Why am I hopeful(ish) about Country Garden's 'ghost city' in 2024? | Following the yuan
Why am I hopeful(ish) about Country Garden's 'ghost city' in 2024? | Following the yuan
Country Garden's Forest City isn’t really for the high rollers, but for the mainstream middle-class in China who want to own property abroad, just like the wealthy do.
When I first came across Country Garden’s ghost city coverage, my eyes widened. It’s interesting to be on the inside of a scandal after being on the hunt on the outside for so long.
I was surprised because I know it’s still actively running, my father has a modest one-bedroom apartment there, which cost around RM 58.7k (~US$ 12,530 in today’s currency rate) in mid-2016. A WeChat group for the home owners in his building, who are predominantly Chinese, are still active. The building manager constantly share activities in the group like photography workshop on the beach.
If you have followed this account for a while, you’d know that I was a former full-time reporter, who is now applying my journalistic skills on research and strategy related to China. I did media studies for my Bachelor’s and after a separate degree and career, a Master’s in journalism, so I also always overthought about a coverage’s impact on the societal perceptions. In this context, when I think of a ghost city, I imagine the unfinished ‘rotten-tail buildings’ with no electricity or water, epitomizing giant developers’ debt crisis.
So I urged my parents to let me see it in person, and visited there with my mom in January, each of us carrying a different goal: hers to see the place since one visit before pandemic, and mine, to collect materials for my curiosity and…this post. Here, I will write about the past, present and prospects of ghost, ahem, Forest City.
*Disclaimer: Doing research like this has pros and cons. One one side, I have access that other journalists and researchers don’t have, on the other, the biggest worry is the conflict of interest. So I want to confess upfront that my role in this trip was a person of interest who happens to be a researcher.
Here is what you’re going to read in this post:
What is Forest City? What happened to it?
What do I see in person from my trip?
What did the media get right, what did it get wrong?
Why could it attract so many Chinese buyers? What went wrong?
What is the near-term and long-term prospect of forest city?
What is Forest City? What happened to it?
Forest City, a US$100 billion project that comprises four man-made islands, was officiated in 2016 under the approval of the current Malaysian King Sultan Ibrahim Ismail, then the Sultan of Johor, as a green smart new city project. The developer is Country Garden Pacificview Sdn Bhd, a joint venture between Country Garden Group and the Malaysian-government-backed Esplanade Danga 88 Sdn Bhd (EDSB). The project was first announced in 2006 as a 20-year plan, according to Bloomberg.
The whole Forest City project has a 45-story mixed-used building named Carnelian Tower, two hotels (the beachside Marina Hotel, once called Phoenix Hotel, and Golf Resort), main compound of departments, villas, as well as an international school. It sounds perfect, doesn’t it?
What do I see in person from my trip?
For the two days my mom and I were there, we are just in awe that the whole project under operation — it doesn’t make business sense for the two hotels to keep the golf courses manicured, pool cleaned, when there’s little traffic. Who’s paying them?
We stayed in Golf Resort for the first night as we arrived on a Sunday. Staying one night in a double room and play one round of golf costs less than RM1,000 (US$212). We paid around US$85 for our twin.
The hotel has a sales gallery that took over the lobby. It was the first thing you saw when walking in. The signs indicated which area is selling fast and which is underdeveloped, and on the pillars, there lie slogans that have remained unchanged for the last five years: “5-star golf hotel soft opening in the middle of 2018.”
The next morning, I sat at the breakfast table for an hour and did my people watching: all the accents I heard were Chinese and Korean. All of them came in pairs. The glitchy chandelier and the music were reminiscent of HBO’s Westworld.
We went to the apartment on the second day and out of everything, were fairly unimpressed with the efficiency of local property managers, having gotten used to China speed. There wasn’t so much of a view, just endless farmland. [The units closer to the beach have ocean view, and of course were more expensive.]
On our way from the apartment to the beach, we walked past one after another closed furniture shops and housing management who were hoping to monetize from the Chinese home owners. Many of them were left empty and rustic, with WeChat QR codes still stuck on the windows.
The shops in operation are dotted among the remnants, their owners predominantly Chinese. They sell groceries, noodles, hotpot, and offer property management services. Some of them came after Covid-19. A hotpot owner told us they came here from northeast China last August. When I asked if she’s busy (it’s like asking ‘have you eaten’ but with small business owners), she said, it will be busy during Chinese New Year.
The grocers have a standard practice to shield the very few fruits and vegetables with a plastic blind. When a customer enters, the staff lifts it up and showcases the spotted bananas, cilantro in a water basket, among other items that are tightly packaged with seren wrap. My mom was so empathetic that she closed the blind for them after we took a look.
Further down the shopping street, I saw a familar ‘face’, Secoo (Nasdaq: SECO), which must have opened a duty-free store here before Covid. The stock price of the so-called ‘biggest luxury platform by GMV’ (during IPO) tanked after Covid, which I have covered in depth. They hadn’t even cleared out the space.
Two days later, we left the place because we simply ran out of things to do.
While in Johor Bahru, the nearest largest city that is considered by Singaporean as the Shenzhen to Hong Kong, a Grab driver of Chinese ethnicity who gave us his take: “With the place as far as this, how do you expect people to come in and out?”
He added, there are risks with government shifts. The former leader Abdullah of Pahang [Jan 2019-Jan 2024] did not want too many Chinese people to come over.
What did the media get right, what did it get wrong?
