THREE Middle Eastern firms signed agreements with the South Johor Investment Corporation (SJIC) yesterday to kick-start the development of the Iskandar Development Region (IDR) in what is likely to become the single largest ever foreign real estate investment in Malaysia.

The three firms are Mubadala Development Company, the investment arm of the Abu Dhabi emirate; Kuwait Finance House, and Millennium International Development Co, a Lebanese-owned construction firm based in Saudi Arabia.

Together with the SJIC - which is owned by Khazanah Nasional, the Economic Planning Unit and the Johor state government - the three firms will develop 902 hectares in southern Johor into 'Rim City', a mix of cultural, leisure and financial habitats for an initial US$1.2 billion that just includes the cost of land and to-be-done infrastructure and landscaping. The final price tag, according to a government official, could be anything between US$6 and US$10 billion.

That the Middle Eastern investors will call the shots is implicit in the control they will have in each joint venture - 70 per cent with the SJIC holding the rest. The master developer for the project is also one of their own - listed Abu Dhabi based Alda Properties.

Even so, the actual work is only likely to begin in a year after the SJIC completes the infrastructure and landscaping to the investors' satisfaction and land titles get transferred. Still, the government converted the land, previously freehold, to leasehold land presumably to avoid political controversy.

The project is deeply significant as this is probably the first time that the government is encouraging the establishment of an international city without affirmative action policy restraints and playing by the international rules of the game.

According to several officials, the investors will be permitted to sell their facilities to all comers without restriction nor will they be subject to state government approvals.

The development also illustrates the wealth of the Middle East. Mubadala, for example, is said to have reserves of over US$1 trillion. And for two of the investor companies - Mubadala and Millennium - this is their first investment in South-east Asia.

Indeed, the IDR project signals a sea change in the investment attitudes of Middle Eastern interests which have traditionally opted to place their excess funds in the US and Europe . But after the 9/11 terrorist attacks, more and more have cast their eyes towards South-east Asia, especially Muslim Malaysia.

The project is also likely to raise asset values in the Iskandar Development Region as the deal values the land at around RM42 (S$18) a square foot. Even after lopping off the costs of infrastructure and landscaping, the land would still be values at over RM30 which is remarkable - a year ago raw land there was going for around RM8 a square foot.

The IDR project is also expected to radically change the way of doing business in Malaysia especially in big project developments. Because the Middle Eastern investors will have control of the project, all contracts are likely to be based on open and international tenders to ensure best prices and quality. So politically connected companies hoping to ride on the boom through negotiated awards are likely to be disappointed.

Moreover, the presence of the Middle Eastern investors is a shrewd political move as it is likely to quell criticism about Malaysia selling out to foreigners especially Singaporean interests. The officials said that there was little to carp about when the foreign investors were all 'our Muslim brothers'.

Finally, the announcement of the project is likely to renew foreign interest in the IDR which has been criticised as 'all talk and no action'.

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