How to make sense of smart city developments
Case Notes 18. Smart city is a common buzzword today. This article looks at it from a layman perspective and provides some pointers on how to assess it when investing in a property.
"The Sabah government will be establishing several smart cities at several popular locations. Chief Minister Datuk Seri Panglima Haji Hajiji Haji Noor said... was to create a digital economy eco-system and promote digital culture to raise the quality of life." Borneo Post Nov 2021.
"Malaysia, which hopes to have at least five smart cities established in the country by 2025, could take a page from China’s experience in digitalisation… particularly in the area of smart cities… said Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed". MIDA Jun 2021.
A Google search for the term “smart city” showed that the interest had increased over the past decade. This is not just a Malaysian phenomenon. We also see the increased interest globally.
Given this trend, more Malaysia property developers would be using the term "smart city" to market their properties. But are the smart city projects by the private property developers the same as what the government is proposing?
This article is to help you make sense of all the tech and smart city offerings by property developers. It is based on my experience in developing i-City as the No 1 Technology City. Refer to Appendix 1.
Contents
- Summary
- What is a smart city?
- Smart Homes and PropTech
- Who are developing smart township/community services?
- Technology providers
- Refreshing the technology
- Smart city - Malaysian property developers
- How to make sense of smart city developments
- Appendix 1
Summary
The term “smart city” as used by the authorities focuses on providing better township and/or community services and tackling the various urban issues. I do not think that this is comprehensive picture.
To the layman, having a better quality of life goes beyond township/community services. It should also cover the home and extends to the interaction with the various parties involved in the property processes.
There are 3 converging technologies in the property field - smart homes, PropTech and smart cities (as used in the government sense). Smart homes focus on the occupiers. PropTech is more about solving real estate processes whereas smart cities (as used by the government) focus on the community at large.
Most of the government smart city projects focus on using digital tech to improve township/community services. But this only touches one aspect of the lives of its citizens. Unfortunately, this is the common understanding when it comes to smart city.
A truly comprehensive smart city should by one where all the 3 technology components are offered. To the layman, a comprehensive smart city project is one where technology provides a better quality of life. He benefits from living in a smart home, be part of a smart community and have a convenient buying or renting process.
To differentiate what I mean, I will use the term “tech city” to cover the comprehensive picture while reserving the term “smart city” to the focus on township and urban issues.
From this perspective, the term “smart city” will mostly be a marketing play by most Malaysia property developers for the following reasons:
- Township services and/or community services are provided by the government or local councils. Malaysian property developers hand over the public facilities to the local authorities. As such there is little incentive for property developers to invest in smart infrastructure or facilities.
- Many smart city projects by the private sector property developers cover only smart homes and/or PropTech.
- Tech-enabled township/community services require continuous refreshing of technology and/or applications. Why would a property developer refresh the technology? This is especially if the property developer’s business model is one of build-sell-move on.
A private sector property development project that is being touted as a smart city will probably involve one or two of the tech components. This is a far cry from the vision of an urban centre of the future based on digital technology.
What is a smart city?
A smart city is today a common buzz word among many property developers and local authorities in Malaysia. But different parties have different interpretation of it. This is because the concept of a smart city has evolved over the past 2 decades.
Malaysia's first smart city was probably Cyberjaya. The then Prime Minister, Tun Dr Mahathir launched the Multimedia Super Corridor (MSC) in the mid-90s. This was to spearhead the country's push into digital technology. Cyberjaya was the nucleus of the MSC.
A smart city in those days meant a connected city. Today broadband connectivity is considered as just basic infrastructure. The smart city concept had moved beyond just the simple connectivity.
While there are many definitions of a smart city, they all centred on using digital technology to better serve the community.
“Smart city... uses ICT and technology and innovation advances to address urban issues... to improve the quality of life, promote economic growth, develop sustainable and safe environment... efficient urban management practices.” Malaysian Government
“A smart sustainable city is an innovative city that uses ICTs... to improve quality of life, efficiency of urban operation and services, and competitiveness... while ensuring that it meets the needs of present and future generation...” United Nations Economic Commission for Europe
“…smart cities put data and digital technology to work to make better decisions and improve the quality of life.” McKinsey & Company. Three layers work together to make a smart city hum as shown below.
- The technology base.
- Specific applications.
- Usage by cities, companies, and the public.
If you take the view that a “smart city” is one where digital technology is used to improve the quality of life, I would argue that a comprehensive smart city is one that covers not only the township/community services, but also the home or work place. In the context of the property sector, it should also cover all the processes that a person would experience when buying or renting premises.
