Download A revival of Southeast Asian manufacturing hubs

April 2017
A revival of
Southeast Asian
manufacturing hubs
2
Executive Summary
Southeast Asian countries are winning manufacturers
over from China due to lower costs, rising in domestic
consumption and improving infrastructure. We expect the
trend to continue and gain momentum. Deloitte’s Global
Manufacturing Competitive Index projects that Indonesia,
Vietnam, Malaysia and India should attract a significant
share of new investment from global manufacturers
between 2016-2020.
In most Southeast Asian cities, wages are still the largest
component of overall business costs, making up close
to 50%. Other significant components include utilities,
trade and transport costs. As China manufacturing wages
doubled in the last five years, investors have shifted to
Southeast Asia (SEA). For example, exports from Vietnam
grew by 10% annually between 2011-2016 while Chinese
exports grew by only 6% during the same period.
Our top picks for industrial property investment are
Indonesia and Vietnam. Economists expect Indonesia’s
manufacturing sector to grow by 6-7% annually in 2021, up
from 5% in 2016, due to the improving political situation,
stabilising currency and changes to economic policies.
Indonesia’s middle-income population is expected to grow
by 18% Compounded Annual Revenue Growth (CAGR) per
year in the next five to ten years, driving consumption and
manufacturing activities. Investor interest in Indonesia’s
logistics sector is rising (see “Indonesia Logistics – Fast
Track or Derail?” by James Taylor, June 2016). Vietnam’s
edge in its young and skilled workforce, relatively low costs
and stable political climate is likely to continue to drive
manufacturing sector growth of 7-8% annually (see “JLL
City Momentum Index 2017”, February 2017).
In Indonesia and Vietnam, the yield on cost of developing
industrial facilities can reach 10-12%, and rental growth
is likely to be strong given average annual inflation of
3.5-4.5%. In the Philippines, yield on cost for industrial
developments can reach 8-10%. As cities urbanise and
develop and less land is available for conversion from
agriculture to industrial and residential uses, we expect
industrial land to appreciate.
We have identified new industrial growth areas in each
Southeast Asian market in this report. We have also flagged
key government policies in each country that would affect
industrialists and real estate investors.
In the medium term, further expansion in Southeast Asia’s
economies will be influenced by education quality and
physical urban infrastructure. Thailand and Indonesia are
two markets that seem to underperform the rest of the
region in education quality. Real estate transparency for
all Southeast Asian countries has improved in the last 12
years, with the largest strides being made by Indonesia in
the last five years.
This paper would not have been possible without the
contributions from James Taylor, Andrew Gulbrandson,
Le Trang, Greg Ohan, and Veena Loh. We also want to
acknowledge the research teams across Southeast Asia for
their invaluable support.
A revival of Southeast Asian manufacturing hubs 3
4
8
6
4
2
0
2010
2011
2012
2013
2014
China
Indonesia
Malaysia
Vietnam
India
Philippines
2015
2016
Source: IMA Asia, 4Q16
Figure 2 Global Manufacturing Competitiveness Index
120
7
6
5
4
3
2
1
0
-1
-2
-3
100
80
60
40
20
2016
2020
Change in rank (RHS)
Source: Global CEO survey by Deloitte, 2016
Indonesia
Malaysia
Thailand
Vietnam
Singapore
Canada
UK
Taiwan
Mexico
0
India
For example, as early as 2014, Samsung reportedly had
plans to turn Vietnam into its manufacturing hub with
factories in both Ho Chi Minh City and Hanoi. Other
technology firms that have also shifted supply chains to
Vietnam include Nokia, LG Electronics, Intel and Wintek
Corp. In 2014, Taiwan-based manufacturer Foxconn
announced plans to move its low-end manufacturing
from China to Indonesia to enjoy cost savings and provide
diversification.
10
South Korea
We expect the trend to continue and gain momentum.
Deloitte’s Global Manufacturing Competitive Index projects
that Indonesia, Vietnam, Malaysia and India should
attract a significant share of new investment from global
manufacturers between 2016-2020. The index is gleaned
from a survey of CEOs of manufacturing firms as well as
subject matter specialists.
12
Japan
Gradually, multi-national companies have relocated their
manufacturing facilities to lower cost locations, including
India and Southeast Asia. As a result, export growth from
Indonesia, Malaysia and the Philippines accelerated to
5-6% annually, while exports from Vietnam and India
increased by 9-10% p.a. in the last two years.
14
China
Over the last five years, China has restructured its economy
towards domestic consumption, services and higher value
exports. Manufacturing exports slowed as costs of labour,
land and other factors increased significantly.
