JS-SEZ Agreement Officially Signed

The Johor-Singapore Special Economic Zone (JS-SEZ) agreement was officially signed by Singapore and Malaysia's leaders during the 11th Malaysia-Singapore Leaders’ Retreat in Putrajaya taking place from 6 Jan to 7 Jan. This milestone follows nearly a year after the signing of the memorandum of understanding.

Key Highlights from the JS-SEZ Briefing

Presented by Economy Minister Rafizi Ramli and the Economy Ministry

1) JS-SEZ Objective and Vision

According to the Ministry, the JS-SEZ draws inspiration from successful economic zones like Shenzhen and Suzhou in China. The JS-SEZ aims to enhance cross-border connectivity, facilitate seamless movement of people, and strengthen business ecosystems to create a robust and integrated economic environment. Its vision focuses on promoting cross-border business interactions, easing labour mobility, improving the ease of doing business, and enhancing trade connectivity and cost-effectiveness, driving economic growth and collaboration between Malaysia and Singapore.

2) Three New Flagship Zones Expand JS-SEZ to Nine Key Zones

The Ministry highlighted that the JS-SEZ now spans 3,571 sq km — four times the size of Singapore and nearly double that of China’s Shenzhen — comprising nine flagship zones, including three new additions: Forest City, Pengerang Integrated Petroleum Complex (PIPC), and Desaru – see Appendix 1. Each flagship zone is strategically designated for specific activities, such as business services in Johor Bahru, tourism in Desaru, and financial services in Forest City. The JS-SEZ targets investments in 11 key sectors, including manufacturing, logistics, tourism, and healthcare, while introducing five high-priority industries: aerospace, electronics, chemicals, medical devices, and pharmaceuticals. This strategic emphasis positions the zone as a dynamic hub for innovation and economic growth.

3) Strategic Funding Commitments for JS-SEZ

Rafizi emphasised Malaysia and Singapore's commitment to establishing separate funds to support the JS-SEZ. Malaysia’s Infrastructure Fund, managed by the Economy Ministry, is designed to ensure Johor’s infrastructure (such as power, water and road connectivity) effectively meets investment needs. It is supported by the creation of the Invest Malaysia Facilitation Centre - Johor (IMFC-J) as a one-stop centre for approvals. Meanwhile, Singapore’s Investment Fund focuses on facilitating the expansion of Singaporean companies and supporting multinational twinning operations within the JS-SEZ. By aligning infrastructure development with specific investment requirements, this demand-driven, project-by-project funding model reduces the risk of overcommitment and facilitates efficient, flexible growth.

4) Comprehensive Pro-Business Policies Driving Growth in JS-SEZ

The Ministry shared that Malaysia’s pro-business policies and incentives are strategically designed to foster business growth and attract investment to the JS-SEZ. Notably, the country’s robust intellectual property (IP) laws, ranked second in Southeast Asia for IP protection by the US Chamber of Commerce, have made it a trusted hub for global companies. Moreover, liberal equity policies allow foreign investors to hold 100% equity in new and expanding manufacturing projects, as well as in key service sectors such as healthcare, IT, and tourism, thereby encouraging foreign participation. In addition, Malaysia also has clear investment goals that include policy-driven industrial development for high-value goods and services, as well as moving towards net-zero emissions and improving the integration of the global supply chain. Furthermore, the JS-SEZ offers a range of attractive incentives, including special corporate tax rates for high-growth industries, forthcoming personal income tax benefits, and tax breaks for relocation and green technology initiatives. These incentives will be announced soon. With additional advantages such as Pioneer Status and Investment Tax Allowance, these measures collectively position the JS-SEZ as a dynamic and competitive destination for global businesses.

5) MOF to Introduce Outcome-Based Tax Framework

Rafizi further elaborated on the tax incentives for the JS-SEZ, an area of significant interest to investors. He revealed that the Ministry of Finance is introducing a new outcome-based tax framework, shifting the focus from traditional fiscal incentives to market potential and synergy. The framework prioritises pro-business tax rates tailored for high-growth industries. Additionally, a special personal income tax rate is set to be introduced. According to the Ministry, this approach aims to attract global investors by leveraging the JS-SEZ’s strategic location and ASEAN market potential, rather than relying on overly generous tax breaks.