In other words, it is the convergent picture. To differentiate this convergent picture, I will use the term “tech city” to describe this convergent concept while the term “smart city” will refer to the focus on township/community services.
To complicate the picture further, most of the urban issues are about socio-economic activities. These are the purview of the government and not the private sector. Sure, the private sector property development may involve some public infrastructure and amenities but this is a far cry from covering the full urban living issues.
But in the Malaysian context, private sector developers do promote their projects as smart cities. When you throw in words like smart home, AI and PropTech, you can imagine a layman house buyer being overwhelmed by the tech stuff. But remember that in looking at properties, the focus is not on the technology. It is very much like how in choosing a car the layman doesn’t really worry in-depth about the vehicle technology.
When looking at properties in a tech city development, the more important questions are
- How will all the smart city features improve the quality of life?
- Will you to have to bear additional cost to have the tech city features?
I am old school so that when it comes to buying a property, “location, location, location” will still be the main consideration. Technology only come into the picture after you are happy with the location.
Smart Homes and PropTech
"A smart home... a convenient home setup where appliances and devices... controlled remotely from anywhere with an internet connection..." Investopedia.
You can see the commonality between some of the smart home and the smart township/ community technologies. Examples are those relating to the network or the internet of things (IoT).
I think of a smart city as the evolution of a smart home. For a smart home, you are connecting the sensors of a single home. But for a smart city the connection is between various organizations, various domains as well as multiple segments of a city.
Smart home and smart offices have their roots in home and/or building automation. They focus on the occupiers. On the other hand, smart cities focus on urban issues and go beyond the home and/or office.
But just like a managing a home is very different from managing a city, smart homes are not smart cities. Standalone smart buildings even if it involves AI and cloud services are not smart cities.
Along the same line, using digital technology to provide better township/community services is only one aspect of a digital lifestyle. A smart city as envisaged by the Malaysian authorities only addresses one component of a tech city.
What is PropTech then? iProperty.com refers to it as “…the use of technology to solve challenges in the real estate sector.” Refer to Like it or not, PropTech is the future of real estate.
"PropTech or property technology... application of information technology and platform economics to real estate markets." Wikipedia
Think of PropTech as using digital technology to optimize the way people research, rent, buy, sell and manage properties. It is about the interaction among the various property intermediaries. Examples of PropTech are property management using digital dashboards and tech-enabled brokerages.
Smart homes, PropTech and smart cities had different roots but I would say that the technologies are converging. Probably one day in the future, there would be a new term for these converged technologies just like how the term ICT was coined.
- Smart home focus of providing a better quality of home life.
- PropTech focus is on better delivery of the various property processes.
- Smart city focus is on the township/community issues.
When you assessed property developers from a tech perspective, bear in mind that all 3 technologies come into play. A good example is i-City as illustrated in the chart below.
The tagline for i-City is “…No 1 Technology City…” because it is at the intersection of these 3 technologies.
Who are developing smart township/community services?
The smart city terminology currently refers to using digital technology to provide better township/community services. When used in this context, the first smart city was probably Amsterdam with the creation of a virtual digital city in 1994. The next big step was when the large tech companies got into this field in the mid-2000s. The inaugural Smart City Expo World Congress held in Barcelona in 2011 was a sort of a coming of age of the smart cities.
Listed below are the major milestones in the smart cities theme, as identified by Global Data.
- 1994 – Amsterdam created a virtual ‘digital city’ to promote Internet usage.
- 2005 – Cisco put up USD 25 m over five years for research into smart cities.
- 2009 – IBM unveiled USD 50 m Smarter Cities campaign to help cities run more efficiently.
- 2011 – 6,000 visitors from over 50 countries attended first Smart City Expo World Congress in Barcelona.
- 2014 – China launched second batch of 103 pilot smart cities.
- 2018 – Singapore won Smart City of 2018 award at the Smart City Expo World Congress.
I am sure that the definition of a smart city will continue to evolve. But a few things are clear. Smart cities leverage digital technology to enhance service levels. The focus is on citizen well-being, sustainability, and economic development.
As such you should not be surprised to see that almost all the smart city projects are undertaken by the government and/or municipal councils. At the same time, many of the projects are still in the infancies.
McKinsey took a look at current deployment of smart cities in 50 cities around the world. This included looking at each city’s technology base, its current application rollout, and public adoption. It showed that even the most advanced still have a long way to go.
- Among the most advanced from a technology based are Amsterdam, New York, Seoul, Singapore, and Stockholm.
- Mobility has been a top priority for most cities. The cities with the most applications implemented were London, Los Angeles, New York, Seoul, Shenzhen, and Singapore. These have branched into multiple domains.