Figure 1 Real manufacturing GDP growth (%)
Germany
In 2000-2010, China’s economy expanded strongly on the
back of high export growth. Manufacturing GDP increased
by 12% annually in real terms in China during this decade
as China became the factory of the world. Low labour costs,
operational efficiency and technology adoption aided the
rise. By 2010, China exports reached over USD1.5 trillion
annually.
US
1
Export growth shifting
from China to SEA
2
Rising costs are the key reason
China topped Deloitte’s Global Manufacturing
Competitiveness Index not only due to its low-cost
value proposition, but also the development of
innovation infrastructure and advanced technology in its
manufacturing sector.
As China moves up the value chain, costs are rising.
IMA Asia estimates that manufacturing wages in China
rose from USD 2.0/hour in 2010 to USD 3.9/hour in 2016.
In comparison, manufacturing wages in Vietnam and
Indonesia are still close to USD 1/hour to USD1.4/hour.
Besides the labour cost, the growth in industrial land prices
in key cities such as Shanghai in China have also risen
more than those recorded in other Southeast Asian cities,
except Jakarta. Based on JLL data, estimated land prices
in Thailand’s Eastern Seaboard, as at end-2015, were USD
90 per sqm and USD 162 per sqm in Jakarta, compared to
Shanghai, which recently saw some sites going for more
than USD 180 per sqm. Overall, industrial land costs are
comparable across most other emerging Asian countries
and this could further support the business case for the
relocation of operations into the member states of ASEAN,
such as Vietnam, where costs range between USD 100-USD
140 per sqm.
In terms of cost of construction, Shanghai is facing
similar pressure. The change in the cost of constructing
a conventional single-storey framed factory unit has
increased quite substantially, exceeding USD 100 per sqm
between 2010 and 2015. Overall, the costs of construction
in Southeast Asian cities, with the exception of Singapore,
look more affordable than Shanghai.
Figure 3 Manufacturing wages in USD/hour
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2010
2011
2012
2013
2014
2015
Malaysia
Indonesia
Philippines
Thailand
Vietnam
China
2016
Source: IMA Asia, 4Q16
Figure 4 Industrial land price index
500
400
300
200
100
0
2010
2011
2012
2013
2014
2015
Jakarta
Shanghai
Ho Chi Minh City
Kuala Lumpur
Singapore
Thailand (Eastern Seaboard)
Source: JLL estimates
Table 1 Estimated cost of construction USD psm
City
2010
2015
Change in Cost
of Construction
Shanghai
450
563
113
Jakarta
220
299
79
Kuala Lumpur
370
345
-25
Manila
360
455
95
Singapore
785
843
58
Thailand
(Eastern
Seaboard)
545
505
-40
HCMC
378
343
-35
Source: Arcadis, “Construction Costs Handbook, Singapore 2016”, JLL
A revival of Southeast Asian manufacturing hubs 5
3
SEA consumption, infrastructure
to drive trend
The pace of growth of Southeast Asia as a manufacturing
hub depends partially on the extent to which China’s costs
increase, but also on the rise of domestic consumption
in Southeast Asia alongside the provision of physical and
talent infrastructure in the region.
Domestic consumption: Southeast Asia enjoys strong
demographics with a median age of 30 years, with 40% of
the population in the 15-39 year-old age group. As more of
the population moves from agriculture into manufacturing
and services jobs, we expect the middle-income population
to rise by 9% CAGR in the next five years. About half of
these people will be in Indonesia, where the middle-income
population is expected to increase to 80 million by 2020
(from 46 million in 2015).
Minimum local content laws in Indonesia apply to the
telecommunications, energy and modern retail sectors,
which are likely to drive manufacturing activities in the
country. For instance, from 2017, laws require at least
30% of the components in smartphones sold are made in
Indonesia.
Infrastructure: According to the World Economic Forum
(WEF), the quality of infrastructure, which includes
transport, electricity and telephony, in Southeast Asia
is still weak. But the situation is improving. Japanese
firms Sumitomo Corporation, Mitsubishi Corporation,
Itochu and Marubeni, have committed to the construction
of power plants in Malaysia, Vietnam, Indonesia and
Thailand. Shimizu has committed to development support
for Vietnam’s first metro line construction. Changchun
Railway Vehicles and China Communications Construction
Company have committed to construct transport
infrastructure across Jakarta. Lotte Engineering and
Construction is constructing the first section of the 14.6-km
Da Nang–Quang Ngai Expressway in Vietnam.
With strong commitments, the quality of the infrastructure
in ASEAN countries should improve over time. China’s “One
Belt One Road” initiative and ASEAN economic integration
should also facilitate trade flow within ASEAN and with
China.
