Singapore and Malaysia approach data centre development with different strategies

Malaysia’s growth in data centres has been significant, with the country emerging as a beneficiary of Singapore’s moratorium on new data centre development from 2019 until 2022. Amazon, Microsoft, Tencent and Alibaba have all already made substantial investment in hyperscale capabilities in Malaysia, with major players such as Bridge Data Centre, Equinix, AirTrunk, and Vantage Data Centres leading the charge on data centre development and operations.

The development pipeline has expanded to almost 13 gigawatts (GW). This, if realised, would exceed the combined pipelines of Indonesia, Thailand and Singapore.

Singapore, in comparison, is one of the world’s most expensive data centre markets and its strategy has increasingly focused on ensuring that future capacity is sustainable rather than maximising capacity growth. Singapore currently hosts around 1.4 GW of operational data centre capacity, driven by artificial intelligence (AI) and cloud adoption.

Singapore’s green data centre roadmap, launched in 2024, signalled an intention to balance digital growth with environmental sustainability. This was further reinforced through the proposed Digital Infrastructure Bill earlier this year, which would introduce one of the region’s most comprehensive regulatory frameworks for digital infrastructure.

The bill establishes two licensing regimes. The first is a major foundational digital Infrastructure (FDI) licence, applying to providers of significant digital infrastructure services, including infrastructure-as-a-service, platform-as-a-service and software-as-a-service providers generating more than S$100 million (approx. US$78,510,000) in average annual revenue over the preceding three years from users in Singapore. The second is a dedicated data centre licence applicable to operators of data centres in Singapore with a critical load of 3 megawatts (MW) or more.

The FDI licence applies regardless of whether the provider is located within or outside Singapore, while the data centre licensing regime applies to all qualifying facilities located in Singapore, irrespective of where the operator is based. The proposed legislation also codifies environmental sustainability obligations, including requirements relating to power usage effectiveness, and grants the Infocomm Media Development Authority significant licensing and enforcement powers. Non-compliance may attract penalties of up to the greater of S$1 million or 10% of annual Singapore turnover. 

Malaysia’s regulatory environment is substantially different, instead encouraging investment through the digital ecosystem acceleration (DESAC) incentive scheme, which forms part of the government’s broader ambition to position the digital economy as “Malaysia’s new engine of growth”. 

The DESAC scheme provides access to tax allowances of between 60% and 100% of qualifying capital expenditure for projects meeting specified sustainability and efficiency requirements. These requirements operate as conditions for obtaining government support rather than obligations. Applications for the scheme remain open until 31 December 2027. 

These two regulatory environments create both challenges and opportunities for developers and investors.

While Singapore’s framework is appealing because of its stability and transparency, it is likely to increase compliance costs and operational obligations. 

Developers and operators will need to address how sustainability and security obligations are contractually allocated amongst the various stakeholders where, as is typically the case in modern data centre structures, ownership, operation and occupation are divided among multiple parties.

Malaysia’s attraction for investors and operators is the vast development pipeline and incentive-driven framework, offering significant growth potential. There is, however, increasing scrutiny of energy and water consumption.

Similar pressures have recently come to the fore in Thailand this month, where authorities have temporarily halted the construction and approval of numerous data centre projects while new national standards governing power use, water consumption and environmental impacts are developed.

If resource concerns intensify, sustainability-related regulation may become a more prominent feature in the investment landscape.  The last thing any developer or operator wishes to encounter is service interruption due to power issues, which is likely to result in potential disputes around liability caps or carve outs in their contracts, said Wee Jian.

While both jurisdictions are responding to the same explosion in demand for AI and cloud infrastructure, Singapore is attempting to solve this challenge through regulation, technical standards and selective allocation, while Malaysia is relying on incentives and large-scale expansion to capture market share.

Power availability is emerging as a key constraint, with access to electricity now often a more significant challenge than access to land. Reliable grid connections and long-term renewable energy arrangements are now valuable assets for both developers and operators. Power is becoming as valuable as the land itself; the ability to secure reliable power capacity and long-term renewable energy arrangements is increasingly a key factor in determining the bankability of a project, said Jessica.

Success in both jurisdictions will increasingly rely on not just securing land for development, but securing power, navigating regulatory certainty and sustainability models. AI-ready infrastructure already commands a premium value, making the long-term winners likely to be projects capable of balancing growth with resilience and environmental performance.

Co-written with Johanne Brocas of Pinsent Masons.