Malaysia is pushing to reopen its economy to the world after two years of coronavirus-related border closures, but a $100bn megacity spearheaded by a Chinese developer off the country’s coast near Singapore remains largely stuck in neutral.
The integrated Forest City, comprising four reclaimed islands in the Malaysian state of Johor, is struggling to market property to core investors in China and Singapore. The project is expected to be fully developed by 2035.
Two-thirds of the project is owned by its master developer, Guangdong-based property company Country Garden Holdings, while the rest is held by a local firm controlled by Sultan Ibrahim Ismail, the ruler of Johor.
“As the pandemic prolong[ed], there have been changes made with regard to the direction of corporate investment, tourism and vacation as well as other project directions and development ideas, which definitely affect our business,” Country Garden said in an emailed reply to queries from Nikkei Asia.
Built off the southern tip of Johor, Forest City totals 1,740 hectares — about three times the size of Singapore’s Sentosa resort island. A mixed development that includes residential, leisure, commercial and industrial spaces, plans are for Forest City to also include its own customs and immigration checkpoint enabling its residents to travel easily to Singapore.
But the pandemic has slowed the sea reclamation process and overall development, which is divided into eight phases, the Chinese developer said. Only the first island has been developed so far.
The closure of international borders has also hit businesses on the first island, which includes residences, an international school, retail and commercial spaces, luxury hotels and two 18-hole golf courses.
“Our current businesses are also affected during the pandemic,” said Country Garden. “For example, the hotel occupancy rate dropped significantly while the average daily number of people patronising the golf course obviously [fell] off [a] cliff.”
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Still, Country Garden said sales for various projects in Forest City have been steady, without giving any figures.
“Nonetheless, it has not changed our company’s determination and belief in exploring the local market,” it said. “We also provide digital services such as online sales, virtual tours and live viewing for customers who cannot visit Forest City physically.”
Malaysia, like many countries in south-east Asia, imposed a variety of quarantine and travel measures to fight coronavirus infection waves, but is keen to roll them back with an eye on boosting its economy and businesses. Prime Minister Ismail Sabri Yaakob announced on March 8 that the country will reopen its international borders on April 1, allowing quarantine-free travel and tourism as it moves toward coexisting with and managing Covid-19.
Forest City has handed over keys to more than 20,000 residential units — far below the planned 700,000 residents expected to be living there upon completion of the fourth island in 2035.
Its property owners mainly come from China, Malaysia and Singapore. Forest City has also attracted buyers from Vietnam, Indonesia, Taiwan, Hong Kong, South Korea and Japan.
Country Garden, the largest residential developer in China by sales, is regarded as one of the most resilient private developers in a country where the entire sector has been roiled by a severe liquidity crunch since last summer.
While many of its peers, including China Evergrande Group, missed payments on debt obligations and some declared default, Country Garden has kept promises to creditors, as indicated in the full redemption of $425mn of offshore bonds in late January.
The company is able to get external funding from the market as well. After launching a 3.9bn Hong Kong dollar ($498.15mn) convertible bond with a four-year tenor in January, its wholly-owned domestic subsidiary was allowed to register a Rmb5bn ($788.62mn) quota for an onshore medium-term note issuance over the next two years by the local regulating body last month.
On top of that, China Merchants Bank, a midsized state-owned lender, granted the company Rmb15bn in credit to finance a potential merger and acquisition this month. Encouraging M&As in the sector is part of the Chinese government’s initiative to cope with the current crisis, but Country Garden is possibly the first case where a state lender granted a credit window for the purpose of a private developer’s acquisition.
Still, Fitch Ratings and Moody’s Investors Service give the company very few “investable” ratings in the sector, while S&P Global Ratings maintains its junk rating.
S&P acknowledges that Country Garden has a “stronger-than-peer funding capability” given its recent record. But analyst Ricky Tsang wrote in his latest note that he expects the developer’s sales “to be under pressure given the company’s high exposure to lower-tier cities, where housing demand is generally weaker, especially when the sector is in a downturn”.
Indeed, its contracted sales in February came to Rmb32.76bn, or 30 per cent lower than the same month last year, rapidly deteriorating from a 10 per cent fall in January and a 2 per cent decline for all of last year. Even though its liquidity position looks relatively solid compared to peers, Country Garden’s Hong Kong-listed shares have lost almost 50 per cent of their value in the past year.
The company issued a statement on March 13 blaming recent “groundless” comments made online about its onshore and offshore financing for the accelerated fall in its stock price in the preceding days, from which it has since largely recovered. It stressed that its operation “is normal and can continue to carry on its business as usual.”
Real estate consultancy Rahim & Co International in a recent report said Malaysia had 201,065 property transactions worth a total of 98bn ringgit ($23.37bn) in the first nine months of 2021, marking a 1.8 per cent drop in volume from the same period the year before.
The report also highlighted overhang — or unsold properties — to the tune of 56,734 residential units, including serviced apartments and small home office units, worth 41.59bn ringgit in Malaysia as of September 2021. Most of those units were in high-rise developments.
Johor had the most overhang with 23,224 units worth 19.29bn ringgit, according to the consultancy.
Country Garden, however, said it remains confident in the Johor development, thanks to its unique geographical advantage near Singapore and a well-developed local economic base.
“Country Garden has been in the Malaysian market for nine years, and we will continue our business here for long term development,” it said.
“We hope that the government will remain proactive in managing the pandemic situation as well come up with policies and incentives to stimulate economic recovery,” it said. “We will do our part and make our contributions towards the economic development accordingly.”
A version of this article was first published by Nikkei Asia on March 14 2022. ©2022 Nikkei Inc. All rights reserved.
Source: Financial Times