrigley, Panasonic and Avery Dennison.


ThailandThailand, the second largest economy in Southeast Asia after Indonesia, offers investors opportunities in both export manufacturing and a strong domestic consumer market. Key segments include electronic appliances, jewellery, petrochemical and automobiles, although there is a push towards more value-added industries such as ICT, high-value electronics and green automobiles.

One of the key areas we have identified is the Hemaraj Eastern Seaboard Industrial Estate. Located along Thailand’s Eastern Seaboard. The estate is connected to Bangkok, including Klong Toei Port (112 km); Laem Chabung Deep Sea Port (27 km); Mab Taphut Port (50 km) and Suvarnabhumi Airport (83 km).

This industrial and logistics hub focuses on petrochemical, automotive and other industries, with four free zones in the area. The current incentives provided by the Board of Investment could promote specialised investment into existing industrial areas. Clusters with higher priority, such as automotive and electronics, may be granted substantial tax breaks. This could have a positive impact on industrial estates along the Eastern Seaboard.

BangkokInt’l Airport

Bangkok Port

U-TAPAO AIRPORT

SATTAHIP PORT

LAEM CHABANGDEEP SEA PORT

SRIRACHAHARBOUR

SRIRACHA

MAP TA PHUTDEEP SEA PORT

SuvarnabhumiInt’l Airport

AYUTTHAYA

PATHUMTHANI

NONGKHAE

SARABURI

NAKHONNAYOK

HEMARAJ SARABURIINDUSTRIAL LAND

HEMARAJ CHONBURIINDUSTRIAL ESTATE

HEMARAJ EASTEANSEABOARD INDUSTRIAL ESTATE

EASTERN SEABOARDINDUSTRIAL ESTATE(RAYONG)

HEMARAJ RAYONGINDUSTRIAL LAND

HEMARAJ EASTEENINDUSTRIAL EASTATE(MAP TA PHUT)

PRACHINBURI

CHACHOENGSAO

KHAOYAINATIONAL

PARK

BANGKOK

GULF OF THAILAND

PATTAYA

RAYONG

CHONBURI

BANGKOK CHONBURI MOTO

RWAY

TAXI

WAY

TelukBehung

PenangHill

TanjangBangah

Geoogetown

Bayan Banu

Bukit Mertajam

Bukit ManyakIndustrial Park

Penang SciencePark

Peral Free Industrial Zone

Peral Industrial Park

Butterworth

BertaesBatu Femingghi North Channel

Penang Bridge

Pulau Jerejak

Bayan Lepas

South Channel

SEBERANG PERAI

STRAITS OF MALACCA

BATUKAWAN

Penang SecondBridge

Kepala Batas

Mak MandiaIndustrial Park

Sebeang JayaIndustrial Park

14

MalaysiaMalaysia is one of the most mature and most transparent markets amongst the developing nations in Southeast Asia. It is a manufacturing hub for electrical and electronics, machinery, ICT and petroleum products, including chemical and chemical products and latex. Malaysia is gradually transforming and moving its manufacturing up the value chain. Three areas have been identified.

Batu Kawan Industrial Park (BKIP)Located towards the North of the peninsula of Malaysia, with connectivity to: Penang Port (27 km); Georgetown, Penang (40 km); Bayan Lepas International Airport (35 km). Batu Kawan was selected by the government as the mainland site for a major industrial area and the third satellite town of Georgetown after Bayan Lepas and Seberang Jaya. The scarcity of industrial land in Bayan Lepas Industrial Estate makes BKIP an attractive alternative, especially given the more affordable land prices. Other than industrial uses, BKIP also houses an SME Village, theme parks, and a Premium Outlet. The accessibility from Batu Kawan to Bayan Lepas International Airport has been improved with the completion of the second bridge to Penang in March 2014. Major tenants include Hewlett-Packard, Boon Siew Honda and Haemonetics.

