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Advertisement Asia Malaysia’s curb on non-AI data centres seen as ‘strategic throttle’, but challenges remain Late last month, Prime Minister Anwar Ibrahim said the federal government has been turning away applications for new data centres that are unrelated to artificial intelligence over the past two years or so. A housing area is located just 100m from the ZData construction site. (Photo: CNA/Zamzahuri Abas) New: You can now listen to articles. This audio is generated by an AI tool. Amir Yusof Amir Yusof 12 Mar 2026 06:43PM (Updated: 13 Mar 2026 02:45PM) Bookmark Bookmark Share WhatsApp Telegram Facebook Twitter Email LinkedIn Set CNA as your preferred source on Google Add CNA as a trusted source to help Google better understand and surface our content in search results. Read a summary of this article on FAST. Get bite-sized news via a newcards interface. Give it a try. Click here to return to FAST Tap here to return to FAST FAST GELANG PATAH, Johor: When retiree Ramli Paiman bought his double-storey terrace in Taman Nusa Bayu in Iskandar Puteri more than a decade ago, the backyard opened to lush greenery. Today, just 150m from his back door, a 15ha construction site - roughly the size of 29 football fields - buzzes with activity, as cranes swing and piling machines hammer into the ground. The land was initially owned by Malaysian real estate subsidiary Tropicana Firstwide and was partly sold to data centre firms, Chinese-headquartered ZData and Japanese-headquartered NTT Data Group, in 2025.The project area is close to a residential zone where around 20,000 people live. CNA Games Guess Word Crack the word, one row at a time Buzzword Create words using the given letters Mini Sudoku Tiny puzzle, mighty brain teaser Mini Crossword Small grid, big challenge Word Search Spot as many words as you can Show More Show Less ZData Technologies’ facility under construction in Gelang Patah, Johor Bahru, on Mar 11, 2026. (Photo: CNA/Zamzahuri Abas) Ramli and several neighbours said that the transformation has come at a cost. When CNA visited the neighbourhood on Wednesday (Mar 11), there was thick dust coating on cars and windows. Residents also claimed this has led to health concerns. Ramli, 65, claims his daughter, a student, has experienced breathing difficulties due to the dust, causing her to restrict herself to indoors. “The dust causes coughing. My own child, when she comes back home (from her outstation work commitments), can’t stay out of the house, because the polluted air makes it hard for her to breathe,” said Ramli. Ramli Paiman says his daughter suffered breathing difficulties after being exposed to the dust pollution. (Photo: CNA/Zamzahuri Abas) Ramli and his family have been swept up in the effects of Malaysia’s data centre boom. The surge has been swift, especially in Johor which has benefitted from spillover demand from southern neighbour Singapore.According to a report by consultancy firm IPM, there were roughly two dozen data centre sites across Malaysia in 2020. By 2025, that number had nearly doubled to 46 operational facilities, with another 48 in the pipeline, according to market data firm Arizton. The federal government has hailed this as a boon for foreign investment and Malaysia’s digital ambitions. But residents and some experts say infrastructure planning is struggling to keep pace.Ramli, who previously worked in construction, now heads a residents’ action committee negotiating with state authorities and project representatives. Among their demands are compensation for medical bills linked to the data centre construction and higher electricity costs, as families rely heavily on air-conditioners and fans to dry clothes indoors.He maintained that he is supportive of Johor’s data centre boom as it would bring jobs and prosperity to the state. “We are supportive of the state’s efforts to bring in data centres, you never know one day my children or grandchildren might get a job with these companies,” he said. But he expressed hope that the issues plaguing residents in the construction phase are managed better. Elsewhere, complaints have surfaced in Johor’s Iskandar Puteri, Senai and Pasir Gudang districts, as well as in Selangor’s Elmina Park. ZData Technologies’ facility under construction in Gelang Patah, Johor Bahru, on Mar 11, 2026. (Photo: CNA/Zamzahuri Abas) Concerns from residents and experts range from pollution and construction disruption to the strain on water and electricity supplies.This has prompted the government to be more discerning of upcoming projects, with the Johor state saying it no longer approves Tier 1 and Tier 2 data centre projects as these consume up to 50 million L of water a day, roughly 200 times the volume consumed by Tier 3 or 4 sites. Late last month, Prime Minister Anwar Ibrahim confirmed that for the last two years or so, the federal government has turned away data centre applications not related to Artificial Intelligence (AI). This move has been largely lauded by experts, local residents and industry players, as it is viewed as a recalibration rather than a retreat. Johor-based urban planning consultant Samuel Tan told CNA: “Anwar’s announcement is a strategic throttle rather than a full brake.“He is signalling to the global market Malaysia’s shift from an ‘open-door’ policy to a ‘selective-priority’ model reflects a maturing market that is no longer just chasing capital, but resource efficiency and high-value tech,” added Tan, who is CEO of Olive Tree Property Consultants.Still, some observers questioned whether the policy will significantly curb the pace of development, given the volume of projects already approved or under construction.Others pointed to the lack of clarity around what qualifies as an AI-centric project.Without a clear definition, they warned that companies could reclassify projects to meet approval criteria, a practice some describe as regulatory arbitrage.“Without clear policy definitions, Malaysia risks absorbing the water, power and land footprint of hyperscale infrastructure without necessarily capturing the deeper technological benefits,” said conservation finance policy analyst Shaqib Shahril. Related: German start-up plans 30-megawatt AI data centre in boost to sovereign control Malaysia curbs non-AI data centres as power squeeze looms LOOSE DEFINITION COULD RENDER POLICY REDUNDANT Of the 48 known upcoming data centres in Malaysia, most are reportedly AI-ready or cloud centric. According to online financial reports, these include cloud-oriented projects by multi-national corporations such as Microsoft, AirTrunk and Google, as well as a facility by YTL Power which is powered by global chipmaker Nvidia’s Blackwell architecture. In his speech in parliament, Anwar did not specify how the government distinguished AI and non-AI projects. While the policy to pivot to AI data centres is prudent, analysts stressed that it was important the authorities be transparent on the definition of what constitutes AI-centric facilities. For instance, experts pointed out that an upcoming data centre project in Johor’s Senai airport city by China-based EPG is on paper a non-AI facility. The project broke ground in March 2025, and according to reports, is a “modular data centre manufacturing facility”. CNA has reached out to the Johor state government and EPG on whether it has fulfilled conditions to be AI-ready. Tan stressed that the definition and specification is the “most contentious part of the policy”. “The risk of a loose definition: If ‘AI’ is defined simply by rack density or the presence of a few GPUs, every operator will claim to be an ‘AI’ DC,” he told CNA. Rack density refers to the amount of power used by equipment in a single server rack. A graphics processing unit (GPU) is an electronic circuit that can perform mathematical calculations at high speed. ZData Technologies’ facility under construction in Gelang Patah, Johor Bahru, on Mar 11, 2026. (Photo: CNA/Zamzahuri Abas) Meanwh