Is China Building a Ghost City on Malaysian Islands?

A Chinese company is constructing high-rises on man-made land. Will people live there?
MIMI KIRK CityLab 30 Dec 16;

China is known for its hundreds of “ghost cities”—ultra-modern metropolises built for the country’s urbanizing population that have yet to attract many residents. High-rise apartment and office buildings, pavilions, sculptures, and even a man-made lake with music piped in among its surrounding paths sit almost devoid of human activity. The flip side to these eerily hollow cities are frenetic urban centers such as Beijing and Shanghai, where rural to urban migration has caused populations to explode.

Middle-class Chinese unable to afford residential investment properties in these desirable cities have traditionally looked internationally, to places like Vancouver and Sydney. In recent years, those cities, too, have become more expensive, pricing out buyers with smaller nest eggs. Today, in what Bloomberg calls the “world’s biggest real estate frenzy,” middle-class Chinese are buying apartments and homes in lower-priced areas, such as Houston, Orlando, Thailand’s Pattaya Beach (a resort area south of Bangkok), and Malaysia’s Johor Bahru, which sits just north of Singapore in a special economic zone.

While such investment generally concerns existing housing, in Johor Bahru, Chinese companies are building their own high-rises and villas. One outfit, Country Garden, is building enough to accommodate a whopping 700,000 people. Though Malaysians, Singaporeans, and other nationalities will purchase some of the units, they are being heavily marketed to Chinese, with planeloads of potential buyers flown in to peruse model apartments. Luxury two-bedroom units are going for as little as $180,000—around a third of what buyers would pay in central Shanghai.

The project isn’t just about housing. Country Garden is also developing office buildings, parks, hotels, malls, and an international school—all on four artificial islands four times the size of Central Park. The resulting metropolis has been dubbed Forest City. The Malaysian government granted Country Garden tax incentives and other preferential policies to develop the area.

Such projects are also good for the Chinese construction sector. “With less building occurring in China due to the slowing economy, Chinese construction companies are turning toward international opportunities,” says David Dollar, a senior fellow in the John L. Thornton China Center at the Brookings Institution. Dollar notes that Chinese companies more frequently look abroad to build infrastructure, such as railroads, power stations, and dams, as opposed to entire cities. However, China has constructed a few special economic zones and metropolises in such countries as Angola, Ethiopia, and Nigeria, with varying degrees of success.

Forest City fills individual and corporate investment needs. But the question remains whether enough apartments and homes will be sold. “God only knows who is going to buy all these units,” Siva Shanker, a former president of the Malaysian Institute of Estate Agents, told Bloomberg. So far, supply is far outpacing demand. Last year, the glut of housing in Johor Bahru caused the value of residential sales to drop by almost one-third.

Developers are banking on Johor Bahru’s proximity to Singapore, as well as the widespread use of Mandarin Chinese and Chinese dialects in the region, to make Forest City a desirable place for Chinese ex-pats to live. But even if there are enough buyers, owners may choose to simply keep the properties empty, as investments, or save them for retirement or their children—potentially creating an atmosphere not unlike a Chinese ghost city.

Professor Xu Yanzhuo of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences in Beijing adds that Forest City will only succeed if it brings value to the local population. Area developers, shying away from residential projects now that Chinese companies are building housing en masse, are working to generate more business in the area to fill the high-rises with workers. “Industries…will bring a demand for the houses [being built],” Izzadin Idris, CEO of local property developer UEM Group, told Bloomberg.

If such demand isn’t created and the local community doesn’t benefit, says Xu, the metropolis “will quickly become a ghost city.”

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