Caixin
Nov 13, 2014 07:39 PM
BUSINESS & TECH

Chinese Developers' Projects in Malaysia Run into Series of Snags

(Johor Bahru, Malaysia) – Chinese property developers had big plans for their projects in the Malaysian city of Johor Bahru, which lies across a thin strip of water from Singapore.

Developers like Country Garden Holdings Co. Ltd., Shanghai Greenland Group and Guangzhou R&F Properties Co. Ltd. have planned projects worth US$ 6 billion in a large development area Malaysia started planning in 2006.

The government of the Southeast Asian country has predicted the development would transform Johor Bahru into an world-class metropolis by 2025. Some of these hopes were underpinned by the city's proximity to Singapore, which lies to the south across the Straits of Johor.

The high hopes have boosted Johor Bahru's property market in recent years, sending the average price for an apartment up 45 percent since 2009.

But lately the optimism has turned to frustration for the Chinese developers working in the area. Plans for home sales to Chinese buyers were complicated following the disappearance of a Malaysian Airlines flight, then complicated again another as the Malaysian government changed home buying and tax policies that cooled the market.

One developer has also run into public opposition involving a project to build islands for residential buildings in the Straits of Johor, prompting the government to suspend work.

Disaster Strikes

Country Garden, which is based in the southern province of Guangdong, spent 1.56 billion yuan on a 22 hectare waterfront plot in Johor Bahru in 2012. Then in August last year homes in the project, called Danga Bay, went on sale.

Some 6,000 homes were sold the first day they hit the market, netting Country Garden some 9 billion yuan. The Danga Bay homes sold for 14,000 yuan to 20,000 yuan per square meter.

Country Garden's success did not go unnoticed back home. In February, Shanghai Greenland bought two parcels of land in Johor Bahru and by the middle of the next month it had unveiled its development plans.

But just before Shanghai Greenland announced those plans, disaster struck. On March 8, Malaysia Airlines flight MH370 from Kuala Lumpur to Beijing disappeared with 239 people on board – about two-thirds of them from mainland China. Many in China criticized Malaysian authorities for their handling of the incident and remain angry the plane has not been found.

The MH370 episode hurt the prospects of the developers in Johor Bahru, especially because foreigners were being counted on to be the biggest buyers. Country Garden planned to sell 30 percent of the Danga Bay homes to buyers from China, but a company salesman says the figure stands at only about 20 percent.

Greenland said the disappearance of MH370 had little impact on its projects in Malaysia, but it has postponed projects in the country several times in recent months.

Even before the Malaysian Airlines flight was lost, the Malaysian government had put in place home purchase and tax policies that alarmed developers. In a bid to slow increases in home prices, at the end of last year it put restrictions on foreign buyers.

The government said foreigners could only buy homes costing more than 1.85 million yuan, and if the properties were sold within five years, a 30 percent tax would be levied. The tax rate from the sixth year onward was 5 percent.

Banks also made it harder to get mortgages. The Country Garden salesman said prospective buyers in the Danga Bay project dropped their plans because they could not get loans.

Country Garden saw tough times coming and announced a planned to return land it had bought to the government, but Johor Bahru officials rejected the idea, sources with knowledge of the matter said.

An Island Appears

Some of the Chinese developers' projects involve reclaiming land from the sea. Area residents complained this caused a slew of problems, including flooding.

"Such flooding has never happened before at this time of year," said Cheo Yee How, a state legislator, after a road near the Danga Bay project went under water during a rainstorm on September 11.

He said residents worried that the city's sewer system would have problems and more flooding would occur.

In January, Cheo got a phone call from a fisherman who told him about an island that had appeared in the sea. The islet turned out to be one of four that Country Garden was building for a development called Forest City.

The developer neither told residents about the project, nor submitted an environmental impact assessment report to the government. Country Garden said the government only requires the reports when the reclamation area exceeds 50 hectares, but the Forest City project is smaller than that.

The project will harm the livelihoods of about 200 fishermen, said Cheo, who has also questioned whether the project is outside an approved building area.

He called on the government to halt the project and for the developer to tell the public about it plans. Malaysia's environmental ministry suspended work in June.

Country Garden held a meeting with area residents to discuss the issues on September 21, but the locals were unimpressed. When Country Garden produced survey results that showed residents approved of the project, they got angry.

The residents demanded to know how the Forest City project would affect the environment and how they would benefit. The project's director, Dato Zamani Bin Kasim, had to promise them his company would submit an environmental report to authorities in September.

The development has also gotten the attention of Singapore. On September 20, its prime minister, Lee Hsien Loong, expressed concern over Forest City's impact on the Straits of Johor, which is as narrow as 1.2 kilometers in some areas. Lee demanded an environmental appraisal and said Singapore wanted to be assured the development would not cause problems for it.

(Rewritten by Guo Kai)

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