Talent management: Southeast Asian countries have
educated workforce that supports the industrialisation
trends we have seen so far, but it is still weak compared to
China. Policies to improve availability of talent will help to
expedite systemic progression of the industrialisation in
these countries.
Figure 5 Middle income population (millions)
250
193 mil
200
150
124 mil
100
50
0
2020
2015
Indonesia
Thailand
Philippines
Malaysia
Vietnam
Singapore
Source: Brookings Institute
Table 2 Quality of overall infrastructure based on a rating
of 1-7 (best)
Year
2010
2015
China
4.0
4.4
Indonesia
3.1
4.2
Malaysia
5.4
5.6
Philippines
3.1
3.7
Singapore
6.7
6.3
Thailand
4.8
4.1
Vietnam
2.8
3.3
ASEAN
3.1
3.4
Source: World Competitiveness Index 2016, WEF
Table 3 Change in level of education in the last decade
Year
% of population over 25 years with a
minimum education level
China
52.2 (2000)
46.5 (2010)
Indonesia
43.2 (2006)
47.3 (2014)
Malaysia
56.5 (2000)
68.2 (2010)
Singapore
70.8 (2005)
78.6 (2014)
Thailand
33.2 (2004)
41.4 (2013)
Vietnam
64.9 (2009)
No data
Source: World Competitiveness Index 2016, WEF
6
4
Our top picks are Indonesia
and Vietnam
Our top picks for industrial property investments are
Indonesia and Vietnam.
Economists expect Indonesia’s manufacturing sector to
grow by 6.5% in 2021, up from 5% in 2016. This is based
on the improving political situation, currency stabilisation
and socio-economic policy changes that are being put in
place. Indonesia’s middle-income population is expected
to grow by 18% CAGR in the next five to ten years, driving
consumption and manufacturing activities. Vietnam’s edge
in its young and skilled workforce, relatively low costs
and stable political climate is likely to continue to drive
manufacturing sector growth of 7-8% annually.
Figure 6 Real manufacturing GDP growth (%)
12
10
8
6
4
2
0
2015
Yield on cost and cash-on-cash yields
In Indonesia and Vietnam, the yield on cost of developing
industrial facilities can reach 10-12%.
2016
2017
China
Malaysia
2018
2019
Philippines
2021
Indonesia
Vietnam
Source: IMA Asia
While these figures are not much higher than the cost of
debt, rental growth is likely to be strong given average
annual inflation of 3.5-4.5%. In the Philippines, yield on
cost for industrial developments can reach 8-10%.
Figure 7 Personal consumption growth
In more mature markets, such as Singapore and Malaysia,
yield on cost of developing industrial facilities is lower, at
around 7-10%. As most developers take on loans equivalent
to 50-70% of development cost, effective cash on cash yield
can be attractive at 11-15%.
5.00%
The key drawback for Singapore industrial land is that
most sites have remaining land tenures of 20 to 50 years. In
most other Southeast Asian markets, industrial land is still
freehold or renewable in perpetuity.
2020
8.00%
7.00%
6.00%
4.00%
3.00%
2.00%
1.00%
0.00%
nes
ippi
Phil
a
ia
re
aysi
nes
apo
Mal
Indo
Sing
Personal Consumption Growth 2016-2021
Real GDP growth 2016-2021
nam
Viet
and
Thil
Source: IMA Asia
Table 4 Indicative average funding costs and returns for development cost of industrial assets
Market
Typical cost of
debt (%)
Typical LVR
Yield on
cost (%)
Yield spread over debt
cost (bps)
Cash-on-cash yield (%)
Inflation
Indonesia
10-12%
50-70%
10-12%
0-200 bps
10-15%
3.5%
Vietnam
10-11%
up to 70%
11-12%
100-200 bps
11-14%
4.7%
Singapore
3-3.5%
50-70%
7-8%
350-500 bps
12-15%
0.8%
Philippines
8-12%
60%
10-12%
0-400 bps
10-15%
4.0%
Malaysia
6.5-7.5%
50-70%
9-11%
150-350bps
11-16%
2.2%
Thailand
5-6%
40-50%
7-8%
200-300bps
8-11%
0.7%
Market yields for all markets. Debt costs are based on investment grade borrowers fixed pricing on typical market maturities.
Source: JLL, 4Q16
A revival of Southeast Asian manufacturing hubs 7
Land prices should appreciate as cities urbanise
Figure 8 Industrial land price index (USD terms)
Since 2010, industrial land prices in Thailand’s Eastern
Seaboard, Manila and Kuala Lumpur appreciated by 6080% in USD terms, despite 20-40% depreciation in their
respective currencies.
