Robert Pick, the former deputy head of the U.K.’s Marlborough College, recalls the day in 2009 when he stood atop a hill at the southern tip of Malaysia and scanned an endless sea of green palm oil trees. He strained to see the spot among the massive plantations where the private boarding school would build its first overseas branch three years later, Bloomberg Markets magazine will report in its September issue.
“It was a leap of faith,” says Pick, who’s now the founding master of Marlborough College Malaysia, in his new office with a floor-to-ceiling window and a view of vast cricket and rugby fields. “You wouldn’t have believed then what it is now.”
Today, the 90-acre campus boasts more than 30 low-rise buildings divided by green lawns and tennis courts and is traversed by 376 students.
The college is a flagship project in Iskandar Malaysia, an economic development zone spanning 2,217 square kilometers (856 square miles) -- three times the size of neighboring Singapore to the south -- in the mostly rural state of Johor.
The government of Prime Minister Najib Razak has ambitious plans for the area, which offers investors 10-year corporate tax exemptions, cheap land and low-cost labor. Najib, 60, has pledged to attract 75.5 billion ringgit ($23.4 billion) in investments to Iskandar from 2011 to 2015 on top of the 69.5 billion ringgit the zone pulled in from 2006 to 2010.
Some high-profile projects, including the Legoland Malaysia amusement park and Pinewood Iskandar Malaysia Studios -- a franchise of the U.K.-based company where James Bond films were made -- are done or nearing completion in a flagship development zone called Nusajaya.
Residential neighborhoods, featuring large homes, gardens and swimming pools, also have been built. And the Iskandar Regional Development Authority has plans for schools, malls, media firms, electronics manufacturers, food processors, and oil and gas companies in coming years.
Malaysia’s prime ministers have touted such massive undertakings before only to see them flop.
In 1997, Prime Minister Mahathir Mohamad began a project to develop commercial buildings and universities in a multimedia corridor south of Kuala Lumpur.
His aim was to attract global electronics companies and turn Malaysia into a high-tech hub. Investors stayed away, put off by the currency crisis that then gripped the country and subsequent capital controls by the government.
Iskandar’s success will depend on luring investors from nearby Singapore, who face rising labor costs and Asia’s second-highest residential property prices.
Singapore billionaire Peter Lim is partnering with UEM Sunrise Bhd., which is majority owned by state-run Malaysian investment firm Khazanah Nasional Bhd., to build a motor sports complex with a Formula One-compliant test track in Iskandar.
Robert Kuok, Asia’s seventh-richest man, according to the Bloomberg Billionaires Index, is developing luxury residential and commercial buildings at picturesque Puteri Harbour, where yacht owners dock their vessels.
“Iskandar is taking shape as the potential for investors is becoming much clearer with rising costs in Singapore,” says Manu Bhaskaran, a Singapore-based partner at strategic advisory firm Centennial Group. “It will be a hugely important project for Malaysia and Singapore.”
Iskandar is a centerpiece of Najib’s economic transformation plan, unveiled in 2010, to raise the standard of living in Malaysia, a nation of 29.3 million people.
Najib, who began serving his second term in May, said in 2010 he planned to create 3.3 million jobs over the next decade and boost per-capita gross national income to $15,000 from $6,700 in 2009.
He has benefited from an economy -- driven by oil production, commodities and manufacturing -- that grew 4.1 percent in the first quarter. The benchmark FTSE Bursa Malaysia KLCI Index doubled to 1,785.14 from Dec. 31, 2008 to Aug. 5, 2013, after surging to a record 1,810 on July 24.
The prime minister narrowly escaped defeat in the May 5 election by voters fed up with his entrenched ruling coalition and its system of racial preferences.
Najib is the eldest son of Malaysia’s second prime minister. His United Malays Nasional Organisation-led alliance has held power since the country gained independence from Britain in 1957.
Though the opposition coalition led by former Deputy Prime Minister Anwar Ibrahim got 51 percent of the vote, it won only 40 percent of the seats in Parliament. The ruling alliance won 133 of 222 parliamentary seats, its narrowest victory since independence, by keeping the support of ethnic Malay voters who get preferences in government contracts, housing, education and jobs. The opposition, which pledged to fight corruption and curtail the preferences, drew the support of Chinese voters.
After the election, Anwar alleged electoral fraud and has led protests across the country. At least five people, including members of the opposition parties, were arrested and charged with sedition. They pleaded not guilty and were released on bail on May 29.
“The days of a dominant majority are gone,” says Tony Fernandes, group chief executive officer of Sepang, Malaysia-based AirAsia Bhd., Asia’s largest budget carrier. “People want checks and balances, and I think that is a good thing.”