- Asian cities are the strongest performers in awareness, usage, and satisfaction. European cities lag.
With government and local councils as the key adopters, the following are often quoted as the benefits of having a smart city:
- Enhanced citizen and government engagement.
- Safer communities.
- Improved transportation.
- Reduced environmental footprint.
- Efficient public utilities.
- New economic development opportunities.
These are very public and/or township type of services and facilities. Private property developers are not providing township services on an ongoing basis. Why should they make the development smart given the costs involved?
Technology providers
A decade ago, American companies such as Cisco and IBM were often cited as leaders in providing digital city solutions. Today we have Chinese tech companies such as Alibaba, Baidu, Tencent and Huawei offering smart city solutions.
“Four years ago, organizers created the international AI City Challenge to spur the development of artificial intelligence for real-world scenarios… In the first years, teams representing American companies or universities took top spots in the competition. Last year, Chinese companies won three out of four competitions. The results reflect years of investment by the Chinese government in smart cities. Hundreds of Chinese cities have pilot programs, and by some estimates, China has half of the world’s smart cities.” WIRED in 2021.
A Google search for the leading smart city companies threw up the following companies
- Cisco.
- Schneider Electric.
- Siemens.
- Microsoft.
- Hitachi.
- Huawei.
- Ericsson.
- Toshiba.
I do not want to get into the debate on why there are so few Chinese companies in the list. The key point I want to make is that they are all technology companies. But more importantly, the list focus on the township/community services.
If you take the convergent view, then the tech companies should include those that provide smart homes and/or building automation as well as all the PropTech companies. If nothing else, it demonstrates that the term “smart city” is still very government-centric.
You do not see any property developers or property companies in the list. You should not be surprise by this. Think of the role of a Malaysian property developer. This typically involves:
- Purchasing the land,
- Determining the marketing of the property,
- Developing the building program and design,
- Obtaining the necessary public approval and financing,
- Constructing the structures,
- Selling, or renting the properties.
Note that the above described the Malaysian property development model. Different countries could have different approaches. For example, in the USA, they have land developers and home builders. The latter is does the design, construction and marketing of the homes. The former undertakes the land acquisition and approval part.
Depending on the development, a project could take years to complete. But on completion, the developer hands over the infrastructure and public amenities to the local council. The developer doesn’t have any more role to play.
Developers generally do not stay back to manage the township services. So where are incentives to invest in smart township/community services solutions?
Refreshing the technology
Tech city relies heavily on the deployment of technology. Rather than reinvent the wheel, I quote the following from "The rise of the Smart City" by Leonidas G. Anthopoulos, University of Thessaly. It summarizes the architecture of a tech city into 5 levels:
- Layer 1 - Natural Environment: all the environmental features where the city is located.
- Layer 2 - Hard Infrastructure (Non-ICT-based): it contains all the urban facilities such as roads and buildings.
- Layer 3 - Hard Infrastructure (ICT-based): it concerns all hardware such as data centres and the networks.
- Layer 4 – Smart Services: theses cover township services such as smart safety and intelligent traffic management.
- Layer 5 - Soft Infrastructure: individuals and groups of people which the smart services are executed for.
The traditional property developers focus on Layer 2. To undertake a smart township/community services development, a property developer has to also cover Layer 3 and Layer 4.
Looking at Layers 3 and 4, you will realize that over the past 2 decade, the technology for them have evolved. For example, 20 years ago:
- Wi Fi was still in its infancy. Today we are talking of 5 G.
- There were hardly any apps then.
Technology will continue to evolve. Whatever technology investments made today will have to be refreshed in a few years’ time to be relevant.
The question then boils down to who bears the cost of this refreshment? From a property developer’s perspective, what is the incentive to refresh the technology? This is especially if the developer is no longer involved in the public facilities and amenities when the project is completed.
Imagine the following analogy. The developer provides the latest mobile phone as part of the smart home or smart city attraction. Do you think that in 5 years’ time, the developer will upgrade the phone for you?
This is the crux of the tech city’s technology. Whatever is leading edge today will be probably be outdated within a decade. A decade is a short life for house ownership. So as a layman, you have to ask what will happen when the technology needs to be refreshed?
- Smart home/building technology upgrade will be by the property owners.
- I am sure the property companies will be upgrading the PropTech part.
- Who will upgrade the township/community services part? The most likely scenario is that the authorities will do so. Property developers are unlikely to volunteer to do this if the infrastructure and amenities have been handed over to the authorities.
