ULE: Development of KL-Singapore High Speed Rail

URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

FRONT PAGE

AN URBAN LAND ECONOMICS CASE STUDY: THE DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

THAM KUEN WEI (BEE120039)

UNIVERSITY OF MALAYA 2013

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

STUDY TITLE:

AN URBAN ECONOMICS CASE STUDY: THE DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

THAM KUEN WEI (BEE120039)

This Academic Project is prepared here in partial fulfillment of the requirements for the degree Accredited under Royal Institution of Chartered Surveyors U.K (VAL) (COM) (RES)

Faculty of Build Environment University of Malaya

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

ACKNOWLEDGEMENTS I would like to express my deepest gratitude to Mr. Abdul Ghani Bin Sarip and Associate Professor Dr. Md. Nasir bin Daud for their guidance, patience and valuable advises that had supported me throughout the whole process of preparing and completing this study.

I would also like to thank my family members and friends for their support and encouragement.

Finally, I would also like to extend my gratitude to others whom are not mentioned but play a role in assisting me to accomplish the goals and objective of this study.

Thank you very much.

THAM KUEN WEI Student Member of RICS, RISM & FIABCI Int. University of Malaya

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

CONTENTS FRONT PAGE ......................................................................................................................... 1 STUDY TITLE: ....................................................................................................................... 2 ACKNOWLEDGEMENTS ..................................................................................................... 3 LIST OF APPENDICES.......................................................................................................... 4 INTRODUCTION ................................................................................................................... 5 MAIN REPORT ...................................................................................................................... 6 CONCLUSION...................................................................................................................... 11 REFERENCES ...................................................................................................................... 12 APPENDIXES ....................................................................................................................... 13

LIST OF APPENDICES Appendix A: Land Public Transport Commission (SPAD): “Connecting Kuala Lumpur & Singapore through HSR.” ............................................................................................................. 13 Appendix B: Routes and Stations of Proposed High Speed Rail. ................................................ 14 Appendix C: Development Clusters at a HSR Station. ................................................................ 15 Appendix D: Multiple Nuclei Model Started by a High Speed Rail Station. ............................... 15 Appendix E: The Star Newspaper “China Shows Interest in KL-Singapore HSR” ..................... 16

*The total words for this report from Introduction up to Conclusion are 1,981 Words.

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

INTRODUCTION The property industry in Malaysia is very much alive. With the construction of the MRT (Mass Rapid Transit) in the Klang Valley already in full swing, another transportation game changer is set to transform the public transportation landscape in Malaysia. All eyes are now trained on the proposed High-Speed Rail (HSR) link between Kuala Lumpur and Singapore. To be built at a cost of RM40 billion, the long-awaited train is scheduled to start construction in 2015 with completion targeted by 2020. It is estimated that upon completion, millions of people would take the train to commute and trasport between the two cities with some experts predicting that people may even migrate to KL and work in Singapore to take advantage of KL’s lower cost of living. This report looks into the High Speed Rail Development in Malaysia from the Urban Land Economics context of Kuala Lumpur.

Keywords: High Speed Rail (HSR), Transportation, Migration, Urban Economics

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

MAIN REPORT On the 19th of February 2013, Prime Ministers of Malaysia and Singapore jointly announced the decision to proceed with the HSR between Kuala Lumpur and Singapore1. There would be 7 Stations consisting of 2 Terminus stations (Kuala Lumpur, Singapore) and 5 Transit stations (Negeri Sembilan, Malacca and 3 more in Johor). There would be 2 types of operations, namely the transit and express service. The High Speed Rail or known as HSR will take a mere 90 minutes from KL to Singapore for the express service while it takes 120 minutes. The HSR is expected to move at an average of 300km/hour. This report is based on the assumptions that the railway is to be completed as according to the proposed development in 2013.

Dense Development near HSR Station The development of HSR would bring upon spillover effects towards the urban growth of Kuala Lumpur as well as the property market. The location of HSR station would cause the formation of new highly densed development through the model of Multiple Nuclei Model2. The nodes in the model would be the HSR Station. Just like Kuala Lumpur Sentral where the main terminal of LRT, Commuter and Monorel is located, we can see successful development consisting of highly densed commercial buildings connecting closely to KL Sentral. This would be the same for HSR Station that is due to be completed.

High rise commercial buildings will be built near the HSR Station with modern facilities that will transform the HSR station into a commercial hub.

The trend of a cluster concept in and around HSR Station in Kuala Lumpur other than high rise commercial buildings are there would be wholesale and retail boulevards, development of international schools, affordable housing and improvement in transportation.

Commercial properties would have higher bidding capacity compared to residential property due to the potential higher rental yield.

