As China pushes into Malaysia, path to profits seen in building houses, factories and roads

Knight Frank executive director Allan Sim speaks during a presentation in Kuala Lumpur February 7, 2018.  — Picture by Miera Zulyana
Knight Frank executive director Allan Sim speaks during a presentation in Kuala Lumpur February 7, 2018. — Picture by Miera Zulyana

KUALA LUMPUR, Feb 7 — Forget about building shopping centres and office towers.

Instead Malaysian developers should target building more homes, factories, roads and other infrastructure projects if they are to benefit from China’s Belt and Road Initiative (BRI).

The industrial, infrastructure and residential sectors in the country are set to benefit the most from the ongoing Belt and Road Initiative, a global property management firm said today.

In Knight Frank’s inaugural “New Frontier: The 2018 report,” it was, however, pointed that the office and retail segments will emerge as the biggest losers, or at least in the short term before some of the long-term projects from the initiative see exponential returns.

“The Chinese developers are seeing things on the long-term and that is why industrial, infrastructure, and residential are the priorities because the plan is to create a township that connects to the major projects,” said Allan Sim, Knight Franks Malaysia executive director of capital markets.

For retail and office spaces, he said, it was not the “current priority” of the Chinese investors.

The BRI was launched in 2013 to connect China and Europe, as well as other countries in between, for the purpose of strengthening trade and economic ties.

Malaysia has signed 14 business to business and 16 government to government memorandums of understanding worth a few hundred billion Ringgit, with its Chinese counterparts for various projects here.

The East Coast Rail Link (ECRL) and the Malaysia-China Kuantan Industrial Park (MCKIP) are among the mega projects.

Bandar Malaysia in KL and Country Garden Danga Bay in Johor are some examples of Chinese developers involved in the Malaysia mixed-property development segment today.

“Industrial and mixed-used assets in Malaysia will be buoyed by the rising interests from Chinese investors into the manufacturing sector where Chinese manufacturers are expected to set up production facilities here,” Sim said.

He added that the industrial sector will also benefit from Chinese emphasis on Malaysia’s digital economy.

“In the long run, we can expect a flow-on effect to business activities, creating a demand for hospitality related services,” Sim said.

Knight Frank Asia-Pacific research head Nicholas Holt speaks during a presentation in Kuala Lumpur February 7, 2018.  — Picture by Miera Zulyana
Knight Frank Asia-Pacific research head Nicholas Holt speaks during a presentation in Kuala Lumpur February 7, 2018. — Picture by Miera Zulyana

According to Malaysia Investment Development Authority (Mida), China invested a total of RM4.77 billion in 33 Malaysian manufacturing projects and became the main source of foreign direct investment into the country in 2016.

Separately, the Knight Frank report ranked Malaysia sixth among 67 countries to benefit from BRI.

The assessment was derived from six categories namely on economic impact, institutional effectiveness, market accessibility and resilience to natural disasters.

Singapore, Qatar and United Arab Emirates were ranked top three.

“The BRI is a long term strategy that will play out over decades, not simply years,” said Nicholas Holt, Knight Frank Asia Pacific head of research.

“Therefore, it will take patient capital that is prepared to look at new frontier markets with greater levels of country risk and greenfield projects that have a long-term time horizon,” he added.

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