350.0
150.0
100.0
50.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Jakarta
HCMC
Singapore
Manila
Kuala Lumpur
Thailand (Eastern Seaboard)
Source: JLL
Figure 9 Industrial land price at outskirts of Southeast
Asian cities
300
250
200
150
100
Jakarta
Kuala Lumpur
2016
2014
2013
2012
2011
2010
2009
0
2008
50
2007
Lease tenures could change in future, enhancing scarcity:
Freehold land is available for most Southeast Asian
markets. As cities urbanise, governments tend to limit land
price appreciation by limiting land lease tenures for newly
allocated industrial land plots. For instance, in Singapore,
land tenures have been shortened to 60 years, then 30
years. In China, new industrial land leases have been
shortened from 50 years to 20 years from July 2014.
200.0
2006
In most Southeast Asian cities, wages are still the largest
component of overall business costs, making up close to
50%. Other significant components include utilities, trade
and transport costs.
250.0
Industrial land price USDpsm
(excl Singapore)
Jakarta industrial land prices appreciated by 300% in USD
terms over 2010-2016, as with office and residential prices,
as the country’s economic prospects turned positive in
2010 due to political issues being resolved and FDI starting
to increase consistently. Industrial land prices in Ho Chi
Minh City have been relatively stable in both VND and USD
terms over the last six years. In more developed Southeast
Asian cities, such as Kuala Lumpur, industrial land prices
are 50-90% higher than the rest of Southeast Asia. But as
cities urbanise and develop, we expect land to become
more scarce and industrial land to appreciate.
300.0
2015
5
Urbanisation should drive
land price growth
Manila
HCMC
Thailand (Eastern Seaboard)
Source: JLL
Figure 10: Industrial land price USDpsm (RHS)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
500
450
400
350
300
250
200
150
100
50
0
Malaysia
Philippines
% in agriculture
% in services
Source: JLL, World Bank
8
Indonesia
Thailand
Vietnam
% in industry
Industrial land price USDpsm (RHS)
6
Medium term issues
that need to be addressed
Quality education and skills
Figure 11 Percentage of 15-year olds with PISA math/
science scores below level 2 (basic skills)
In the medium term, the ability of Southeast Asian
countries to move up the value chain will depend on
quality of education, availability of infrastructure and ease
of doing business.
90%
80%
70%
60%
For quality of education, Vietnam is ahead of Thailand and
Malaysia, while Indonesia needs to do more, especially
in the rural areas, where children are less likely to attend
schools and schools are less likely to have trained teachers
or appropriate facilities. 74% of Indonesian 15-year olds
lack basic mathematics and science skills, according to
PISA international tests. This is the 5th worst score out of
82 countries.
50%
40%
30%
20%
10%
S. Africa
Indonesia
Brazil
Maxico
Malaysia
Thailand
Sweden
U.S.
Italy
France
U.K.
Australia
Germany
Switzerland
Vietnam
Japan
Singapore
Korea
Estonia
Hong Kong
0%
Ease of doing business
Source: OECD, 2015
Amongst developing Southeast Asian countries, Malaysia
and Thailand rank highest in terms of ease of doing
business, followed by Vietnam and Indonesia. Philippines’
ranking fell in 2016, with firms there encountering
difficulties in registering property, getting credit, enforcing
contracts and protecting minority investors. Indonesia has
improved its ranking from 109th in 2015 to 91st in 2016,
due to Jokowi’s reforms.
Figure 12 Global real estate transparency score
4.50
4.40
3.50
3.00
Global real estate transparency score
2.50
Over the last 12 years, real estate transparency
across Southeast Asian markets has improved, giving
international investors more confidence to enter these
markets. Indonesia and Vietnam have made the largest
improvements, with Indonesia now being almost as
transparent as Thailand and Philippines.
2.00
1.50
2010
2012
Singapore
Indonesia
2014
Malaysia
Philippines
2016
Thailand
Vietnam
Source: JLL
Table 5 Regional ranking for ease of doing business
World Construction Getting Registering
Rank
permits
electricity property
Singapore
2
Getting
credit
Paying
taxes
8
10
10
19
20
Enforcing Resolving Protecting
contracts insolvency minority
investors
2
29
1
Trading
across
borders
41
Hong Kong
4
5
3
61
20
3
21
28
3
42
Malaysia
23
13
8
40
30
61
42
46
3
60
Thailand
46
42
37
68
82
109
51
23
27
56
China
78
a
97
42
62
131
5
53
123
96
Vietnam
82
24
96
59
32
167
69
125
87
93
Indonesia
91
116
49
118
62
104
166
76
70
108
Philippines
99
85
33
112
137
115
136
56
137
95
Source: World Bank, 2016
A revival of Southeast Asian manufacturing hubs 9
7
Country snapshots
Indonesia
Indonesia is the largest economy in Southeast Asia.
