JLL Research Report A new Malaysian law creates demand for formal workers accommodation
A new Malaysian law creates demand for formal workers accommodation The Malaysian Government is drafting an amendment to the Employment Act 1955 (Act 265) that requires employers to provide adequate housing for foreign workers in all sectors. It is expected to be submitted to the Malaysian Parliament in 2018. The recently proposed amendment to the law calls for employers in all sectors construction, manufacturing, security, food and beverage and others to provide living quarters for their foreign workers. Human Resource Minister Datuk Seri Richard Riot Jaem was quoted as saying that, Upon approval, I believe employers will make a beeline to seek accommodations which are managed by a company approved by the Home Ministry and the Ministry of Human Resources. A new law that requires employers to provide workers accommodation for all sectors will create a new business for operators who wish to take the opportunity to provide accommodation for workers within industrial estates or for construction workers throughout the country. The potential is huge as Malaysia is considered to have one of the world s highest growth in construction activities averaging 15.5% in nominal terms out to 2021 according to Timetric s Infrastructure Intelligence Centre (IIC). Both the construction and manufacturing activities in Malaysia have been growing strongly at 7.6% and 5.5% in 2017 and will continue to do so in 2018. Centurion Corporation Limited, one of Singapore s largest workers accommodation provider and a developer has already started expanding into Johor and Penang. Once the law is passed, the hunt be on for suitable sites within industrial estates and near major construction projects. Hig 2 JLL
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The need for workers accommodation The law now stipulates that only plantation companies must provide living quarters for foreign workers. Workers accommodation for the nonplantation industry is a relatively new industry in Malaysia and developers may consider this as part of their development or landowners may consider these options if they wish to have a recurring income. This industry can offer new opportunities for REIT companies. It may be within the industry s interest to expand rapidly. This can be done by selling off the worker accommodation assets to REIT companies and recycle the capital into expansion plans. As the non-plantation workers do not have a minimum standard of housing, many of the workers are sited in temporary workers quarters, or rumah kongsi. Currently, there are over two million registered legal foreign workers in Malaysia. Of these, an estimated 399,000 are foreign construction workers and 819,000 are foreign manufacturing workers. This is significantly larger than Singapore s 332,800 foreign workers in the construction industry and 243,300 foreign workers in the manufacturing industry in 2017. In Malaysia, the construction and manufacturing sector has been growing rapidly with a real GDP growth rate of 7.6% and 5.5% respectively in 2017. The Finance Ministry has forecasted an equally strong growth for both sectors in 2018. The Master Builders Association Malaysia (MBAM) recently estimated that there are about 1.3 million foreign workers needed at construction sites throughout the country in 2016 and the president Foo Chek Lee says there is a shortage of these foreign workers. Traditionally, infrastructure and transportation has received the largest share of public sector development expenditure and the biggest recipient of the five-year Malaysia Plans. With many large infrastructure projects planned for Malaysia and the One Belt One Road Initiatives, the demand for foreign and local construction workers will continue remain high in the next five years. 4 JLL
Singapore s experience Based on our research, we believe the potential for this business looks bright. Taking the lead from Malaysia s neighbouring country, there are three companies, namely Centurion Corporation Limited, Tiong Aik Corporation Ltd (TAC) and Capital Development Pte Ltd (CDPL), which are already in the business of providing workers accommodation in Singapore. Centurion is a developer and is considered one the largest providers and builders of quality accommodation for workers and students in Singapore and now Malaysia. The group established two subsidiaries based on different business Westlite, focussing on workers accommodation, and Dwell, which focusses on student accommodation. Westlite at a total capacity of about c.23,700 beds in Malaysia and enjoys a healthy occupancy rate. Besides Centurion, a smaller player, TAC and formerly a building contractor, expanded its foreign workers accommodation business with the commencement of its 9,200-bed Tuas South Dormitory in Singapore in 2016. Located at 1 Tuas South Street 12, western Singapore, this dormitory complex has a full range of facilities for a safe and comfortable residence for foreign workers. The dormitory is one of the largest purpose-built workers dormitories in Singapore that caters to foreign workers in the construction, marine, process and manufacturing industries. Set up in 2007 to venture and engage in the development of dormitories, CDPL operates two workers accommodation projects, namely Toh Guan Dormitory and Tuas Dormitory. Completed in 2006, Toh Guan Dormitory comprises four blocks of seven-storey buildings that are differentiated with colours for workers from different industrial sectors. Meanwhile, Tuas Dormitory at Tuas South 15 provides accommodation for 12,800 workers from the marine, process and manufacturing sectors. A new Malaysian law creates demand for formal workers accommodation 5