Smart city - Malaysian property developers
According to the Real Estate & Housing Developers’ Association (REHDA) Malaysia, there are over 1,000 developers across Peninsular Malaysia. They are responsible for some 80% of the total real estate built in this country. (Source: iProperty.com)
But, there are only a handful of developers who have more than a decade-long track record of developing smart cities. These developers and their smart cities included:
- Cyberjaya. Spanning about 7,000 acres, the idea of this IT-themed city arose out of a study by McKinsey in the mid-90s. Cyberjaya was started as a Malaysian government project. Even today, Cyberview the developer of Cyberjaya, is a government-owned corporation.
- Medini City. This is a 2,230 acres integrated urban township development in the Iskandar Malaysia area of Johore. It is being developed by Medini Iskandar Malaysia Sdn Bhd (MIM) whose shareholders included the Malaysian and Johore governments, Middle East investors and Mitsui & Co. In 2015, MIM entered into a joint venture agreement with Telekom Malaysia to provide ICT services to Medini City.
- i-City. This is a 72 acres urban centre development in the Selangor Golden Triangle by i-Bhd, a Bursa Malaysia property developer. i-City owns the last mile infrastructure. It is also responsible for the broadband and other ICT services within the development. It has an agreement with the authorities for i-City to provide some township services such as street lighting and landscaping within the development on an ongoing basis.
These 3 smart city developments are greenfield projects in that they were planned as smart cities. This is unlike the smart cities projects currently undertaken by the government and/or local councils. These generally covered “re-engineering” of established town areas. It is greenfield vs brownfield.
Of course, there are other recent private sector greenfield smart city projects as well as the “re-engineered” ones:
- Aspen Vision City is a 245 acres freehold commercial and mixed development in Batu Kawan, Penang. Launched in mid-2010s, it is touted as a smart city project. In 2016, it entered into an agreement for Telekom Malaysia to facilitate the deployment of smart city services for the development.
- In July 2020 Sunway Berhad, the developer of Sunway City, sealed a MOU with Celcom Axiata and Huawei Technologies. This was to collaborate on advancing smart township solutions. It focused on public safety and security, telehealth, e-learning, hospitality, leisure and retail. Initially covering the existing Sunway City, the solutions would be rolled out to other Sunway’s property projects.
However, when you look at all of them you have to ask which of them are offering the tech city facilities and services. Otherwise, you would be caught in the marketing hype.
How to make sense of smart city developments
For the layman house buyer, the first thing is to understand is what is actually offered by the property developer.
- Is it a smart home? You can easily identify this as most of the features would be focused on the home.
- Is it related to property management? This is the current focus of PropTech.
- Is it about township services such as traffic management? This is the government focus.
If what is offered covers township services, you should follow up with these questions:
Notes
(a) In Malaysia, the local councils are responsible for providing the township services. i-City is one exception where the developer is responsible for the services within the site on an ongoing basis.
(b) If the parties do not have a good track record of refreshing the technology, the smart city features will soon become outdated.
(c) Developers like Sunway and i-Bhd owns substantial properties such as hotels and offices in the site.
(d) In the outsourced model, there is a ROI question for the service provider. This will impact whether the house buyer will have ongoing costs in the future to benefit from the services.
The tech city is here to stay. This is because it is about improving the quality of life. But it is still in its infancy in Malaysia and there are very few tech city projects.
- The various Malaysian government-led smart cities are still pilot projects that focused on one or two township services.
- Most private sector property developers surrender the public amenities to the local authorities. Thus, their smart township features are also pilot project type.
- Most Malaysian property developers talk about smart homes and PropTech as the centrepiece of their technology.
What should you do when you are considering a property in a tech city?
- Check whether it is a “convergent” smart city or only one or two components.
- Ask yourself how you will benefit from the smart features. Do not be mesmerized by the tech. It will be outdated within a few years.
- Ask who will bear the cost of the tech refreshment. If it is about smart township/community services, the cynic view is that even if the development is not a smart one, given the push by the government, you will eventually be living in a place with smart township/community services.
Appendix 1
i-City is a mixed development with the following accolades.
- i-City was the first private sector MSC Malaysia Cybercentre.
- Its City of Digital Lights has been recognized as one the world top 25 brightest sites by CNN Travel.
- It was the first Malaysian development where fibre-to-the-unit was provided by the developer as part of the utility infrastructure.
- i-City was the first Cisco Smart + Connected Communities project in the South East Asian region.
In the context of smart cities, i-City is probably the most advance private sector smart city development in Malaysia. If you want to know about the tech components of i-City refer to the following:
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You've written a very useful article. This article provided me with some useful knowledge. Thank you for providing this information. Keep up the good work. Smart City
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