Its main industries include agribusiness, automotive,
electronics, textiles and food & beverage. The government
plans to develop 13 industrial estates outside Java right
across the archipelago in the next five to seven years to
facilitate job creation and boost regional development
economic growth. Aligning these projects with the sea toll
programme has been recommended by President Jokowi.
Two emerging areas outside of Jakarta – Subang West and
Kendal – have been identified:
Subang, West Java, Indonesia
Subang is accessible by the Cikopo-Palimanan Toll Road,
with connectivity to International Airport of West Java in
Kertajati (2017); Patimban Seaport (2019). The Subang
Regency Government has prepared 11,000 hectares of land
to be developed for industrial use.
10
Kendal, Central Java, Indonesia
Kendal is located 21 km west of Semarang, with
connectivity to: Ahmad Yani International Airport (20 km);
Tanjung Emas Seaport – the only port serving central
Java and the third largest deep sea port in Indonesia after
Tanjung Priok (Jakarta) and Tanjung Perak (Surabaya)
(25 km). Kendal Industrial Park is a joint venture (JV)
between PT Jababeka Tbk and Sembcorp Development
Ltd from Singapore, and Singapore’s first industrial park in
Indonesia outside of Batam-Bintan-Karimun region. This
2,700-hectare industrial park is positioned to attract spill
over manufacturing demand from Jakarta. 30 companies
have already taken up tenancy agreements and made
investments which are expected to generate at least 4,000
jobs by end-2016.
Cengkareng
Rengasdengklok
Jakarta
Makasar
Ciputat
Cakung
Ciracas
Beji Gunung putri
Parung
Bogor
Ciampea
Clasem
Klari
Subang
Purwakarta
Karangtengah
Cianjur
Cisaat
Karangampel
Klangenan
Caringin
Cicurug
Indramayu
Losarang
Bandung kuion
Dayeuhkolot
Pangalengan
Cilawu
Java
Jampang-kulon
Banjarharjo
Larangan
Karangpawitan
Cisaga
Sindangbarang
Losari
Ciledug
Bandung
Ciparay
Sukanegara
Harjamukti
Singaparna
Majenang
Banjarsari
JAVA SEA
KENDAL PORT
TANJUNG EMAS
PORT [25KM]
BATANG
SEMARANG (21KM)
AHMAD YANI
INTERNATIONAL
AIRPORT [ZPKM]
UNGARAN
JAKARTA
470km from Jakarta
300km to Surabaya
BANTEN
WEST JAVA
CENTRAL JAVA
YOGYAKARTA
EAST JAVA
A revival of Southeast Asian manufacturing hubs 11
Vietnam
Quang Nai Province, Central Vietnam
Vietnam is one of the region’s fastest growing economies
and is divided into 63 provinces and three key economic
regions (North, Central and South). The Vietnam
manufacturing sector has focused primarily on more
labour-intensive segments, such as apparel, shoes,
agribusiness and food processing. This accounts for 37%
of its GDP, one of the highest in Southeast Asia. However,
recent government incentives and policy are targeting a
shift towards more sophisticated sectors such as IT and
technology. Some key industrial hubs include:
Notable industrial Parks: Tinh Phong IP, Quang Phu IP, VSIP
Quang Ngai IP
Connectivity to: Da Nang Airport (135 km); Dung Quat Port
(within the area)
An industrial area located in the Central Key Economic
Region, catering to FMCG, textile products, mechanical,
metallurgical, oil refinery and chemical.
Major tenants include Saigon-Quang Ngai Beer Factory,
Dung Quat Beer Factory, FVQ Electronic Component
Factory, Rieker Shoe Vietnam and Vinasoy Milk.
Bac Ninh Province, North Vietnam
Notable industrial Parks: Que Vo IP, Yen Phong IP, VSIP IP
Connectivity to: Hanoi (30 km); Noi Bai Airport (30 km)
Binh Duong Province, South Vietnam
An industrial area located in the Northern Key Economic
Region catering to various sectors such as hi-tech industries
(electrical and electronics, ICT), FMCG and logistics. Major
tenants include Samsung, Canon, Nokia, Pepsico, Ariston
and Mapletree Logistics. HA GIANG
LAI CHAU
DIEN BIEN
Notable industrial Parks: VSIP IP, My Phuoc IP
Connectivity to: Ho Chi Minh City (30 km); Tan Son Nhat
Airport (15 km); Ports (10-15 km)
An industrial area located in the Southern Key Economic
Region, catering to various sectors such as textile products,
electronics, FMCG and mechanical components, paper and
plastic packaging.
