Malaysia targets Singapore's expats as Chinese-built Forest City homes 'sit empty'

Billed as a US$100 billion antidote to Singapore's oversubscribed space, Forest City in Malaysia's Johor has been given a fresh push by Prime Minister Anwar Ibrahim, who has dangled tax breaks and easy visa access for the legion of expats he wants to lure across the Causeway.

But investors are still shy to dive in, instead waiting for more clarity on the government's plan to jump-start the flagging fortunes of the mega project by Chinese developer Country Garden, which is swamped by nearly US$200 billion of debt as China's real estate sector teeters on implosion.

Anwar sought to reignite interest in the project in late August when he announced the creation of a Special Financial Zone (SFZ) in Forest City and the Iskandar Malaysia economic zone in the southern state of Johor, with low income-tax bands and multiple entry visas.

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The prime minister intends to recast the project's reputation from a "ghost town" into a buzzing community with everything from affordable education and healthcare; a cheaper alternative for multinational companies based across the Causeway to expand or relocate some of their operations.

"Any announcement on improving the ease of doing business is important. It sends a good signal [to investors]," said Adib Zalkapli, a Malaysia director with political risk consultancy BowerGroupAsia.

It also offers a potential shot in the arm for Country Garden as China's largest private property developer endures a torrid period of near-defaults on bond payments as it seeks to restructure its debts following record losses over the first half of this year.

"But it's still early days before we see anything concrete, whether on the details of the special zone or whether there will be a surge of investments as a result of the announcement," Adib added.

Equally, Forest City comes with heavy baggage.

It was launched in 2016 in partnership with a Malaysian firm backed by the Johor local government and the state's ruler, promising to be built on four man-made islands spanning an area of some 7,400 acres - more than six times the size of Singapore's resort island of Sentosa.

The project, however, ended up as campaign fodder ahead of the 2018 national polls, when former prime minister Mahathir Mohamad described it as part of an attempt to cede sovereignty to Chinese interests.

Around 28,000 condominium units have so far been built under the first phase of the project. But it is currently home to only 9,000 people - a fraction of the number it is meant to house.

The first phase - completed three years ago on one of the man-made islands and accounting for 15 per cent of the total project - promised green, tech-powered living with golf courses and a water park.

But the anaemic subscription so far to the towering condo blocks, adorned with patches of greenery, has amplified the sense of a big idea in limbo.

"I really feel sorry for a lot of buyers as their properties have been sitting empty for the past seven years," said a property agent, who asked not to be named due to the sensitivity of the issue. "Even renting out a semi-detached house for 1,000 ringgit (US$214) is hard."

Pegged to China's ambitious Belt and Road Initiative, Forest City is Country Garden's largest property development outside China, with the aim of building a city for 700,000 people encompassing everything from office towers to condominium complexes, villas, hotels, malls and schools.

Country Garden is in the midst of phase two of the project, focused on commercial properties with a 2025 completion target.

The backers of Forest City have been barraged by challenges from the get-go.

Barely a year after its launch, Country Garden shut all its sales offices in China after the Chinese government imposed measures to stem capital outflows - making it near impossible for their Chinese clients to move their money out of the country to finalise purchases in Forest City.

Then movement controls imposed during the Covid-19 pandemic hammered demand, with China the last major nation to end travel restrictions on its people.

Anwar's government hopes eased visa controls will be incentive enough to kick-start interest in the project, where prices range from 600,000 ringgit (US$128,300) for a studio flat to 5 million ringgit for luxury bungalows.

But experts say that may not be enough.

"The sticking point is still China's currency controls and not so much Malaysia's policy against them buying [properties in Forest City]," Oh Ei Sun, a senior fellow with the Singapore Institute of International Affairs, told This Week in Asia.

"It is only the Chinese who like and can afford these kinds of properties, not Malaysians or other foreigners ... we are not seeing Chinese buyers flocking back to buy simply because they cannot."

Johor locals have raised concerns over the potential environmental damage that land reclamation to build the four islands - due for completion by 2035 - will have on the area's fisheries.

Analysts have also raised concerns over Country Garden's ability to continue with the project, as it faces a liquidity squeeze. The developer on Tuesday made interest payments of US$22.5 million on US dollar bonds just hours before a grace period deadline, according to a Reuters report, avoiding default for a second time in four days.

Country Garden did not respond to a request for comment.

The company's Singapore and Malaysia unit said in a statement late last month that the Forest City project was proceeding as planned and that it had sufficient assets.

Despite the challenges, some in Malaysia's real estate industry refute the idea of a project dead in the water.

The location of Forest City - along the western maritime border between Malaysia and Singapore - makes for an attractive proposition for potential investors, especially with the added sweetener of multiple entry visas, said Fifi Syafiza of real estate firm Keller Williams Malaysia.

"Personally, I am optimistic ... this development has generated excitement among investors before," she said, adding interest in Forest City properties over the past year has been "relatively steady" among Malaysian and international buyers.

Malaysia's economy also stands to benefit if the project succeeds, experts say.

The SFZ would bolster Forest City's potential by tapping cost advantages of its proximity to Singapore, and by serving as a gateway or base for Chinese investors, said Yeah Kim Leng, an economics professor at Sunway University in Malaysia.

"The cumulative impact over the horizon could be significant if the spillover investments into the SFZ lead to a transformation of the economic landscape of the SFZ and the state that mirrors Singapore's economy," Yeah said.

The SFZ would also place Johor in good stead to capitalise on the city state's SG+ twinning model. The mechanism allows Singapore's government to help multinational companies headquartered in the city to establish partnerships with neighbouring regions such as Malaysia's Johor and the Indonesian province of Batam.

But there are hurdles ahead for a Malaysian government facing mounting political challenges and in desperate need of carry-through on big announcements in a country which has had four prime ministers in five years.

"One of the biggest challenges for the government is to prove the credibility of the announcement and the administration's ability to operationalise the special zone," said Adib of BowerGroupAsia.

"During the previous parliament's term, the then-federal government spoke unfavourably against Forest City. So, the government has a lot of work to do to demonstrate that the announcement is credible."

This article originally appeared on the South China Morning Post (SCMP).

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