In 2010, Najib resolved a decades-old dispute with Singapore over a train station owned by Malaysia, opening the spigot of foreign investment into Iskandar.
Najib and Singapore Prime Minister Lee Hsien Loong agreed to move the station located just outside Singapore’s central business district to a site near a bridge that connects the two countries. The settlement spurred Temasek Holdings Pte, Singapore’s state-owned investment company, and Khazanah to agree to jointly develop $9.8 billion of property projects in Iskandar and downtown Singapore.
“The wealth they have in Singapore could certainly benefit Malaysia as well, and Malaysia’s hinterland will benefit Singapore,” Najib said in an interview with Bloomberg News in April.
The prime ministers announced in February that they had agreed to construct a high-speed railway linking Kuala Lumpur and Singapore. It may cut through Johor and speed the commute of Iskandar residents to the urban hubs. The railway, which may be completed by 2020, could shorten the travel time between Kuala Lumpur and Singapore from four hours by road to 90 minutes.
Keith Martin, CEO of Iskandar-based Global Capital & Development Sdn., says some initial ideas for the economic zone may have overestimated the potential demand.
In 2010, when Martin first joined Global Capital & Development, he was surprised to see that the master plan for the central Medini area in Nusajaya included glass-clad skyscrapers with roofs for helicopter landings.
Martin, who saw no demand for such lavish buildings, persuaded his board to reduce their size, lower the rents and pitch them to small Singapore businesses looking for relief from high costs.
“Our strength here is land and space; we don’t need a Manhattan skyline,” he says. “The board was eventually convinced of the need for a demand-led approach.”
Wan Abdullah Wan Ibrahim, UEM Sunrise’s CEO, says investors were at first skeptical of his promotion of residential properties in Iskandar.
At a conference in Singapore a couple of years ago, Wan Abdullah recalls an investor telling him: “We have been cheated many times. A lot of developers show us pretty pictures, but they don’t deliver pretty pictures.”
That conversation spurred the CEO to start shuttling Singaporeans by bus to Iskandar so they could see the developments for themselves.
Property developers have drawn mostly foreign buyers from Singapore, Indonesia and Japan who want a second home or a primary residence in an upmarket neighborhood.
In East Ledang, a residential enclave adorned with gardens in Nusajaya, UEM’s houses with five bedrooms, a swimming pool and a yard sell for about 3.5 million ringgit, 6 percent of what a similar home would cost in Singapore.
This year, a buying frenzy has erupted for homes in Nusajaya, which is anchored by Marlborough College, Pinewood Studios and Legoland.
In May, Malaysian developer Mah Sing Group Bhd. held a preview of 595 units, with prices ranging from 750,000 ringgit to 2.6 million ringgit. Some 1,500 people preregistered their interest in the yet-to-be-built dwellings, 75 percent of which were sold within five hours.
Jeremy Hebblethwaite, 40, a Briton who’s head of information technology architecture and security for the Asia-Pacific region at Julius Baer Group Ltd. in Singapore, joined the early wave of home buyers in Iskandar.
He learned about the zone through Marlborough College in the U.K., where he went to school. Last year, his family left their apartment in Singapore and moved into a rental property in Nusajaya while his 10,800-square-foot (1,000-square-meter) house is being built.
The home, which boasts a swimming pool and a large yard, is in Leisure Farm Resort Residences, a development in Nusajaya. His commute by car to work takes as little as one hour.
“It’s a bit like how I grew up,” says Hebblethwaite, whose two children go to Marlborough College in Iskandar. “It’s countryside.”
Opposition leader Anwar is concerned that Iskandar is turning into a bonanza for foreign investors, with too few benefits flowing to the people of Johor. He says multinational companies and foreigners are driving the commercial projects with little disclosure from the government.
“Iskandar is still an extension of a closed system and lacking transparency in the way awards are given,” he says. “There hasn’t been enough participation by local people.”
While wealthy buyers from outside Malaysia snap up homes, workers in Iskandar are being squeezed by soaring prices. “A property bubble is a concern,” Anwar says. “The prices are now beyond the reach of any ordinary citizen, or even relatively rich Malaysians.”
Ismail Ibrahim, CEO of the Iskandar Regional Development Authority, says the government will supply discounted units to an estimated 25,500 low-income households.
“We cannot leave them out of the equation,” he says. “We must assist them.”
In the near term, Iskandar is helping spur Malaysia’s overall growth, which the central bank forecasts will reach as much as 6 percent this year.
A region that just seven years ago was little more than sleepy fishing villages and palm trees offers Najib an opportunity to show investors that the third-largest economy in Southeast Asia can, this time, deliver on its grand plans.