KLIA Aeropolis plan

35 acresCBDMICE-related components

85 acresCBDAirline corporate office, operations base and mid tier MNCs

305 acresMICETheme park

klia

KLIA

2

200 acresKLIA2 Southern Support ZoneMaintenance, repair and operations (MRO) and airline forward base

110 acresKLIA Support ZoneCargo / Logistics and other ancillary airport services> e-Commerce hub> Regional distribution centre

115 acresKLIA Aerotech ParkOEM offshore centre for engineering services, oero manufacturing

44 acresMitsui Outlet Park KLIA Sepang


KLIA AeropolisLocated in the central part of Malaysia, in the capital city, Kuala Lumpur, within KL International Airport and connected to KL city centre (45 km). KLIA Aeropolis is a 100-sq-km integrated development launched in May 2016. The development focuses on three main clusters – the air cargo and logistics cluster, the business and aviation parks cluster and the MICE, leisure and complementary business cluster. The KLIA Aeropolis is expected to attract a GDP contribution of some MYR 30 billion over a 15-year period and create 56,000 jobs.

Senai Airport CitySenai Airport City is a 2,178-acre prime area adjacent to Senai International Airport connected to Malaysia-Singapore Second Link (20 km) and Johor Bahru City Centre (25 km). Taken over by Senai Airport Terminal Services Sdn Bhd (SATSSB) in 2003, it is currently in its Phase III (2011-2023), which includes the development of Senai Free Zone, Aerospace Park, International Logistics and Manufacturing Park, SME Village, Senai High Technology Park and Commercial and Residential Park. In August 2015, SATSSB sold three parcels of land totalling 188.7 acres in Senai Airport City to IPark Development Sdn Bhd (a wholly owned subsidiary of the AME Group). The land is planned to be developed in three phases, known as i-Park @ Senai Airport City. Major tenants include Hershey and Fuji Oil.

SingaporeSingapore is a developed, business-friendly market that is one of the most transparent markets in Southeast Asia. Despite its developed market status, manufacturing remains a major contributor and its primary products are electronics, oil refinery, chemical and chemical products and pharmaceutical.

Investors focused on core assets could find the high asset yield attractive but should be conscious of short land lease tenures of 30-60 years and lease conditions especially on JTC-allocated land.

Tengah

Bulim

Jurong West Residential Estate

Jurong Innovation District

Jurong East

Jurong Lake District

Jurong Industrisal Estate

Bukit Batok

Choa Chu Kang

Bahar

Clean TechPark

NTU

We have identified one key area that the government is investing in – Jurong Innovation District (JID). JID is a hub created to cultivate an innovation cluster that will build on the current work done at CleanTech Park. JID is slated to be completed by 2022 and will be home to advanced manufacturing, robotics, clean tech and smart logistics, with the capability to engage in the entire value chain of these clusters – from R&D to prototype testing to production. The area will be a living lab for innovators and entrepreneurs and its close proximity to NTU will allow opportunities for the cross-fertilisation of ideas between academia and industry.

16

City/country Programme/policy Governing ministry/ department

Impact on the economy and the real estate market

Indonesia Tax incentives (Regulation 142/2015) targeted at specific industrial development regions across Indonesia. Non-fiscal incentives include the revocation of requirements for environmental licences by occupiers if these have been obtained for the entire area of the industrial development regions.

Industry Ministry Encourage the concentration of industrial activity in industrial zones with integrated infrastructure, amenities and pollution mitigation measures.

Intensification of existing managed industrial estates.

Development of more planned and managed industrial parks and estates.

Sector-specific tax holidays (Regulation 159/2015) for nine industries, including oil refining, machinery production, maritime transport, and processing industries within a special economic zone.

Ministry of Finance Stimulate the growth of these pioneer industries and channel industrial activity within industrial zones.

Development of speciality industrial parks and general industrial estates located within special economic zones.

Revision to the negative investment list (Regulation 44/2016) opens up 100% foreign ownership to 35 sectors, including e-commerce, toll road operators and cold storage. Foreign shareholding of permitted businesses has been expanded.