CAO BANG
BAC CAN
TUYEN QUANG
YEN BAI THAI HGUYEN LANG SON
VINH PHUC
BAC GIANG
PHU THO
SON LA
HA NOI BAC NINH QUANG NINH
HUNG YEN HAI PHCNG
HOA BINH
HA NAM THAI BINH
NAM BINH
NINH BINH
LAO CAI
Major tenants include Colgate, Unilever, P&G, Wrigley,
Panasonic and Avery Dennison.
THANH HCA
NGHE AN
HA TINH
QUANG BINH
QUANG TRI
THUA THIENHUE
DA NANG
QUANDAO HOANG SA
QUANG NAM
QUANG NGAI
KON TUM
BNH ONH
GIA LAI
PHU YEN
DAK LAK
DAC NONG
KHANH HCA
BINH PHUOC
NINH THUAN
LAM DONG
TAY NTNH
BINH DUONG
DONG NAI BINH THUAN
TP HO CHI MINH
12
DONG THAP LONG AN
VUNG TAU
AN GIANG
TIEN GIANG
CAN THO VINH LONG
BEN TRE
KIEN GIANG
TRA VINH
HAU GIANG
SOC TRANG
BAC LIEU
CA MAU
QUANDAO TRUONG SA
Thailand
This industrial and logistics hub focuses on petrochemical,
automotive and other industries, with four free zones in
the area. The current incentives provided by the Board of
Investment could promote specialised investment into
existing industrial areas. Clusters with higher priority, such
as automotive and electronics, may be granted substantial
tax breaks. This could have a positive impact on industrial
estates along the Eastern Seaboard.
KHAOYAI
NATIONAL
PARK
HEMARAJ SARABURI
INDUSTRIAL LAND
AYUTTHAYA
NONGKHAE
NAKHONNAYOK
PATHUMTHANI
Bangkok
Int’l Airport
PRACHINBURI
Suvarnabhumi
Int’l Airport
BANGKOK
Bangkok Port
GULF OF THAILAND
CHACHOENGSAO
BA
NG
CHONBURI
MOTORWAY
HONBURI
KC
KO
One of the key areas we have identified is the Hemaraj
Eastern Seaboard Industrial Estate. Located along
Thailand’s Eastern Seaboard. The estate is connected
to Bangkok, including Klong Toei Port (112 km); Laem
Chabung Deep Sea Port (27 km); Mab Taphut Port (50 km)
and Suvarnabhumi Airport (83 km).
SARABURI
TAXI
WAY
Thailand, the second largest economy in Southeast Asia
after Indonesia, offers investors opportunities in both
export manufacturing and a strong domestic consumer
market. Key segments include electronic appliances,
jewellery, petrochemical and automobiles, although there
is a push towards more value-added industries such as ICT,
high-value electronics and green automobiles.
HEMARAJ CHONBURI
INDUSTRIAL ESTATE
SRIRACHA
SRIRACHA
HARBOUR
HEMARAJ EASTEAN
SEABOARD INDUSTRIAL
ESTATE
LAEM CHABANG
DEEP SEA PORT
EASTERN SEABOARD
INDUSTRIAL ESTATE
(RAYONG)
PATTAYA
HEMARAJ RAYONG
INDUSTRIAL LAND
HEMARAJ EASTEEN
INDUSTRIAL EASTATE
(MAP TA PHUT)
RAYONG
U-TAPAO AIRPORT
SATTAHIP PORT
MAP TA PHUT
DEEP SEA PORT
A revival of Southeast Asian manufacturing hubs 13
Malaysia
Malaysia is one of the most mature and most transparent
markets amongst the developing nations in Southeast Asia.
It is a manufacturing hub for electrical and electronics,
machinery, ICT and petroleum products, including
chemical and chemical products and latex. Malaysia is
gradually transforming and moving its manufacturing up
the value chain. Three areas have been identified.
Batu Kawan Industrial Park (BKIP)
Located towards the North of the peninsula of Malaysia,
with connectivity to: Penang Port (27 km); Georgetown,
Penang (40 km); Bayan Lepas International Airport (35
km). Batu Kawan was selected by the government as
the mainland site for a major industrial area and the
third satellite town of Georgetown after Bayan Lepas
and Seberang Jaya. The scarcity of industrial land in
Bayan Lepas Industrial Estate makes BKIP an attractive
alternative, especially given the more affordable land
prices. Other than industrial uses, BKIP also houses an
SME Village, theme parks, and a Premium Outlet. The
accessibility from Batu Kawan to Bayan Lepas International
Airport has been improved with the completion of the
second bridge to Penang in March 2014. Major tenants
include Hewlett-Packard, Boon Siew Honda and
Haemonetics.