When I talk about the media, I’m mainly referring to the Wall Street Journal, who first reported on the project’s current state. And then the likes of BBC, SCMP, Marketplace followed up:
The vibe, which makes some not want to be here. For someone who cares deeply about business sustainability, being there is depressing, because there is so much waste to manage a project with such low capacity. And I don’t want to be worrying about the extent of fruits maturity like I’m stranded on an island, can’t I just be a happy capitalist customer and get what I want?
The demographics. The Journal said it was for ‘wealthy’ Chinese people to have a ‘second home’. My judgement is that it isn’t really for the high rollers, but for the mainstream middle-class in China who want to own property abroad, just like the wealthy do. In today’s rate, the amount my dad paid (RM 58.7k), could only get one less than half a sqaure meter in, for example, Shanghai’s Cuihu Tiandi. [There are also two-bedrooms and three-bedrooms in the project, and more expensive ones are near the beach.]
The payment terms. The WSJ video says that the price went down because “Beijing limits overseas payments”. Majority of the house owners perhaps paid in RMB in China.
Why could it attract so many Chinese buyers? What went wrong?
Information arbitrage: By Chinese standard, around RM 10k/square meter is probably around tier 4-5 city level and is amazingly accessible. With an ambitious promise and freehold status, it’s a good for Chinese consumers who want to diversify their real estate portfolio. Though, if the buyer did a teeny bit more research, they would find that they were paying prices double the local rate, which dampen its overall competency in the rental market.
Overtrust in real estate: Chinese people have an imbalanced wealth allocation in real estate VS other assets. In 2018, real estate accounts for 77.7% of Chinese families’ total wealth according to a longitudinal study by Southwestern University of Finance and Economics. (It decreased to 63.9% in Q4 2022)
When the project just opened, before any signs of the existing real estate crises, the underlying sentiment is that they assumed the price would always go up, and the promises will always be delivered. Additionally, they may not have understood Malaysia’s political system enough to know about the potential challenges with a change of leadership.
Aggressive marketing strategy: According to accounts from my mom, Country Garden organized a free tour to this property in the early stages, including free stays at the beachside hotel. Perhaps out of reciprocity and the herd mentality (as tour groups in China often conduct), my dad decided to buy the unit.
As someone who does human-centered reporting and research, I believe that the process of real estate decisions also needs to change. In China, a good part of the residential real estate projects had been appointed by local governments, who may have partial ownership in the developers. These local governments believe that they could make it rain no matter what. Now, with the snowball effect affecting the downstreams of real estate giants, such as renovation, brokerage, building materials, the decision-process needs a rethink.
What does it take to change?
In the near term, Singapore’s 30-day visa waiver on Chinese nationals that took effect on Feb. 9, which was right before Chinese New Year, is incremental on this project’s future. Forest City is located 25 mins’ drive from Singapore Changi Airport, while it takes four hours to drive to Malaysia’s capital Kuala Lumpur.
So for existing home owners in China, instead of the route of departing from any city in China - Kuala Lumpur - Johor Bahru - taxi, they could simply fly to Singapore Changi airport. This saved at least a few hours and relieved the burden of long travel. The place will be more revived with more Chinese owners coming here, at least during public holidays.
In the mid to longer term, the project will continue to suffer from the ‘ghost city’ image. The perceptions left by the catchy phrase (like Xiong’an’s image of being empty) would perpetuate, unless meaningful changes happen.
The latest hope is the new hereditary Malaysia leader, Sultan Ibrahim Ismail, who sworn in on Jan. 31 2024 as the 17th King of Malaysia (يڠ دڤرتوان اݢوڠ).
He first approved the project in 2016 as the Sultan of Johor (similar to a state governor), and gave a glowing interview to welcome Chinese investors in local Chinese-language newspaper Sin Chew Daily last August.
“The Chinese in Johor are not outsiders; they were invited to come here!” he said. 2024 marks the 50th anniversary of Malaysia-China diplomatic ties.
Last August, Malaysia’s Prime Minister Datuk Seri Anwar Ibrahim announced that the government will create a special financial zone in Forest City to boost Johor’s investment, growth and economic activities.
In mid-January, Malaysia and Singapore signed a Memorandum of Understanding (MOU) in Johor Bahru, to “work on a Johor-Singapore Special Economic Zone (JS-SEZ) to strengthen economic connectivity between Johor and Singapore”, according to a release by Singapore’s Ministry of Trade and Industry.
In the group chat, some residents gloated over the news. One said: “Special economic zone is already an imperative force, special financial zone will fall into places. [I have] indefinite expectation for Forest City.”
“Will this expectation take a long time to fulfill?” Another replied half-jokingly.
“😁” The first person sent a smiley face. “Indefinitely…” 🔚
Last words: If anyone’s interested in renting the unit let me know. It’s less than US$150/month. 😢 Also, there won’t be an edition of weekly consumer news as I have some major work deadlines. 😢😢
From my own experiences you will just need to look at the other economic zones that malaysia has created and judge it's successfulness. And they will change their minds midway which makes it very hard to put down your money. If dad is still invested he needs a plan B
Chinese citizens have so little assets to invest in China, and the housing bubbles in the past few dacades made the confidence in real esates investing embeded deeply in their minds. Though by the look of the current real estate policy in china, I think the next generation would be more realistic towards real estate investing. And "overseas payments" is just hard these days, no way to move funds out of China easily.