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Land Public Transport Commission (SPAD): “Connecting Kuala Lumpur & Singapore through HSR.�

2

Urban Structure, Abdul Ghani Sarip, Semester 1 (2013/2014) notes, University of Malaya.

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

Using Alonso’s Bidding Theory3, the commercial buildings and retails shall be built nearest to the HSR Station, then only followed by residential properties due to the capacity to bid of commercial properties are higher than residential properties. It can be seen in the graph as follows:

For the distances before the intersection between the bidding capacities of both residential and commercial, commercial property outbids residential property. However after the intersection, there is no encouragement for commercial property to bid as the distance is already too far from the HSR Station. The improvement of transportation aspects is not the sole push factor, but the potential for contribution to economic development is an equally tantalizing prospect.

Foreign Investments and City Growth The development of CSR would attract foreign companies to invest in Kuala Lumpur especially when the transportation had become much easier, taking only 90 minutes to read KL from Singapore. In the long term, foreign companies in Singapore may be attracted to relocate their operations to Kuala Lumpur especially the costs of operation is much lower in Kuala Lumpur due to the currency rates of Malaysia which is lower. It will also trigger the growth of nearby second and third–tier cities.

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Urban Land Economics 4th Edition, Jack Harvey: Alonso’s Bidding Theory

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

The spread and growth of the population and more efficient allocation of business activity will increase the demand for housing, commercial and industrial properties. Besides, tourism may also be boosted in Kuala Lumpur. Hotels and retail properties would experience the most immediate and biggest impact where Singaporeans would visit and stay in Kuala Lumpur given the convenience and haste connectivity between Singapore and Kuala Lumpur. Since that Kuala Lumpur is the home to regional headquarters of Multi-National Corporations, the HSR is poised to be a catalyst for Kuala Lumpur to be a leading global center. The rising of population caused by the HSR will further fuel this purpose.

Rising Population and Power of Agglomeration There would be an influx of people who seek to stay at areas near HSR station in Kuala Lumpur, especially those who seek to work in Singapore. The identified groups of people who would be interested to migrate to Kuala Lumpur would be those from all over peninsula Malaysia since Singapore offers higher value of salaries and yields due to its strong currency against Malaysia’s Ringgit4. This may not be a bad thing for Malaysia since Singapore would experience outflow Ringgit Reserves to Malaysia. Those who stay at Johor may also be inclined to migrate to Kuala Lumpur since they can simply access the HSR from KL and it is not a necessity any more to stay closer to Singapore. By connecting the 2 largest cities in South East Asia not only signifies a closer than ever bilateral ties, it is also an opportunity to be stronger and more attractive as gateway to ASEAN. The collective strength with seamless travel provides larger opportunity to access a larger demand market and talent pool. The rising population would also further expand Kuala Lumpur’s population growth and thus, acts as a catalyst for urbanization in Malaysia.

However, reductions in trade or transport costs, by affecting the balance between dispersion and agglomeration forces can decisively affect the spatial location of economic activities. For high trade costs, the need to supply markets locally encourages firms to locate in different regions.

For intermediate values of transport costs, the incentives for self-sufficiency weaken. Pecuniary externalities then take over, and firms and workers cluster together.

4

Malaysian Ringgit stood at RM2.53 against Singaporean Dollar.

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

The price of local factors and the availability of goods may tend to increase wherever agglomeration takes place. If this is the case and there is enough mobility, as trade costs continue to fall, rising factor prices simply give an additional kick to agglomeration by inducing immigration to Kuala Lumpur.

Prices of Property near HSR Upon completion, KL will attract more high net worth individuals from Singapore as the highend condominiums in Singapore are at least five times more expensive than the properties in Kuala Lumpur despite Foreign Investment Committee restrictions. Using currency value and purchasing power as the main variable in corresponding to the ability to bid, Singaporeans will outbid Malaysian purchasers, stirring up prices. In the longer term, residential property prices are likely to rise, particularly in the vicinity of the HSR. Higher prices may encourage developers to rebuild some of the older parts of KL city.

The increment of property prices may also be due to the high demand of skilled and unskilled labor in Kuala Lumpur who seeks to work in Singapore and therefore, demand for housing near the HSR. Therefore, it is crucial to have affordable housing at these areas. If the housing median income is less than the prices of property, it may lead to a lot of Malaysian citizens unable to own property in Kuala Lumpur, especially when Singaporeans are competing with Malaysians to purchase residential houses.

The most recent Foreign Investment Committee 2013 had stated that the minimum purchase of residential units is valued at RM 1,000,000 and there is no limit in purchasing the number of residential properties5. Well, Singaporeans only had to pay $ 395,000 Singaporean dollars (2013 December, Exchange Rate of $ 1.00 = RM 2.53) or RM 1 million to own a residential property in Malaysia as compared to the property prices in Singapore that costs an average of $500,000 Singaporean Dollars in Singapore. In other words, the Foreign Investment Committee will not be able to restrict the number of residential property purchases by Singaporeans effectively.