Investment Board of Indonesia

Encourage greater liberalisation of the economy and support greater foreign participation.

Development of speciality industrial parks and general industrial estates located within special economic zones.

Vietnam Preferential corporate tax rates and Corporate Tax Exemption (Government Decree No. 218/2013/ND-CP) for a period of time for firms making an investment in selected industries

Tax Authority Stimulate the growth of selected industries of interest, such as those in the high-tech sector.

Promote the demand for industrial estates and locations of specific importance.

Exemption of the Land Lease Fee (Government Decree No. 46/2014/ND-CP) for 15 years for selected industries in industrial zones located in economically distressed/disadvantaged areas.

Tax Authority Stimulate the growth of selected industries of interest, such as those in the high-tech sector.

Promote a spread of economic growth drivers to less developed regions, balancing economic growth across the country.

Financial Assistance (Prime Minister Decision No. 43/2009/QD-TTg) for costs associated with land clearance, provision of infrastructure and compensation associated with site clearance, exclusively for industrial zones located in economically distressed/disadvantaged areas.

Prime Minister’s Office Promote a spread of economic growth drivers to less developed regions, balancing economic growth across the country.

Development of new industrial estates in outlying areas and special economic zones.

8 Key policies encouraging industrial projects

Governments across SEA have policies in place to promote the equalisation of economic growth across the countries or to incentivise the growth of new industries and encourage greater foreign participation in the industrialisation process


City/country Programme/policy Governing ministry/ department

Impact on the economy and the real estate market

Thailand Tax incentives offered shifted from zoning to activity-based criteria, e.g. the A1 incentive package provides a corporate tax waiver for eight years with no investment volume cap for select industries and activity.

Board of Investment, Thailand

Shift the current industrial landscape towards more technologically advanced and capital-intensive sectors.

Redevelopment of existing industrial estates to cater to higher-value industries.

Additional incentives offered on top of the activity-based scheme above, e.g. additional cost deduction available for investment made into provinces with the lowest per capita income, special economic zones, etc.

Board of Investment, Thailand


Development of new industrial estates in outlying areas.

Malaysia Tax incentives for companies undertaking manufacturing or services activity in less developed areas.

The Ministry of International Trade and Industry (MI


Development of new industrial estates in outlying areas.

Fiscal incentives for the management of industrial parks.

MITI Promote the management of industrial estates and possibly spur the growth of new economic areas.

Development of existing industries, especially around the Shah Alam and Klang Valley areas, due to ready infrastructure, which benefits industrial developers and facility management companies. A possible catalyst for industrial developments in isolated areas.

Fiscal incentives for the adoption of automation in industries.

MITI Encourage the development of more technologically advanced and capital-intensive industries, especially in the existing rubber, plastics, wood and textile segments.

Redevelopment of existing industrial estates to cater to higher-value industries.

Singapore Imposition of seller’s stamp duties for the sale of any industrial assets within three years after purchase, sub-letting restrictions and a minimum occupation period for owners and occupiers of JTC industrial properties.

Inland Revenue Authority of Singapore, JTC Corporation

Alleviate transaction and ownership costs of industrial assets.

Curb speculative transactions and maintains a healthy industrial market for industrialists and real estate investors.

Land Intensification Allowance and Land Productivity Grant.

Singapore Economic Development Board / Spring Singapore

Tax allowance given on qualified capital expenditure that would help enhance land productivity.

One time defrayment of associated relocation costs (non-capital expenses) to encourage the intensification of land use.

Potential redevelopment of existing industrial assets to higher intensity.

Economic Expansion Incentives Act – exemption of/reduced corporate tax on income from qualifying activity.

Inland Revenue Authority of Singapore

Corporate tax exemption or reduction given to selected industries to help promote higher-value-added activity.

Potential redevelopment of existing industrial assets to cater to these higher-value industries.

18

Regina Lim

National Director Head of Capital Markets Research, Southeast Asia [email protected]

Authors


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