Thursday, 21 March 2013

What to do before deciding to move to Iskandar Malaysia

What to do before deciding to move to Iskandar Malaysia
It may be a good move to make Irda your first port of call

ISKANDAR Malaysia, a region of 2,217 sq km just north of Singapore represents an important economic and geographical region for Malaysia.
To Singapore, it is potentially a hinterland, provided conditions are right.
In 2005, the Federal Government of Malaysia in Kuala Lumpur and the state of Johor agreed that there had to be a focused and developmental approach to realise the region's full potential.
The plan was to eliminate uncoordinated and duplicated development and grow a sustainable metropolis.
Malaysia's state investment arm Khazanah Nasional was tasked to study this and came up with a conceptual plan which became known as the South Johor Economic Region concept plan.
This was later changed to Iskandar Development Region (or Iskandar Malaysia) in honour of the late father of the current Sultan of Johor. The Iskandar Regional Development Authority Act was passed in Parliament and came into force in 2007. Khazanah was mandated to play a catalytic role in its development.
National priority
The Iskandar Regional Development Authority (Irda) is the federal government body set up pursuant to the Irda Act and is responsible for the development of Iskandar Malaysia.
In Malaysia, land matters are governed by individual states. Iskandar is a joint development with two co-chairmen - the Prime Minister of Malaysia and the Chief Minister of Johor. This arrangement says a lot about the intent and purpose of the project, that it would be one of national priority for Malaysia.
The Irda Act requires local planning authorities to incorporate and follow the Comprehensive Development Plan (CDP) which is the master plan for Iskandar.
Local authorities cannot act in any manner inconsistent with the plan and must bring structure plans and local plans within the Town and Country Planning Act 1976 within the plan.
Land use, zoning, allowable plot ratio and allowable residential density must conform with the plan. Such planning issues are unified in the CDP and are not arbitrary. A good architect or planner will be able to advise developers.
For purchasers, especially when buying off the plan, caveat emptor applies as would be the case anywhere else. Many of the projects in Iskandar are on greenfield sites.
Iskandar Malaysia has an enviable and well-thought-out master plan and Irda is responsible to enforce it for the good of all stakeholders.
Land is a state matter with the State Authority of Johor having power over it. Land law is codified in Malaysia under the National Land Code - a Torrens-based system much admired for its concept of indefeasibility as opposed to the older English system of registration of deeds.
Malaysia has one of the most liberal policies for land ownership by foreigners.
The applicable restrictions are relatively minor compared to jurisdictions permitting only land use rights or what is more commonly known as hak pakai/hak guna (defined as the "right to use") for foreigners. Having said that, one can be confused with the regulations and so here are a few pointers:
Many land titles have express conditions requiring all dealings (including a proposed transfer or land charge) to be approved by the state authority and such a condition applies to both Malaysians and foreigners.
In addition, a foreigner or majority foreign owned company must obtain state authority approval to acquire land in Malaysia except for those approved for industrial use. This industrial use must appear as a title condition.
There are additional rules of course. The state of Johor does not permit foreigners to buy double-storey shophouses or single-storey houses, whether linked, terraced or detached.
Three-storey shophouses, double-storey houses, vacant bungalow land, condominium units and service apartments are permitted so long as they each cost RM500,000 (S$199,384) or more.
The state also charges RM10,000 for each successful application for approval. Purchases of industrial properties must be made in the name of a locally incorporated company. This, however, does not apply to residential and commercial properties.
Purchasers, both foreign and local, are advised to engage qualified and experienced lawyers as land matters are by their nature fraught with potential legal issues.
These could be ownership and title issues, caveats or court proceedings affecting land or interests in land. This is a universal problem even if Malaysian land rules permit and welcome foreign ownership.
Bumiputra policies
Malaysia has an entrenched policy of increasing and preserving bumiputra ownership and participation in the economy. This is a national policy seen in almost every sector although progressive liberalisation has lifted many of these equity restrictions.
The manufacturing sector welcomes wholly owned foreign ownership and lately many service sectors including health care and education have followed suit.
