Forest City: Healthy foreign investment or blight on Iskandar?

Go-ahead for project once again raises spectre of real estate glut in south Johor
Anita Gabriel Business Times 30 Jan 15;

THE winds of change will soon blow over the quaint laid-back villages with their wooden jetties dotted with fish cages. The area, located in the southwest of Johor Bahru, is where mostly fishermen families have lived for over 30 years.

From this, the mega development Forest City will rise. To be built over nearly 2,000 hectares - four-fifths of that on reclaimed land - straddling decades, the iconic project is led by one of China's biggest developers, Country Garden Holdings, with the backing of the Sultan of Johor.

Understandably, the native residents will be upset over the bursts of activity in their sleepy town and potential loss of livelihood, as construction hurt water quality and marine life.

According to insiders, the grandiose project will be "very high end" with spacious luxurious villas, complete with Versace and Armani furnishings and dazzling water features (think Dubai's Palm Islands).

"Every island will stand out as a key destination. If Country Garden can market the project as a fantastic place to invest and go to, then won't it be fantastic for Iskandar?" said a top executive of a firm with projects in the Iskandar area.

But not everyone shares that view; such mammoth projects rolling out in quick succession has turned investors wary of Iskandar, Malaysia's bustling southern growth corridor, now noticeably beset with big over-crowding concerns.

Two weeks ago, the tense wait ended for this lofty project, with a gross development value of RM600 billion (S$223.4 billion) involving four man-made islands from 58 hectares to over 1,000 hectares - twice the size of Sentosa island; the developer received the green light to go ahead from the Malaysian authorities following a detailed environmental study on the project that is located close to Singapore's Second Link.

Last June, the developer stopped work that had begun six months earlier - by then, 40 per cent of the reclamation work under the first phase was already done - after Singapore expressed concerns over the project's transboundary impact and sought more details from Malaysia.

To date, Singapore has yet to receive any official response on the detailed environmental study from Malaysia.

This is not the only project that has stirred concerns between the neighbouring countries, whose ties have greatly warmed in recent years.

At the Causeway, a waterfront and "marine lifestyle" development is set to substantially alter Johor Bahru's skyline. Led by Hong Kong-listed Guangzhou R&F Properties; this Tanjung Puteri project sits on 47 hectares, two-thirds of which involve two plots of reclaimed land on either side of the Causeway.

The brakes were also slammed on this project last June after two months of work had begun pending a detailed environmental study and more recently, early this year, it received the nod to proceed.

While Tanjung Puteri is dwarfed by the Forest City project, it is a startling 290 metres from the Malaysia-Singapore international border, as disclosed in the project's environmental impact assessment report.

These mega projects have also sparked worries in the real estate market, which may weaken the allure of Iskandar and its sound business proposition as a hinterland to Singapore.

The massive overbuilding by gung-ho Chinese developers, coupled with the property curbs in Malaysia, have raised some red flags for Iskandar real estate.

Property prices are sliding, with Johor's house price index falling 2.8 per cent in the third quarter of last year, the first decline since 2012's first quarter, says an analyst, who expects prices to stay weak over the medium term.

That's getting hard to stomach, particularly for local property developers such as UEM Sunrise, one of Malaysia's largest property firms and land owners in Iskandar, which has deferred its high-rise launches in Nusajaya - one of five flagship zones in Iskandar - and slashed internal sales projections on the back of the anticipated supply glut.

Not all are naysayers. From the foreign direct investment lens, some say it augurs well for the state and by extension Malaysia that China investments are rising at a healthy clip.

But they warn that these big developments need to be part of a well-crafted and coordinated big-picture policy; anything less could prove too much of a risk for Iskandar, whose success in recent years after a slow start from its 2006 inception was touted as a handsome showcase of Malaysia's transformation efforts.

This is more so as real estate has become Iskandar's centrepiece, pulling in some 40 per cent of total investment dollars poured into the economic zone, which is deemed still in the early stage of a rapid build-up with footfall still far from the desired critical mass.