Chinese-made RM450b city in Johor ‘scares everybody’
THE LANDSCAPED lawns and flowering shrubs of Country Garden Holdings Co.’s huge property showroom in Johore end abruptly at a small wire fence. Beyond, a desert of dirt stretches into the distance, filled with cranes and piling towers that the Chinese developer is using to build a US$ 100 billion ( RM450 billion) city in the sea.
While Chinese home buyers have sent prices soaring from Vancouver to Sydney, in this corner of Southeast Asia it’s China’s developers that are swamping the market, pushing prices lower with a glut of hundreds of thousands of new homes. They’re betting that the city of Johor Bahru, bordering Singapore, will eventually become the next Shenzhen.
“These Chinese players build by the thousands at one go, and they scare the hell out of everybody,” said Siva Shanker, head of investments at AxisREIT Managers and a former president of the Malaysian Institute of Estate Agents.
“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?”
The Chinese companies have come as growth in many of their home cities is slowing, forcing some of the world’s biggest builders to look abroad to keep erecting the giant residential complexes that sprouted across China during the boom years. They found a prime spot in this special economic zone, three times the size of Singapore, on the southern tip of the Asian mainland.
These Chinese players build by the thousands at one go, and they scare the hell out of everybody...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? Siva Shanker, head of investments at Axis-REIT Managers and a former president of the Malaysian Institute of Estate Agents
The scale of the projects is dizzying. Country Garden’s Forest City, on four artificial islands, will house 700,000 people on an area four times the size of New York’s Central Park.
It will have office towers, parks, hotels, shopping malls and an international school, all draped with greenery. Construction began in February and about 8,000 apartments have been sold, the company said.
It’s the biggest of about 60 projects in the Iskandar Malaysia zone around Johor Bahru (JB) that could add more than half-a-million homes.
The influx has contributed to a drop of almost one-third in the value of residential sales in the state last year, with some developers offering discounts of 20 per cent or more.
Average resale prices per square foot for high-rise flats in JB fell 10 per cent last year, according to property consultant CH Williams Talhar & Wong.
Country Garden, which has partnered with the investment arm of Johor state, launched another waterfront project down the coast in 2013 called Danga Bay, where it has sold all 9,539 apartments. China state- owned Greenland Group is building office towers, apartments and shops on 128 acres in Tebrau, about 20 minutes from the city centre. Guangzhou R& F Properties Co. has begun construction on the first phase of Princess Cove, with about 3,000 homes.
Country Garden said in an email it was “optimistic on the outlook of Forest City” because of the region’s growing economy and location next to Singapore.
R& F didn’t respond to questions about the effects of so many new units and Greenland declined to comment.
“The Chinese are attracted by lower prices and the proximity to Singapore,” said Alice Tan, Singapore-based head of consultancy and research at realestate brokers Knight Frank.
“It remains to be seen if the upcoming supply of homes can be absorbed in the next five years.”
The influx of Chinese competition has affected local developers like UEM Sunrise, Sunway and SP Setia, who have been building projects around JB for years as part of a government plan to promote the area.
First-half profit slumped 58 per cent at UEM, the largest land owner in JB.
A decade ago, Putrajaya decided to leverage Singapore’s success by building the Iskandar zone across the causeway that connects the two countries. It was modelled on Shenzhen, the neighbour of Hong Kong that grew from a fishing village to a city of 10 million people in three decades. Sovereign fund Khazanah Nasional Bhd. unveiled a 20-year plan in 2006 that required a total investment of 383 billion ringgit ( US$ 87 billion).
Singapore’s high costs and property prices encouraged some companies to relocate to Iskandar, while JB’s shopping malls and amusement parks have become a favourite for daytripping Singaporeans.
In the old city centre, young locals hang out in cafes and ice cream parlours on hipster street Jalan Dhoby, where the inflow of new money is refurbishing the colonial- era shophouses.
Outside the city, swathes of palm- oil plantations separate isolated gated developments like Horizon Hills, a 1,200- acre township with an 18-hole golf course.
“The Chinese developers see this as an opportunity. A lot of them say Iskandar is just like Shenzhen was 10 years ago,” said Jonathan Lo, manager of valuations at CH Williams Talhar & Wong, a property broker based in Johor Bahru. “Overseas investors coming to Malaysia is a new phenomenon so it’s hard to predict.”
Construction soon outpaced demand. To sell the hundreds of new units being built every month, some companies took to flying in planeloads of potential buyers from China, prompting low- cost carrier AirAsia to start direct flights in May connecting JB with the southern Chinese city of Guangzhou.
On the first such flight, 150 of the 180 seats were taken by a subsidised tour group organised by Country Garden.
Almost half of them ended up buying a residence, the developer said in an email.
Buses disgorging Chinese tourists at Forest City in November were met by dozens of sales agents, with the women dressed in traditional Sarong Kebaya outfits similar to those worn by Singapore Airlines stewardesses.
The visitors filed into a vast sales gallery where agents explained the enormity of the project using a replica of the finished town, with model buildings as tall as people.
They viewed show flats with marble floors and goldentrimmed furniture, dined on a buffet spread and were encouraged to sign on the spot.
A two-bedroom apartment cost as little as 1.25 million yuan ( RM816,300), about one-fifth of the price of a similar- sized private apartment in central Singapore.
But JB is not Shenzhen. The billions poured into the economic zone in southern Guangdong in the 1980s and 1990s by Hong Kong and Taiwanese firms was soon dwarfed by Chinese investment as factories sprang up all along China’s coast.
The investment growth is slowing, slipping to two per cent year on year in the third quarter, from more than six per cent in the previous quarter.
The value of residential sales in fell almost 11 per cent last year, while in Johor the drop was 32 per cent, according to government data.
“I am very concerned because the market is joined at the hip, if Johor goes down, the rest of the country would follow,” said Shanker, at Axis-REIT Managers, who estimates that about half the units in Iskandar may remain empty.
“If the developers stop building today, I think it would take 10 years for the condos to fill up the current supply. But they won’t stop.”
Developers have a pipeline of more than 350,000 private homes planned or under construction in Johor state, according to data from National Property Information Centre.
That’s more than all the privately built homes in Singapore. Forest City could add another 160,000 over its 30-year construction period, according to Bloomberg estimates, based on the projected population.
“Land is plentiful and cheap,” said Alan Cheong, senior director of research & consultancy at Savills Singapore.
“But buyers don’t understand how real estate values play out when there is no shortage of land.”
The developers haven’t been helped by government measures designed to prevent overseas investors pushing up prices.
In 2014, the minimum price of homes that foreigners can buy to one million ringgit doubled, and raised capital gains tax to as much as 30 per cent for most properties resold by foreigners within five years. — WPBloomberg