An astute investor will always clarify equity ownership issues upfront before proceeding. There remain areas where non-bumiputras and foreign investors alike have to work with bumiputras, notably in government procurement and oil and gas sectors.
In the same vein, property developers should be mindful when purchasing land valued at RM20 million or more.
If the vendor is a bumiputra or a government agency, such a sale is seen as divestment by bumiputra interests and the approval of the Economic Planning Unit (EPU) of the Ministry of Finance is required. It will usually approve the sale on condition of 30 per cent bumiputra equity participation in the project.
These same EPU guidelines and approving condition apply to acquisitions of companies where properties comprise more than 50 per cent of the companies' total assets and are valued more than RM20 million.
A change in control of these companies owned by bumiputras or government agencies will require prior EPU approval.
It is unknown if there is a clear policy with specific criteria suspending or waiving this EPU requirement in relation to land in Iskandar or specific flagship areas in Iskandar. It has been reported that early foreign investors in Medini enjoyed this waiver.
The EPU requirement signals that it is important to know who your vendor is because the guidelines do not apply where the vendors are non-bumiputra concerns. However, when it comes to investments, Malaysia is pragmatic. There are indications that Irda is prepared to support an appeal for waiver on a case-by-case basis.
There is global and keen competition for investments and Malaysia has an established track record of welcoming investors with generous incentives.
Economic benefits
These incentives apply to promoted activities - activities in both manufacturing and services which offer sufficient economic benefits to Malaysia. The under-pinning legislations are the Promotions of Investments Act and specific exemptions pursuant to Section 127 of the Income Tax Act.
To be sure, incentives apply throughout Malaysia but a promoted region like Iskandar enjoys more generous reliefs and incentives.
For example, pioneer status which relieves an enterprise from income tax on its profits could see the limit of statutory income which is exempted from tax increased from the usual 60-70 per cent range to 100 per cent. The period of exemption could also be extended from five to 10 years.
Likewise, investment tax allowance could be increased from 60 per cent of qualifying capital expenditure to 100 per cent of such expenses.
However, in the nature of incentives they are discretionary and invariably measured against the economic benefits such investments will bring to the domestic economy. A pre-packaged incentive plan for a catalytic project will obviously attract better incentives.
Foreign investors should confer with Irda sooner rather than later on their business plans to have a feel of the level of incentives they can expect to avoid disappointment. Many things in Malaysia are going up the value chain and while land is plenty, labour is not.
One of the early ideas behind Iskandar is the formation of a one-stop fast-track agency. Foreign investors look for efficiency in getting approvals for their projects. Irda is that agency and this is part of Irda's charter.
In fact, it is legally enshrined in the Irda Act which describes Irda as the principal coordinating agent or authorised agent for relevant government entities to receive, process and expedite requisite approvals and administrative actions. It also empowers Irda to render administrative services and assistance to the state authority of Johor.
Irda is responsible for not just planning and building. Its facilitation role extends to incentives and the myriad of applications, permits and approvals to set up shop.
While it is outside Irda's powers to approve these, it will be reassuring to investors that it is committed to assist and coordinate various government agencies to produce an outcome which is welcoming and benchmarked against the most efficient in the world.
A confluence of events has brought about the increased confidence in Iskandar as a viable metropolis. Singapore is planning way ahead to accommodate growth and expectations of its people.
Across borders
A metropolis without the construct of national boundaries is the idea behind Iskandar. Does the idea of people working, living and playing across two countries seem so hard in this part of the world?
Politicians can pave the way, proper legal framework can facilitate and infrastructure dollars will help connect, but at the end of the day, the people-to-people relationship makes the difference between the concept and the metropolis.
When lives are intertwined and people actually live, work and play across boundaries, Iskandar Malaysia will succeed.

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