Country Garden’s ambition in Malaysia backed by Johor’s royal family

Forest City project will include apartments, villas, schools, hospitals, an exhibition centre and a financial special administrative region
South China Morning Post 11 Feb 16;

Despite concerns over oversupply, leading Chinese developer Country Garden expresses full confidence in its city building plan in Malaysia, which is backed up by a deep relationship with local royalty.

In its second project in Malaysia’s southern state of Johor, the Guangdong-based developer plans to invest a total of 25 billion yuan (HK$29.6 billion) over 20 years to build a “Forest City” on 14 square kilometres of land.

It is developing the project in partnership with Esplanade Danga 88, an associate company of Kumpulan Prasarana Rakyat Johor (KPRJ), through a joint venture, Country Garden Pacific View (CGPV), with Country Garden holding a 60 per cent stake.

The largest shareholder of Esplanade Danga 88 is Johor’s Sultan Ibrahim Ismail, making Forest City a joint venture between Country Garden and the Johor monarch.

“To survive [in Malaysia], you must have close relationship with the state government,” a senior manager at CGPV said, adding that Country Garden chairman Yang Guoqiang and the sultan were very close friends, meeting and having dinner together about every two months.

Whenever there are complaints or other issues from the Malaysian or Singaporean government, we have channels for talkCGPV EXECUTIVE
The relationship had helped Country Garden achieve smooth communication with governments.

“I used to work for a federal [government] department; it was the sultan asked me to join,” he said. “We have quarterly meetings with state government. Whenever there are complaints or other issues from the Malaysian or Singaporean government, we have channels for talk.”

Country Garden also acquired the land much more cheaply than the prices other Chinese developers have had to pay.

The Forest City project will include apartments, villas, schools, hospitals, an exhibition centre and a financial special administrative region. Country Garden said pre-sales of apartments would kick off in the first half of this year.

The project was challenged by Malaysia’s environment department of Environment in 2014, but the sultan backed Country Garden.

“Such action obstructs the state’s development and causes investors to run elsewhere,” he said in a speech.

Forest City is planned to be built on four man-made islands and there were calls for its suspension due to the lack of an environmental impact assessment. It was restarted last year after obtaining final approval from the Malaysian environmental authorities after an assessment.

“No business can always be smooth sailing,” Yang told Singapore media last year. “The most important thing is that we are law-abiding.”

But the close relationship is not enough for Country Garden to gain a firm foothold in Malaysia.

Local industry insiders said Country Garden’s guts and speed had seen it beat many local developers.

“They work like 24 hours,” said Alan Ho, a local property agent, unlike local developers, whose workers only worked from 8am to 5pm and took three breaks a day.

The senior CGPV executive said: “I’m very impressed with the way Chinese developers do business, they have the positivity to make things happen.”

Country Garden’s fast execution is famous among Chinese developers, which led to success in home sales in China’s third- and fourth-tier cities, where demand is relatively poor.

Country Garden agrees there is a temporary oversupply in Johor, but says it is taking a long view and expect the projects will benefit from economic growth and improving ties between Singapore and Malaysia.

“It’s like we are investing in Shenzhen 10 years ago,” Country Garden president Mo Bin said.

Multiple headwinds for Chinese property developers in Malaysia
South China Morning Post 11 Feb 16;

Country Garden’s Danga Bay Project in Johor, Malaysia which will provide 9,500 flats, with 70 per cent of the units sold since 2013. Photo: SCMP

Country Garden’s Danga Bay Project in Johor, Malaysia which will provide 9,500 flats, with 70 per cent of the units sold since 2013. Photo: SCMP
Crossing the border into Malaysia from Singapore, new buildings sprout along the frontier dividing the two countries came into view. Interestingly, most of them are made in China.

Mainland developers who had flocked to build homes in mainland China’s third or fourth tier cities years ago resulting in a glut have turned their sights to the overseas market.

Malaysia’s Johor state, just across the border from Singapore, has emerged as their target but developers are now facing the same challenge they face back home - an oversupplied market.

Guangdong-based Country Garden was the first to invest in Malaysia’s Iskandar development zone in southern Johor. The hot spot has soon attracted China’s leading developers like R&F Properties and Greenland Group which joined and invested nearly 50 billion yuan (HK$59 billion).

But three years after its presale in 2013, Country Garden’s first project of Danga Bay offering 45 high-rise condominiums with a total of 9,500 units has only sold 70 per cent.

R&F’s Princess Cove, a 30,000 unit project, is in worst shape. According to two local agents, it has sold less than half of the 3,000 units that went on pre-sale since 2014. R&F has declined to comment.

Other developers include China Vanke and the Greenland Group.

The quantity of new homes in Johor had raised concern by Singapore’s Minister for Culture, Community and Youth Lawrence Wong, who told the nation’s Parliament last year that the 336,000 new residential units currently planned for Johor already outnumber the 327,811 private homes in Singapore and would depress prices.

“These are not homes built for us. We can’t afford them,” said Kelvin, a driver in Johor. “Most local people prefer living in houses.”

According to Khazanah Research Institute, the median monthly wage in Johor is only RM 1,517 (HK$2,804), while Danga Bay is selling at RM 1,000 per square feet.

Indeed, these luxury flats are built for rich Singaporean and Chinese buyers.

Malaysia is aiming to attract foreign investment and homebuyers, especially from mainland China. Meanwhile Chinese developers want to take the advantage of loosened immigration policies and the unique location of Johor, whose prices are one fourth that of neighbouring Singapore.

The disappearance of Malaysia Airlines flight 370 and the shooting down of another Malaysian jet in Ukraine scared off scores of potential investors.

What made it worse is the glut in Johor has come much sooner than expected.

Johor’s supply of high-rise residential property increased 21 per cent in 2015 from a year ago to 40,776 units -- almost double the supply in 2011, resulting in prices falling 10 per cent to RM400 per square feet last year, according to property services firm C H Williams Talhar & Wong.

“Chinese developers have put a lot supply in the market, their projects are very large,” said Nicholas Holt, Asia Pacific Research Director at Knight Frank.

Property portal The Edge Property, citing a Malaysian developer, estimates the new supply in Iskanda is close to 60,000 units in the pipeline, with most Chinese developments that are to be completed in 2017 and 2018.

Singapore’s government has warned its citizens of the risks in investing in Johor.

“Lands are being reclaimed in Johor, there will be as much land as you want,” said Hoffman Tsui Kam-tim, executive director of Guangdong-based KWG Property. Tsui said they did field research in Malaysia and decided not to enter, adding that the depreciation of its Ringgit currency also piled on the pressure to the market.

Chinese developers have also encountered a series of policy risks.

Malaysia Government has raised the threshold of property buying for foreigners to RM1 million from RM500,000 to cool down housing market in 2014. It has also kept increasing the property tax for disposal in recent years.

Another big barrier is the units are out of the reach of most local buyers, making it very hard for Chinese developments to be welcomed by people on the ground.

Country Garden’s second mega project Forest City, which planned to build four man-made islands through reclamation at the junction of Singapore and Malaysia, was suspended by Johor state government in June 2014 due to environmental and political concerns from both sides. The project didn’t restart until last year.

According to Country Garden Malaysia senior management, their hiring of local staff is still at a very low level, about 20 per cent.

“The local people are complaining, these properties are just too expensive, what do we benefit?” said Datuk Phang Ah Tong, Deputy Chief Executive at Malaysian Investment Development Authority.

“Chinese developers bring almost everything from China. We want them to make full use of Malaysian products, suppliers and workers.”

“We are an open economy and welcome foreign investment. Still, you need get people to support you,” Phang said.