Property consultants are petrified by Prime Minister Tun Dr Mahathir Mohamad’s statement that foreigners will not be allowed to buy residential units in Forest City, one of four islands being reclaimed by Chinese developer Country Garden Holdings Co in a multi-billion venture.
Three of them said such a move would have wide-ranging negative implications for Johor and the larger property sector and how foreign companies viewed Malaysia.
Dr Mahathir said yesterday that Malaysia would not allow foreigners to buy residential units in the US$100bil (RM410bil) Forest City project in Johor.
“One thing is certain, that city that is going to be built cannot be sold to foreigners.
His comment whipped up a wave of responses from property experts and economists, warning that the new policy would have serious ramifications.
“What will happen to the value of the condos in Forest City? Who would want to rent and who can now afford to buy them off me if foreigners cannot? The majority of the current owners of Forest City are mainland Chinese and to a small extent Singaporeans. They will be bitterly disappointed,” said an industry source from Singapore.
“The group’s project at Country Garden Danga Bay will also be affected. It now faces a more daunting task of selling the balance units at Danga Bay of about 2,000 units. So, will other key Chinese developers like R&F Princess Cove and Greenland Group in Iskandar be affected?” he said.
VPC Alliance Malaysia managing director James Wong said there may be legal suits against the government and Forest City would come to a standstill. That may force Country Garden to scale down because it has invested a lot in the country with its industrial building systems factory and an international school, among other investments.
“It will impact Country Garden and Malaysia’s property sector negatively,” Wong said.
Although a lot of leeway was given to Country Garden, this is a backlash by the Malaysian government against a private sector foreign company and would send a negative message to other countries.
“Foreign buyers and other foreign companies will shy away,” Wong said.
KGV Property Consultants executive director Samuel Tan said up to a third of the first island of about 1,477 acres had been reclaimed. High-rise residential units, an international school and a hotel have already been built.
“Forest City will come to a halt with such a policy. The other developers, both local and foreign, will be fearful because many of them are essentially building for foreigners,” Tan said.
He said the SP Setia group, Eco World Development Group Bhd, and Eastern & Oriental Bhd were essentially targeting foreigners. “Singaporeans are foreigners,” he said.
Bruce Lee, an international property consultant specialising in Iskandar Malaysia from VPC Alliance Johor Baru is sanguine about the fiasco.
“Once again, two issues are important to Malaysia, namely, foreigners buying property here and Malaysia My Second Home (MM2H) are being confused. These are two separate issues. If you buy a property here, it does not mean you will automatically get a MM2H visa, or a visa to live here.
“Secondly, foreigners are allowed to buy properties within a certain pricing threshold. In Johor, any foreigner can buy properties priced RM1mil and above, landed or high-rise.
“This country is run by the rule of law, and the previous laws and regulations cannot be repudiated,” Lee said.
Country Garden Pacificview Sdn Bhd, in a statement, said like all property development projects in Malaysia, Forest City had complied with all laws and regulations with the necessary approvals to sell to foreign purchases.
Under the national land code, a foreigner or a foreign company may buy land in Malaysia subject to the prior approval of the state authorities.
“We do not issue any permanent residency or PR to foreign buyers of Forest City,” the statement said.
Socio-Economic Research Centre executive director Lee Heng Guie, when contacted, said more clarity was needed on the move.
“The announcement is lacking details – if this is to tackle high property prices, there are already measures in place for this.
“More clarity is needed to prevent negative sentiment among foreign investors.
“We also do not want to create an impression that we are targeting Chinese investors,” he said.
He added that the reaction to the announcement needed to be monitored if there was a spillover effect into other areas of investment.
He also questioned the move in relation to the MM2H programme, and questioned whether the move contradicted the programme.
According to a Bloomberg report, Chinese nationals were the largest group of participants in the programme, which allows foreigners to live in Malaysia on a long-stay visa.
It said Chinese citizens accounted for almost 30% of successful applicants since the programme was launched in 2002.
AmBank Group chief economist Anthony Dass said while there may be an impact on Chinese investment into Malaysia initially, he expected this to stabilise after a short period.
He saw it as a positive move overall, as it would benefit Malaysians in the long term.
“Foreign investors, particularly Chinese investors, may not be happy with the move, but they will ultimately have to respect the decision that has been made.
“I believe this move sends the message that Malaysia wants a level playing field for Malaysians, and not lopsided deals or properties that only foreigners can afford,” he told StarBiz.
He did not expect tourism from China to be affected, and investors interested in other Malaysian projects were unlikely to go elsewhere due to the decision on Forest City.
“In the short-term, there may be a negative ripple effect, but I don’t expect it to be significant,” he said.
On the impact on the property, Dass said it is likely that the developers would have to redesign the Forest City project, and drop prices to cater to Malaysian buyers.
“We expect a knock-on effect on prices of the property. Prices are likely to drop, and the developers may have to redesign the remaining part of the project.
“Overall, we see this as a positive move,” he said.
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