Kepala Batas
North Channel
Batu Femingghi
Tanjang
Bangah
Bertaes
SEBERANG PERAI
Teluk
Behung
Butterworth
Penang
Hill
Geoogetown
Mak Mandia
Industrial Park
Sebeang Jaya
Industrial Park
Peral Industrial Park
Penang Bridge
Bayan Banu
Pulau Jerejak
Bukit Mertajam
Peral Free Industrial Zone
Bukit Manyak
Industrial Park
Penang Science
Park
Bayan Lepas
South Channel
Penang Second
Bridge
STRAITS OF MALACCA
14
BATU
KAWAN
KLIA Aeropolis
Senai Airport City
Located in the central part of Malaysia, in the capital
city, Kuala Lumpur, within KL International Airport and
connected to KL city centre (45 km). KLIA Aeropolis is a
100-sq-km integrated development launched in May 2016.
The development focuses on three main clusters – the air
cargo and logistics cluster, the business and aviation parks
cluster and the MICE, leisure and complementary business
cluster. The KLIA Aeropolis is expected to attract a GDP
contribution of some MYR 30 billion over a 15-year period
and create 56,000 jobs.
Senai Airport City is a 2,178-acre prime area adjacent
to Senai International Airport connected to MalaysiaSingapore Second Link (20 km) and Johor Bahru City Centre
(25 km). Taken over by Senai Airport Terminal Services Sdn
Bhd (SATSSB) in 2003, it is currently in its Phase III (20112023), which includes the development of Senai Free Zone,
Aerospace Park, International Logistics and Manufacturing
Park, SME Village, Senai High Technology Park and
Commercial and Residential Park. In August 2015, SATSSB
sold three parcels of land totalling 188.7 acres in Senai
Airport City to IPark Development Sdn Bhd (a wholly owned
subsidiary of the AME Group). The land is planned to be
developed in three phases, known as i-Park @ Senai Airport
City. Major tenants include Hershey and Fuji Oil.
KLIA Aeropolis plan
44 acres
Mitsui Outlet
Park KLIA Sepang
35 acres
115 acres
MICE-related
components
OEM offshore centre for
engineering services, oero
manufacturing
KLIA Aerotech Park
CBD
85 acres
CBD
Airline corporate
office, operations
base and mid tier
MNCs
MICE
Theme park
KLIA Support Zone
IA
KL
a
kli
305 acres
110 acres
Cargo / Logistics and other
ancillary airport services
> e-Commerce hub
> Regional distribution centre
2
200 acres
KLIA2 Southern
Support Zone
Maintenance, repair and
operations (MRO) and
airline forward base
A revival of Southeast Asian manufacturing hubs 15
Singapore
Singapore is a developed, business-friendly market that
is one of the most transparent markets in Southeast
Asia. Despite its developed market status, manufacturing
remains a major contributor and its primary products are
electronics, oil refinery, chemical and chemical products
and pharmaceutical.
Investors focused on core assets could find the high asset
yield attractive but should be conscious of short land lease
tenures of 30-60 years and lease conditions especially on
JTC-allocated land.
We have identified one key area that the government is
investing in – Jurong Innovation District (JID). JID is a
hub created to cultivate an innovation cluster that will
build on the current work done at CleanTech Park. JID
is slated to be completed by 2022 and will be home to
advanced manufacturing, robotics, clean tech and smart
logistics, with the capability to engage in the entire value
chain of these clusters – from R&D to prototype testing to
production. The area will be a living lab for innovators and
entrepreneurs and its close proximity to NTU will allow
opportunities for the cross-fertilisation of ideas between
academia and industry.
Choa Chu Kang
Jurong Innovation District
Tengah
Bahar
Clean Tech
Park
Bulim
Bukit Batok
NTU
Jurong West Residential Estate
Jurong East
Jurong Lake District
Jurong Industrisal Estate
16
8
Key policies encouraging
industrial projects
Governments across SEA have policies in place to promote the equalisation of economic growth across the countries or
to incentivise the growth of new industries and encourage greater foreign participation in the industrialisation process
City/country
Programme/policy
Governing ministry/
department
Impact on the economy and the real estate
market
Indonesia
Tax incentives (Regulation
142/2015) targeted at specific
industrial development regions
across Indonesia. Non-fiscal
incentives include the revocation
of requirements for environmental
licences by occupiers if these have
been obtained for the entire area of
the industrial development regions.
Industry Ministry
Encourage the concentration of industrial
activity in industrial zones with integrated
infrastructure, amenities and pollution
mitigation measures.
Sector-specific tax holidays
(Regulation 159/2015) for nine
industries, including oil refining,
machinery production, maritime
transport, and processing industries
within a special economic zone.
