During the economic spur in China, demand for housing in major cities throughout the country also shot up tremendously, prompting developers to construct colossal multi-million and even billion dollar high-rise residences to cater to the demand.
Now, the Chinese economy is showing signs of a slow down, prompting these developers, some of the most prominent builders in the world, to seek greener pastures, or in this case, bluer seas, in other countries to continue building.
The $100 billion city soaring from the sea
Taking up 4 man-made islands in the Malacca Straits off Iskandar Malaysia in Johor Bahru (JB), Forest City is a monumental integrated development which will be home to 700,000 people, spanning 1,386 ha of reclaimed land, 3 times larger than Singapore’s Sentosa island.
The entire development will cost a dumbfounding USD1,00,000,000 (that’s 11 zeros if you were counting) or in a closer-to-home term, more than RM443 billion!
Forest City will comprise high-rise residences, towers of office units, green parks, world-class shopping malls, a distinguished hotel and an international school- a sprawling metropolitan of urban living and economic opportunities.
The Forest City project is the most gargantuan development planned in the Iskandar Malaysia zone. Just months after construction commenced in February early 2016, approximately 8,000 apartment residences at Forest City have been snapped up by eager buyers, a kind of “appetizer” to the 160,000 that the development has planned to build over the next 30 years.
(Not too sure what Iskandar Malaysia is? No worries, we’ve got you covered! Read all you need to know about it here.)
Iskandar Malaysia/Johor Bahru the next Shenzhen
Reminiscent of the fishing-village-turned-industrial-city of Shenzhen, the Iskandar region which stretches across the causeway in Johor Bahru, has become a prime location for Chinese developers due to its proximity to Singapore, much like Shenzhen’s closeness to Hong Kong.
But before the Chinese began taking an interest in the southern Malaysian state, Malaysia had already laid out plans to bank on JB’s location close to Singapore. In 2006, Khazanah National Bhd., earmarked the Iskandar zone for developments over a period of 20 years that will transform the region into a city like Shenzhen, which enjoyed accelerated growth to a population of 10 million in just 30 years!
JB does share a similar appeal to Shenzhen, where the sky-high property prices and costs of neighbouring Singapore has encouraged many companies and businesses to move to the budding Iskandar zone on the other side of the causeway, like when Hong Kong businesses began setting up operations in Shenzhen.
Liveability, established infrastructure and a great choice of entertainment are also the draw of Johor Bahru, with the Johor Premium Outlets, Legoland, and the Sanrio Hello Kitty Town, having become popular day-trip destinations for Singaporeans.
Chinese developers and investors are throwing money into this economical zone, which they bet will become the next Shenzhen, while Chinese buyers continue to be enticed by the more modest prices of property in JB and how conveniently close it is to the Lion City.
At Forest City, a simple 2-bedroom apartment can be owned from prices of RMB1.25 million, approximately RM800,000. Though it may seem pricey for Malaysian buyers, Chinese investors are more than happy with the price, where a similar property in Singapore could cost a staggering 5 times more!
Chinese developers seizing opportunity to build in JB
Country Garden Holdings Co. first saw success in Johor Bahru when it launched the coast side development, Danga Bay in 2013. The project was a partnership with the Johor state’s investment venture firm, where all 9,539 apartment residences were sold out.
Other major Chinese players from the property development sphere have also realised the potential JB holds, with multiple projects currently ongoing and in the pipeline.
One of such projects is a 128-acre development consisting office towers, apartment homes and commercial shops in Tebrau by Greenland Group, a property-development firm owned by the Chinese government. Another top-tier Chinese developer, Guangzhou R&F Properties Co. has also set about building 3,000 homes, the first phase of its Princess Cove integrated mega project.
Forest City is the most ambitious of approximately 60 ongoing and upcoming developments planned for Iskandar, which will see over 350,000 homes constructed in the region- more than all the privately developed homes in Singapore!
Dangerous waters in sea of properties
The boom in property does have its perks, with increased competition prompting some developers to offer discounts of 20% and more to attract buyers. The inflow of overseas investments also contributes to the growth of the Iskandar zone. But like all things, too much of a good thing could also be bad.
Oversupply, has now become a major concern for developers in Johor Bahru. The surge in properties aiming to get a slice of the high property market prices has ironically, become responsible for an almost one-third dip in the value of residential properties sold on market in 2015.