6) Targeting 50 High-Value Projects Operational in First Five Years

The JS-SEZ has set clear targets for the next decade to drive economic growth and job creation. In the first five years, the focus will be on implementing 50 high-value projects and creating 20,000 skilled jobs, with a goal of expanding to 100 projects over the next ten years. The Ministry emphasised that prioritising the number of implemented projects over GDP or total investment value ensures a more sustainable growth approach, reduces reliance on large-scale investments, and prevents the creation of underutilised industrial zones. This strategy is aimed at fostering job creation, income opportunities, and organic economic expansion, delivering longterm benefits to the region. According to the Ministry, the first wave of development will focus on attracting global companies managing geopolitical risks, advanced electronics and electrical industries, data centres and related supporting industries, petrochemical projects in PIPC, tourism, and energy transition companies focused on green energy initiatives.

Property Sector Stands to Benefit

Given its strategic location, robust connectivity, and supportive policies, we are confident that the JS-SEZ offers a compelling value proposition and maintains an optimistic outlook for the region. We expect its technology-enhanced systems for seamless movement of people and goods, coupled with pro-business incentives like tax breaks and grants, to attract substantial investment interest. Additionally, we are convinced that the designated flagship zones, such as the Iskandar Development Region and Pengerang, along with strong government backing and advantages such as affordable land prices, competitive labour costs, and a favourable tax regime, will drive strong economic growth in the region.

Therefore, we expect the JS-SEZ to significantly boost property demand in Johor, driven by increased investment interest and economic activity in the region. Enhanced connectivity, probusiness incentives, and strong government backing will attract businesses and skilled workers, spurring demand for residential, commercial, and industrial properties. Designated flagship zones are likely to see heightened interest from developers and investors, as strategic infrastructure projects and economic incentives create a conducive environment for growth. As a result, landowners such as IOIPG, UEMS, CRESCNDO, SPSETIA, SUNWAY, LAGENDA, SCIENTEX, ECOWORLD and MAHSHING, with strategically located landbanks in these areas, are wellplaced to benefit substantially from these developments – See Appendix 2.

Challenges for the Success of the JS-SEZ

Concerns identified for the JS-SEZ include potential bureaucratic delays, despite efforts to streamline approvals through the IMFC-J, which could slow development and deter investors. There is also the risk of talent shortages if educational systems do not align with the specific needs of industries such as aerospace and pharmaceuticals. Additionally, competition from other regional SEZs offering more attractive incentives or superior infrastructure may divert  investments. Logistical challenges, including congested border crossings, could further impede the zone's growth and affect long-term investment confidence. Effectively addressing these concerns is critical to ensuring the JS-SEZ’s success and its ability to stimulate sustainable economic growth.

Sector Recommendation

We maintain our OVERWEIGHT stance on the property sector despite its impressive 32% price gain in 2024. The KLPROP index’s current forward Price-to-Book (P/B) ratio of 0.74x is only slightly above its historical average of 0.65x (2008–2024), as shown in Appendix 3.

The sector’s prospects are underpinned by resilient demand, favourable market dynamics, strategic expansion into fast-growing economic corridors, particularly the JS-SEZ, the burgeoning data centre industry, and 2025 being positioned as a pivotal year to deliver tangible returns. This focus on translating strategic initiatives into measurable outcomes will further enhance earnings visibility and investor sentiment. We are projecting property sales and earnings growth of 8% and 21%, respectively, for CY25, with further growth expected in CY26 at 5% for property sales and 13% for earnings. Collectively, these factors provide a compelling case for continued growth in share prices, supporting a valuation premium above the long-term average.

Accordingly, we reaffirm our Buy recommendation for all property developers under our coverage. Aligning with our investment themes of domestic spending and a resilient economy, our top picks for the property sector are IOIPG (Buy, TP: RM3.00), MAHSING (Buy, TP: RM2.41) and SIMEPROP (Buy, TP: RM2.00).

Risks to our sector call include: (i) weaker-than-expected economic growth, (ii) spike in raw material and labour costs, (iii) central bank increasing interest rates aggressively, and (iv) unfavourable government policies.

Source: TA Research - 8 Jan 2025