Forest City could become cheaper, secondary family office hub to complement Singapore 

MALAYSIA’S Forest City could be a secondary family office (FO) hub that complements Singapore’s FO scene given its strategic location and lower costs, industry watchers said.

But they added that it is still too early to tell if it could truly become a wealth hub; more clarity on its tax incentives and legal frameworks is needed first.

Last September, Malaysia announced tax incentives for FOs in the Forest City Special Financial Zone (SFZ) in Johor, aimed at revitalising the integrated development project that failed to take off.

The plans also contribute to the newly set up Johor-Singapore Special Economic Zone (JS-SEZ) – a partnership aimed at promoting economic growth and attracting investments in both countries.

“The JS-SEZ is intended to enhance economic collaboration with Singapore, enhance cross-border connectivity, and foster a business-friendly environment,” said Lee Tiong Heng, Deloitte’s private FO leader for South-east Asia.

“These factors could make Johor appealing to smaller to mid-sized FOs seeking cost-effective alternatives to established hubs like Singapore.”

Malaysia has several factors that can attract wealthy families – it is more cost-effective compared to Singapore and Hong Kong, yet has a strategic location with regional wealth hub potential, said Chee Pei Pei, South-east Asia private tax and legal, as well as family enterprise, leader at Deloitte.

The country also has comparatively lower costs of living and operational expenses, as well as high-quality residential options and international schools, she added.

Since the SFZ was announced, Forest City has garnered some interest from clients already, observers said.

While the number of inquiries has been modest, the initial response indicates that the incentives and infrastructure improvements are indeed attracting attention, said Lee.

He expects demand to rise in the short term as more high-net-worth individuals and FOs become aware of the SFZ’s benefits.

Singapore rivalry

Despite Forest City’s appeal, observers do not expect it to threaten neighbouring Singapore – at least not in the short to medium term.

Manish Tibrewal, co-founder of multi-FO office Farro Capital, said: “The size of the pie is very big, and Singapore has already established itself as a gold standard in the FO space.”

Instead, the JS-SEZ could complement the city-state’s status by fostering cross-border cooperation between Singaporean and Malaysian businesses through shared resources and expertise, said Lee of Deloitte.

“Singapore would remain a premier destination for FOs and wealth management due to its robust regulatory framework, political stability, and comprehensive financial services infrastructure,” he added.

To be sure, Malaysia’s Finance Minister II Amir Hamzah Azizan said the Forest City SFZ will not compete directly with Singapore, but rather target a different market segment with lower thresholds.

For Deloitte’s Chee, Singapore would stay as the dominant player in South-east Asia, and Malaysia could emerge as a secondary hub for those seeking a more cost-effective alternative.

Meanwhile, Malaysia is unlikely to replicate Hong Kong’s deep ties with China, which is the North Asian wealth hub’s key advantage.

As for Dubai, Malaysia’s secondary FOs may also not pose a threat either as their target markets are distinct: Dubai caters primarily to Middle Eastern, Russian and Indian FOs, while Malaysia focuses on South-east Asia.

Chee expects there may be some impact on talent movement, though.

“The secondary FO initiative could lead to increased demand for wealth management professionals, potentially attracting some talent from Singapore,” she said.

Challenges for Forest City

For now, Malaysia has its own hurdles to overcome. Attracting talent to Forest City, for one, would be a big challenge, said Farro’s Tibrewal.

It is also still too early to determine how the zone’s offerings will evolve, and how FOs would perceive it as a hub.

“The long-term implications can only be determined when the actual FO hub emerges in Malaysia,” he said.

At this stage, Forest City has yet to establish a comprehensive ecosystem to fully support the targeted FOs, said Chee.

She added that a “seamless business environment”, with an ecosystem that encompasses investment advisory and fund management services, is essential for the FO hub initiative to succeed.

This includes efficient processes for entity establishment, clear and smooth fund-flow guidelines, and robust support services.

“In the long run, if Malaysia addresses challenges related to regulatory clarity and improved connectivity, Forest City could emerge as an upcoming hub for FOs in the region,” she said.

Edmund Leow, senior partner at Dentons Rodyk, noted that overall, each jurisdiction must play to its strengths to attract the applicants that are aligned with them.

“In any case, there will always be some applicants who will be attracted by lower costs. However, other applicants may not regard lower business costs as the main determining factor in setting up their FOs,” he said.

“To me, Singapore is not a place that will compete on price alone, and therefore we have to find other things to compete on if we wish to continue to attract applicants.”