China’s Real Estate Meltdown: Value Of Chinese Firm’s Malaysian Residential Project Seen Dropping

By Iman Muttaqin Yusof

Real estate analysts said they expected property values to drop at a Chinese developer’s housing project in Malaysia’s Johor state and that the U.S. $100 billion venture may not be completed, despite the firm saying this week the business was stable. 

The company, Country Garden, one of the largest developers in China, is facing a debt crisis and may be at the edge of default amid a real estate meltdown in the Asian superpower. 

Property expert Khalil Adis, founder of Singapore-based Khalil Adis Consultancy, warned that Country Garden’s financial woes would disrupt resale and rental values – what he called the secondary market – at Forest City.

“This situation could intensify pressure on the secondary market, resulting in potential losses for investors …. This development has seen secondary market prices falling below [Forest City’s] launch price[s],” Adis told BenarNews.

“For instance, a one-bedroom apartment in Forest City, initially launched at around 1,200 ringgit  ($257) per square foot in 2020, is now being resold for 541 ringgit ($116) per square foot.” 

Additionally, the debt crisis facing Country Garden “could potentially lead to further delays in the planned developments” within the Forest City areas,” Khalil said, adding that the venture was currently only 15% developed. 

Forest City property value “definitely will be impacted,” said Tan Kian Aun, president of the Malaysian Institute of Estate Agents, adding that the venture may have to be scaled down from its ambitious beginnings.

“I believe the project will continue but probably not to be completed to what was initially planned as it was hampered by unforeseen circumstances, especially the COVID-19 pandemic,” he told BenarNews.

“There could be possibilities of reviewing its development plan.”

Forest City, which launched in 2013, is the Chinese developer’s largest overseas project. 

The venture was launched with a plan to accommodate 700,000 residents in waterfront apartment towers on four man-made islands spanning 30 sq kms (11.6 square miles) between Malaysia and Singapore.When it was launched, the developers said Forest City would have parks, shopping malls and hotels, creating 220,000 jobs and contributing an estimated 200 billion ringgit to the nation’s GDP by 2035.

According a Bloomberg News report last week, Country Garden said that 9,000 people currently lived in Forest City. Local and regional news reports have often referred to it as a “ghost town” because they see deserted streets, empty shops and few residences occupied.

The COVID-19 pandemic and the global economic slowdown had already been obstacles in development, when earlier this month news broke that parent company Country Garden Holdings Co. had failed to pay $22.5 million in interest due on debt securities.

The company was unable to make its interest payments because of declining sales and a liquidity crunch, a spokesman told The Wall Street Journal.

The Guangdong-based company’s woes are part of a slump the Chinese real estate market has seen over the last two years, after regulators cracked down on developers’ high debt levels leaving them strapped for cash. 

‘Crisis could spread’

To ease buyers’ concerns, the Chinese developer, through its Singapore and Malaysia division on Monday, issued a statement saying its Malaysian operations were stable.  

“To date, the overall operation of the region is safe and stable,” the developer’s Malaysia and Singapore unit said in a statement. “Our company’s projects in Malaysia are operating normally and the sales performance is strong.”

BenarNews contacted Country’s Garden’s Singapore and Malaysia unit to get the latest information on the parent company’s financial situation, but did not immediately hear back.

Tan Wee Tiam, of KGV International Property Consultants, believes that if Country Garden’s financial woes persist its allied businesses will be impacted.

“This would be detrimental and the crisis could spread [to the company’s other businesses] … Everyone is anxiously watching how the parent company is handling this bond default issue,” Wee Tiam told BenarNews.

Meanwhile on Friday, Malaysian Prime Minister Anwar Ibrahim said the government would create a ‘Special Financial Zone’ in Forest City with several incentives to increase growth and investment in Johor. The creation of the zone, he said, would lower the cost of doing business in Forest City.

The proposed incentives include multiple-entry visas and expedited entry procedures to attract companies and individuals based or employed in Singapore, which is right across from Forest City. Many Singaporeans are among those who have bought apartments in Forest City, according to local and regional media reports. 

The Malaysian government has also set a “special” income tax rate of 15% for workers in the knowledge sector in Forest City. At the upper end, Malaysians are taxed 30% on their income.

KGV’s Wee Tiam said Country Garden should use these incentives to look for a way to attract new businesses to Forest City.

“The developer should seize the opportunity of the Special Financial Zone (SFZ) status and pivot the development focus to commercial, hospitality and sectors,” he said.

“This will make Forest City more attractive to the home buyers, investors and knowledge workers.”  

On a separate note, geopolitical analyst Collins Chong Yew Keat said the property crisis in China would dent confidence in Beijing’s economic initiatives, and is a lesson for Malaysia to not put too many eggs in one basket.

“Country Garden’s crisis could impact trust in China’s economic expansion model, including the Belt and Road Initiative (BRI) projects and its leadership in the Regional Comprehensive Economic Partnership,” Chong, a foreign affairs expert at the University of Malaya, told BenarNews.

The BRI is Beijing’s U.S. $1 trillion-plus program to finance and build infrastructure across the world. A multibillion dollar rail link between the east and west coasts of Peninsular Malaysia, the East Coast Rail Link, is among BRI initiatives in Malaysia.

Malaysia also said last year in September that the RCEP trade agreement was expected to boost bilateral trade between China and Malaysia by harmonizing their business relationship.

“For Malaysia, the overreliance on the Chinese economic lifeline poses a significant threat if the Chinese economy starts to falter, as evidenced by this crisis and the implications on the huge BRI projects in the country,” Chong said.