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Foreign Investment Committee, Guidelines On The Acquisition of Properties by Local and Foreign Interests.

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

This will lead to a burden for Malaysians to purchase residential property in Kuala Lumpur since they had to compete with Singaporeans who had the upper hand of greater bidding capacity backed by strong currency value.

Trend in Urban Transport Sector We can see that the development of HSR’s funding had not been finalized yet. It is still opened to bidding. The firms are MMC Corp Bhd, which may team up with Gamuda Bhd and Chinese and European system integrators and YTL Corp Bhd with Spanish bullet train maker Talgo or CAF. Other firms are UEM Group Bhd, which is working with Ara Group to form a consortium with European companies that may also include Talgo, while Global Rail is said to be talking to Canada’s Bombardier Inc and Chinese firm China Railway Group6.

This shows that there is a shift from public to private sector in provision of services and facilities for transportation in Kuala Lumpur. The public sector is increasingly relying on the private sector to provide these facilities and services. There would also be intensive management of urban road networks and improved public transit connecting the HSR. Existing public transportation such as LRT, Monorel or Rapid KL may be used to assist in accommodating the growth in travel demand to the HSR. If the HSR is connected by other public transportation modes, it will greatly reduce the risks of congestion at critical routes connecting the HSR Station.

There may also be a decline in aviation transportation especially if the fares of the HSR are much cheaper than the flight costs. When Taiwan’s high-speed rail became operational in 2007, airlines even stopped flying certain domestic routes and the same scenario may happen in Malaysia. This shows another potential shift on the mode of transportation namely aviation to the HSR being used in Kuala Lumpur to travel to other places especially Singapore, Johor and other areas connected by the HSR.

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The Star News: “China Shows Interests in KL-Singapore High Speed Rail Project”, October 5, 2013.

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

CONCLUSION In conclusion, Kuala Lumpur would witness a development cluster at areas near the HSR Station. The price of properties corresponds positively with the near of distance of HSR station.

Developers with the highest bidding capacity would undertake compact and highly densed development clusters near the HSR Station. In terms of population trends, there would be a big influx of people towards Kuala Lumpur for occupational, tourism or residence purposes. The urbanization of Malaysia is also fuelled by the HSR. However, the prices of properties near HSR may be high especially due to the higher bidding capacity needed to compete for the strategic location, as well as the ability of foreign purchasers such as Singaporeans’ ability to bid is much higher than local citizens. There are also changes in the urban transportation sector where there would be an increase in land networks integrating the HSR station with the other public transportation and a decline in aviation services. The government should properly plan the development of HSR project especially in terms of affordable housing as the Foreign Investment Committee’s restriction of RM 1 million minimum on residential property by foreign purchasers is not assisting the locals to afford residential properties due to the high bidding capability of Singaporeans.

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

REFERENCES Land Public Transport Commission (SPAD): “Connecting Kuala Lumpur & Singapore through HSR.”

Abdul Ghani Sarip, Urban Structure: Multiple Nuclei Models, Semester 1 (2013/2014) Notes, University of Malaya.

Urban Land Economics 4th Edition (1996), Jack Harvey: Alonso’s Bidding Theory, Page 199-201.

XE Rates, The World’s Favorite Exchange Rate Web, Singaporean Dollar to Malaysian Dollar, 9th December 2013. www.xe.com

Foreign Investment Committee: Guidelines On The Acquisition of Properties by Local and Foreign Interests.

The Star News: “China Shows Interests in KL-Singapore High Speed Rail Project”, 5th October , 2013.

News Straits Times: “Speeding Towards High Growth” dated 10th of October 2013 http://www.nst.com.my/red/cover-story-speeding-towards-high-growth-1.372650 KL-Singapore High Speed Rail Proposal, Shares Investment Ptd Ltd, dated 20th September 2013. http://www.sharesinv.com/articles/2013/09/20/kl-sg-high-speed-rail-proposaldrawing-closer-for-mutual-benefit

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

APPENDIXES

Appendix A: Land Public Transport Commission (SPAD): “Connecting Kuala Lumpur & Singapore through HSR.”

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

Appendix B: Routes and Stations of Proposed High Speed Rail.

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

Appendix C: Development Clusters at a HSR Station.

Appendix D: Multiple Nuclei Model Started by a High Speed Rail Station.

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URBAN ECONOMICS: DEVELOPMENT OF KL-SINGAPORE HIGH SPEED RAIL

Appendix E: The Star Newspaper “China Shows Interest in KL-Singapore HSR”

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