Thoughts on killing the Goose laying golden eggs in IM.
The prospects for economic growth in IM in the next 5, 10 and 15 years remain very strong. They are stronger than they were 5 years ago. Investments that produce economic activity (theme parks, factories, hospitals, hotels, retail, film studio…) have come online and more on being built right now.
Cooperation with Singapore is the main advantage IM has. It provides IM world class advantages that few other locations have (it is the same advantages offered by lower cost areas extremely close to world class cities - NYC, Hong Kong, London, San Francisco etc.). Transportation connections to Singapore are critical and have not been managed as well as they should have been. A 3rd link should be in place today. The MRT should be a top priority of anyone with power interested in the future economic well being of IM and Johor.
Transportation within Johor is also a big concern. This is good now. I worry they will become as bad as KL which would be a horrible outcome. JB had the chance to build a good transportation system and avoid the economically extremely costly friction of bad transportation system that KL is stuck with. If JB does this well, JB will be the economic center of Malaysia in 2030. If this is messed up the economy of JB will suffer a great deal.
The health of Malaysia's economy will also have a large role to play. Overall things are very positive on this front though government and consumer debt are getting to be serious problems.
Economics is often tricky. Externalities (like pollution - essentially externalities are positive or negative impacts that are not captured economically by the market transaction, so economic theory requires government to implement policies to take externalities into account) are easy to ignore, for a awhile). So you have situations like China where huge negative consequences (health risks, health care costs, costs to pay staff to accept unbreathable air…) are taken on and short term economic gains seem better than they are.
Economic bubbles create lots of golden eggs. They are false golden eggs though. They are only available as long as the bubble tempts people to ignore the real economic worth. And cleaning up after bubbles burst is extremely costly and damaging to economies (especially ones that have high debt and are not lucky enough to have a fiat currency that the global market accepts - the USA).
I am extremely skeptical of the boom in luxury housing in IM. I don't see the boom in very high paying jobs that create a sustainable demand for luxury housing. The transportation links to Singapore are not great enough to allow the jobs to all be in Singapore. Even if they were that is a risky model to be so dependent on Singaporean money. There is likely to be a dependence on Singapore jobs to sustain many of those living in IM but for it to a strong economy there have to be a reasonable number of high paying jobs in JB.
Right now, it seems to me (I would really need to have much more data to be more certain as I don't have nearly enough data now), that their is a bubble in luxury housing in IM. I think the government is wise to take bubble suppressing steps. Doing so is never easy. Getting it exactly right is very hard. I think they waited to long, which then means the bubble has inflated and makes taking the right steps even harder.
On the good side of things, real estate prices were extremely low 10 years ago. So while prices have increased a great deal they are still not exorbitant compared to other desirable areas (Singapore, KL, Penang, Bangkok…). Of course, JB hasn't been on comparable terms with those locations. I truly believe IM has the potential to do so, and thereby justify even higher prices going forward. But that is dependent on maximizing the Singapore location benefits and while lots of good things are happening on that front, more is needed. And more is needed quickly.
The riskiest area for IM is a huge oversupply of luxury housing. It would be foolish of the government not to address this risk. Wether the steps taken are correct or not, I am not sure, but I think they are a reasonable guess and basically are wise. Things should be watched and adjusted as needed. The policy change I like the least is the 1 million MYR limit (I would do no more than 750,000 MYR if it were up to me).
What I see as the top priorities
- reducing speculation in luxury housing in IM
- reducing government debt levels
- reducing consumer debt levels
- increasing the number of high paying jobs in IM - focus on health care is good (I more could be done there I would try), finance is another good target, manufacturing is decent but I seriously doubt IM will have huge numbers of high paying/high skilled manufacturing jobs (some yes, but limited). I would also target high tech, software development etc. I would work closely with organizations in Singapore and KL. I would focus a significant amount of effort on this area). Education is good (and worthily of continued effort) but provides limited high paying jobs. If engineering and entrepreneurship programs can be developed that integrate with high tech business community that is the path to huge success for JB (pretty much everywhere else on earth would like to pull this off so there is lots of competition - JB has better than average potential with Singapore next store and the Malaysian economy and efforts such as IRDA and decent English language skills for students - improving English would help).
- increasing the tax base (sales taxes make sense), hotels and retail are great (especially when they attract tourists and you get tax dollars on others - not just your citizens)
- transportation - MRT, busses in JB, roads, taxis… Should be worrying about JB's own MRT system (even if that is a long term issue, planning should be done now, building should likely begin within 5 years - beyond just the initial few stations linking to Singapore, it should be over 12 stations in JB by 2025 - likely a north/south line and east/west). Should likely also plan on 2nd and 3rd link MRT connections to Singapore by 2025 would be nice, but certainly by 2030 I would think?
- increasing number of jobs overall - this seems to be fairly well done but looking down the road 30 years the issue is going to be raising the pay level (lots of retail and tourist related jobs are good at first, but they are low paying jobs in general)