As China’s Country Garden struggles with debt, it’s ‘business as usual’ at Johor’s Forest City
[KUALA LUMPUR] Country Garden Holdings is facing a debt crisis at the moment, but the Chinese real estate developer’s projects and operations in Malaysia appear to be relatively unscathed – for the time being, at least.
Last Friday (Aug 11), the Guangdong-based property giant’s shares fell to a record low amid mounting concerns that it was preparing for a debt restructuring. As at the end of 2022, the Hong Kong-listed company had total liabilities of about US$194 billion.
A day earlier, Country Garden announced that it was likely to post a net loss of 45 billion yuan (S$8.4 billion) to 55 billion yuan for the first half of this year – a significant swing from its earnings of 1.9 billion yuan in the first six months of 2022.
Country Garden is the largest foreign property developer in Malaysia, and its flagship project, the US$100-billion Forest City in Johor, is a mega-development located in the Iskandar special economic zone and comprises four reclaimed islands spanning an area of 30 square kilometres.
Forest City is the enterprise of Country Garden Pacificview, a joint venture between Country Garden and the Malaysian government-backed Esplanade Danga 88. When the entire project is completed in 2035, it will be able to house some 700,000 residents.
While Country Garden’s cash crunch in China triggered some concerns about the long-term future of the company’s developments in Malaysia, industry players said that it remains “business as usual” for now, in particular at Forest City.
Other than Forest City, Country Garden has several other developments in Malaysia such as Country Garden Danga Bay and Country Garden Central Park in Johor Bahru, as well as Country Garden Diamond City in Semenyih, a town in Selangor.
Samuel Tan, the executive director of KGV International Property Consultants in Johor, said the situation in Forest City is “not a concern” at the moment, with the vast majority of the completed units already sold and transferred to their owners.
In July, Forest City executives announced that the project’s residential planning had reached a “mature stage”, with more than 20,000 of the 26,000 completed units sold. It was earlier reported that Chinese nationals made up about 80 per cent of the buyers, with the rest from Malaysia and other regional countries such as Indonesia, Vietnam and South Korea.
While earlier media reports had portrayed Forest City as a “ghost town” with only a third of the residential units occupied, Tan said the interest in Forest City and the surrounding developments has enjoyed a revival following the positive news of the progress of the Johor-Singapore Rapid Transit System (RTS) project.
“The scare of Forest City has faded, and buyers now feel more confident of the property outlook in Johor Bahru. The RTS is progressing well and on track to be completed by the end of 2026,” he said.
Usha Lachumanan, an agent at real estate agency E Trend Realty who last visited Forest City in July, said the majority of the new tenants at Forest City are a mix of locals and foreigners who work at nearby areas such as the Tanjung Pelapas Port.
According to a Forest City press release in July, the available units are currently priced from RM510,000 (S$150,330). Lachumanan noted that the large supply has limited the capital appreciation, with the asking prices today about 30 per cent to 50 per cent lower than in 2019 and earlier, before the Covid-19 pandemic struck.
As for rentals, property agents said that the pace of rental activities has picked up over the last year or so, with many people drawn to Forest City’s amenities such as its two championship golf courses and retail shops.
Raymond Koo, the founder of short-term rental management company JB Minsu in Johor, said the rents are attractive to many current and prospective tenants as they are lower than that of developments much closer to the Johor Bahru city centre, the Causeway and the Tuas Second Link.
According to various online property rental listings, a two-bedroom unit in Forest City can be rented out for between RM900 and RM1,350 a month. In comparison, a two-bedroom condo in the Medini area – about 16 km away from Forest City – would cost about RM1,600 to RM1,700 a month.
Long-term plans
Country Garden Pacificview did not reply to The Business Times’ queries on the parent company’s liquidity woes and any possible impact they might have on Forest City.
In a media statement on Aug 3, however, the joint venture’s regional vice-president Syarul Izam Sarifudin said the development plans for Forest City could be reviewed and re-evaluated in two years if necessary.
While Malaysia’s real estate sector has yet to fully recover from the impact of the pandemic, he said that Country Garden Pacificview remains committed to developing Forest City in accordance with the master plan.
“The company remains optimistic about developing an artificial island with the real estate sector as its core business,” he said.
“However, unforeseen factors such as the Covid-19 pandemic and the slow global economy impacted the development momentum. But (the project) remains as in the original master plan.”
With the first phase of Forest City already completed, he said things will soon move to the second phase to “explore additional investment opportunities”, particularly in the commerce, finance and high-tech sectors.
He added that a key priority is to ramp up its sales and marketing efforts by targeting investors in Asia, such as in Hong Kong, South Korea, Vietnam, the Philippines and Indonesia. Over 100 overseas real estate agents have been recruited to market the development to prospective buyers, he said.