Though contributing to the growth of Iskandar thanks to the inflow of overseas investment, the boom in properties has also become a double-edged sword. Real-estate consultancy, CH Williams Talhar & Wong also reported a drop of 10% in the average psf prices of high-rise homes on the subsale market.
“These Chinese players build by the thousands at one go, and they scare the hell out of everybody,” expresses Axis-REIT Managers Bhd.’s head of investments, Siva Shanker.
As such, there are also fears of the overall property prices of the Malaysian market to follow Johor’s tumble, given that “the market is joined at the hip,” according to Shanker.
He also reckons that even “if the developers stop building today, I think it would take 10 years for the condos to fill up the current supply.” However, there appears to be no end to the soaring structures.
“God only knows who is going to buy all these units, and when it’s completed, the bigger question is, who is going to stay in them?” he adds.
Others in the real-estate business also share Shanker’s concerns, with uncertainty as to whether “the upcoming supply of homes can be absorbed in the next five years,” as articulated by Alice Tan, head of consultancy and research with Singaporean real-estate firm, Knight Frank LLP.
Senior director of Saville Singapore’s research and consultancy also shared that although there is an abundance of land at cheap prices, “buyers don’t understand how real estate values play out when there is no shortage of land.”
This stiff competition due to oversupply has also driven other investors away, forcing developers of residential projects to turn their focus on gaining appeal of families who can potentially stay in these apartments.
Going the extra (air) mile
As demand soon fell behind the rapid rate of hundreds of new residences being completed each month, companies resorted to going the extra mile- literally. Chinese companies have taken the far step of even flying in potential buyers by the planeloads, all the way from China. These initiatives also led to leading low-cost airline, AirAsia Bhd., to begin direct flight routes from the city of Guangzhou, China to Johor Bahru.
It would seem the strategy was rather effective, as a report by Bloomberg details that on the maiden flight of the new route, 150 of the 180 seats from Guangzhou to JB were taken by a tour group subsidised by Country Garden, which saw about half of the group purchasing a residence at Forest City.
Potential buyers are ushered from planes to busses and ferried to the Forest City sales gallery that seems much more like an architectural marvel for tourists to visit. Tourists step off at the grand structure, greeted by swarms of sales associates, with the women adorned in the traditional Sarong Kebaya uniforms, easily mistaken for Singapore Airlines Ltd. flight attendants.
Within the main hall, a diorama of the entire development takes centre-stage, with replica buildings almost towering over people. Visitors are shuffled along while sales representatives explained the extent of the project, taking them into opulent show units before finishing off the tour with a buffet feast and encouraging visitors to seal the deal right then and there.
There was also a need for double these efforts by the Chinese developers, as the Malaysian government began initiatives in 2014 to stop the inflation of prices due to foreign investors. These steps had include doubling the entry price of properties for foreign buyers to RM1 million and a 30% raise of capital gains tax for the sale of properties owned by non-Malaysians in a 5-year period.
Despite the potential negative repercussions of this oversupply of properties, many remain optimistic about Iskandar’s growth as an economic, financial and industrial hub, which will create the demand for the properties, especially residential ones.
Industry is expected to become the main driving force of Iskandar. The largest owner of Iskandar zone land, UEM Group Berhad, believes so, and are selling parcels of land to manufacturers in order to spur economic development in the region.
UEM Group Berhad CEO, Izzaddin Idris states that when it comes to providing employment opportunities and financial sources for the community, “industries are the queen bee.” This will in turn, “bring a demand for the houses we are building,” he adds.
World-renowned chocolate manufacturer, Hershey Co. is also set to establish a plant in the region, joining the likes of the Legoland Malaysia amusement park and the Pinewood Iskandar Malaysia Studios, a franchise of the U.K-based movie studio where silver screen big names like the James Bond and Harry Potter movies were filmed.
Country Garden remains “optimistic on the outlook of Forest City”, citing once again, the booming economy of the Iskandar zone and its proximity to Singapore.
Ending on a positive note, the issue of oversupply in the Johor Bahru property market may only be a temporary lull, as industries in the region slowly begin to set themselves up there.
Others like managing director of real estate at Singaporean establishment, Rowsley Ltd., has also expressed confidence in the Iskandar zone, stating that although “it will take a while for all the parts to fall into place: infrastructure, manufacturing, education, healthcare and growth in population,” he has no doubt that these components will come perfectly into place given time.
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