Chinese-made $100 Billion USD city near Singapore scares everybody
Macau Daily Times
Pooja Thakur Mahrotri & En Han Choong, Bloomberg
23 November 2016
The landscaped lawns and flowering shrubs of Country Garden Holdings
Co.’s huge property showroom in southern Malaysia 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 USD100 billion city in the sea.
pushing prices lower
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.
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
Axis-REIT Managers Bhd. 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?”
keep erecting the giant residential complexes
The Chinese companies have come to Malaysia 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.
The scale of the projects is dizzying.
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, known as 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% or more. Average resale
prices per square foot for high-rise flats in JB fell 10% 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 center.
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 e-mail 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 real-estate brokers Knight Frank LLP. “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 Bhd., Sunway Bhd. and SP Setia Bhd., who have been building
projects around JB for years as part of a government plan to promote
the area. First-half profit slumped 58% at UEM, the largest landowner
in JB.
modeled on Shenzhen
A decade ago, Malaysia decided to leverage Singapore’s success by
building the Iskandar zone across the causeway that connects the two
countries. It was modeled on Shenzhen, the neighbor of Hong Kong that
grew from a fishing village to a city of 10 million people in three
decades. Malaysian sovereign fund Khazanah Nasional Bhd. unveiled a
20-year plan in 2006 that required a total investment of 383 billion
ringgit ($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 favorite for day-tripping Singaporeans. In the old city
center, young Malaysians hang out in cafes and ice cream parlors 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 Bhd. 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
subsidized tour group organized by Country Garden. Almost half of them
ended up buying a residence, the developer said in an e-mail.
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 Ltd.
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 golden-trimmed 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 ($181,400), 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.
In Malaysia, investment growth is slowing, slipping to 2% year on year
in the third quarter, from more than 6% in the previous quarter. The
value of residential sales in Malaysia fell almost 11% last year, while
in Johor the drop was 32%, according to government data.
“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.”
“I am very concerned because the market is joined at the hip, if Johor
goes down, the rest of Malaysia 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 Malaysia’s
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, Malaysia doubled
the minimum price of homes that foreigners can buy to 1 million
ringgit, and raised capital gains tax to as much as 30% for most
properties resold by foreigners within five years.
The stream of new developments has scared away some investors, pushing
developers to concentrate more on finding families who will live in the
apartments, said Lo at CH Williams. Profit margins have fallen to
around 20%, from 30% when land was cheap a few years ago, according to
his firm.
Singapore billionaire Peter Lim’s Rowsley Ltd. said last year it will
no longer build homes in Iskandar and will instead turn its Vantage Bay
site into a healthcare and wellness center.
“The Chinese players have deep financial resources and are building
residential projects ahead of demand,” Ho Kiam Kheong, managing
director of real estate at Rowsley said in an interview. “If we do
residential in Iskandar, we would be only a drop in the ocean. We can’t
compete with them on such a large scale.”
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