Ministry of Finance
Revision to the negative investment
list (Regulation 44/2016) opens up
100% foreign ownership to 35 sectors,
including e-commerce, toll road
operators and cold storage. Foreign
shareholding of permitted businesses
has been expanded.
Investment Board of
Indonesia
Preferential corporate tax rates
and Corporate Tax Exemption
(Government Decree No. 218/2013/
ND-CP) for a period of time for firms
making an investment in selected
industries
Tax Authority
Exemption of the Land Lease Fee
(Government Decree No. 46/2014/
ND-CP) for 15 years for selected
industries in industrial zones
located in economically distressed/
disadvantaged areas.
Tax Authority
Financial Assistance (Prime Minister
Decision No. 43/2009/QD-TTg) for
costs associated with land clearance,
provision of infrastructure and
compensation associated with site
clearance, exclusively for industrial
zones located in economically
distressed/disadvantaged areas.
Prime Minister’s Office
Vietnam
Intensification of existing managed industrial
estates.
Development of more planned and managed
industrial parks and estates.
Stimulate the growth of these pioneer industries
and channel industrial activity within industrial
zones.
Development of speciality industrial parks and
general industrial estates located within special
economic zones.
Encourage greater liberalisation of the economy
and support greater foreign participation.
Development of speciality industrial parks and
general industrial estates located within special
economic zones.
Stimulate the growth of selected industries of
interest, such as those in the high-tech sector.
Promote the demand for industrial estates and
locations of specific importance.
Stimulate the growth of selected industries of
interest, such as those in the high-tech sector.
Promote a spread of economic growth drivers
to less developed regions, balancing economic
growth across the country. Promote a spread of economic growth drivers
to less developed regions, balancing economic
growth across the country.
Development of new industrial estates in
outlying areas and special economic zones.
A revival of Southeast Asian manufacturing hubs 17
City/country
Programme/policy
Governing ministry/
department
Impact on the economy and the real estate
market
Thailand
Tax incentives offered shifted from
zoning to activity-based criteria, e.g.
the A1 incentive package provides a
corporate tax waiver for eight years
with no investment volume cap for
select industries and activity.
Board of Investment,
Thailand
Shift the current industrial landscape towards
more technologically advanced and capitalintensive sectors.
Additional incentives offered on top of
the activity-based scheme above, e.g.
additional cost deduction available
for investment made into provinces
with the lowest per capita income,
special economic zones, etc.
Board of Investment,
Thailand
Tax incentives for companies
undertaking manufacturing or
services activity in less developed
areas.
The Ministry of
International Trade
and Industry (MI
Fiscal incentives for the management
of industrial parks.
MITI
Malaysia
Redevelopment of existing industrial estates to
cater to higher-value industries.
Promote a spread of economic growth drivers
to less developed regions, balancing economic
growth across the country.
Development of new industrial estates in
outlying areas.
Promote a spread of economic growth drivers
to less developed regions, balancing economic
growth across the country.
Development of new industrial estates in
outlying areas.
Promote the management of industrial estates
and possibly spur the growth of new economic
areas.
Development of existing industries, especially
around the Shah Alam and Klang Valley areas,
due to ready infrastructure, which benefits
industrial developers and facility management
companies. A possible catalyst for industrial
developments in isolated areas.
Fiscal incentives for the adoption of
automation in industries.
MITI
Encourage the development of more
technologically advanced and capital-intensive
industries, especially in the existing rubber,
plastics, wood and textile segments.
Redevelopment of existing industrial estates to
cater to higher-value industries.
Singapore
Imposition of seller’s stamp duties
for the sale of any industrial assets
within three years after purchase, subletting restrictions and a minimum
occupation period for owners and
occupiers of JTC industrial properties.
Inland Revenue
Authority of Singapore,
JTC Corporation
Alleviate transaction and ownership costs of
industrial assets.
Land Intensification Allowance and
Land Productivity Grant.
Singapore Economic
Development Board /
Spring Singapore
Tax allowance given on qualified capital
expenditure that would help enhance land
productivity.
Curb speculative transactions and maintains a
healthy industrial market for industrialists and
real estate investors.
One time defrayment of associated relocation
costs (non-capital expenses) to encourage the
intensification of land use.
Potential redevelopment of existing industrial
assets to higher intensity.
Economic Expansion Incentives Act –
exemption of/reduced corporate tax
on income from qualifying activity.
Inland Revenue
Authority of Singapore
Corporate tax exemption or reduction given
to selected industries to help promote highervalue-added activity.
Potential redevelopment of existing industrial
assets to cater to these higher-value industries.
18
Authors
Regina Lim
National Director
Head of Capital Markets
Research, Southeast Asia
[email protected]
A revival of Southeast Asian manufacturing hubs 19
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