Malaysia Westlite dormitory operation in Johor Westlite has already started operations in Johor. There are seven workers accommodation projects in operation in Johor, now, while two projects are under construction in Penang. The seven operating assets in Johor have a current capacity of 23,900 beds while the two projects in Penang are expected to have a capacity of around 6,000 beds each. The operational Malaysian assets have been achieving quite high occupancy rates of about 82%. The land areas range from 5,718 sqm to 30,174 sqm. The larger ones are able to have many facilities, such as basketball, volleyball and badminton courts, recreation room, food court, mini-market, supermarket, Internet room and an outdoor exercise corner. Apart from the private sector, the government, including Perbadanan Kemajuan Negeri Selangor (PKNS), a local statutory corporation, has taken the initiative and started to accelerate some of these measures, but there is room for the private sector to take advantage of this new opportunity. Hostel for Western Digital workers PKNS, a statutory corporation created and owned by the state of Selangor, has taken the opportunity to lead in this market by building hostels for Western Digital (WD) workers. The hostels are included in Phase I of the Datum in City project and consist of three blocks of nine-storey apartments that can accommodate 10,000 workers; there are also 5,000 parking bays. The total land area is 6.08 acres. There are 432 apartment units in three sizes 475, 865 and 971 sq ft. The project is located at Jalan SS8/6, next to Lebuhraya Damansara-Puchong and the Federal Highway. Furthermore, PKNS will also build a pedestrian bridge to give the workers easy access to the WD factory. The building incorporates elements of eco-sustainable architecture to achieve maximum Green Building Index ratings. The project is already halfway completed. 6 JLL
Construction Labour Exchange Centre Berhad After signing an agreement with Mass Rapid Transit Sdn Bhd (MRT), Construction Labour Exchange Centre Berhad (CLAB) will operate and rent out the units previously built by MRT to house workers involved in the construction of the Sungai Buloh- Kajang Line in 2011. Centralised Labour Quarters (CLQ) are built for small-tomedium construction companies that are unable to build their own labour quarters and could instead rent the units for their workers. CLQ, located near the MRT Depot along Jalan Sungai Buloh, will consist of six blocks with 144 rooms each and will be able to support up to 864 workers in total. The facility will have facilities such as surau, a cafeteria, kitchen, sports facilities, an assembly area, a sundry shop, a laundry shop and sick bay. Construction of three of the eight CLQ blocks will start in 2018. The other five will be completed by 4Q20. Other opportunities for local workers accommodation Meanwhile, in Queenstown, New Zealand, the most pressing issues are partly a result of the unprecedented rate of tourism and population growth, which has created a set of challenges for its citizens. Thus, the region is suffering from traffic congestion and a lack of housing stock. By taking this issue into consideration, Remarkables Park Ltd and investment company New Ground Capital took up the challenge of developing an accommodation project. The accommodation project will be near to the residents places of work and be within a very short distance of a wide range of other facilities, including public transport, restaurants, supermarkets, retailers, medical facilities and schools as well as being close to trails and recreation, which will make everything easily accessible for the workers. The residential complex will be managed by New Ground and local employers will be able to lease multiple units or whole floors on fixed lease terms. With the current shortage of affordable housing and bad traffic congestion, especially in Kuala Lumpur, there could be a potential for building and operating this type of accommodation for local workers or for employers in Kuala Lumpur. A new Malaysian law creates demand for formal workers accommodation 7
Conclusion Workers accommodation is a relatively new market in Malaysia that has yet to be fully explored. We have seen how some Singaporean companies have moved into this business. Part of their success is driven by understanding the needs of the workers and providing for those needs at a price that is compatible with what the employers want and in a location that is near to the workplace. Apart from the basic facilities such as bed, toilet, good ventilation and electricity, other amenities such as supermarket, food court, Internet, sports and recreation, are considered important to foreign workers. It is also equally important that there is tight security and that the environment is one where workers feel safe and comfortable living there. The potential going forward is good as demand for foreign workers would continue as Malaysia has a growing manufacturing and construction industry. Growth in infrastructure spending in Malaysia is expected to be among the fastest in the world going forward, averaging 15.5% in nominal terms out to 2021 according to Timetric s Infrastructure Intelligence Centre (IIC) as Malaysia s has set a goal for the end of the decade to achieve an advanced economy status. Centurion owns, develops and manages quality workers accommodation assets in Singapore and Malaysia, as well as student accommodation assets in Singapore, Australia and the United Kingdom. While the breakdown for the workers accomodation is not available, the Group s Return on Equity for Centurion for financial year ending December 2017 is 8%. The pretax profit margin is 36% and gross profit margin is 69%. We believe that profit margins could potentially be higher given the lower land and operating cost in Malaysia. There are also possible solutions and opportunities for developers and operators that wish to take up the gap and current challenges faced by local workers by providing accommodation for them near their workplace, as done by New Ground Capital from New Zealand. Author Veena Loh Associate Director, Research & Consultancy JLL Property Services (M) Sdn Bhd 8 JLL
Appendix Westlite Tampoi Westlite Pasir Gudang Westlite Tebrau Westlite Johor Tech Park Westlite Senai Westlite Senai II A new Malaysian law creates demand for formal workers accommodation 9
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