Property News, Financial News

Johor’s invasion of Chinese buyers (and what it means for Singapore)

December 2, 2016
Forest City is an upcoming project from Chinese developers, just located off the shores of Singapore

Forest City is an upcoming project from Chinese developers, just located off the shores of Singapore

Country Garden Holdings Co. is the developer behind Forest City. If you don’t know what that is, it’s a monstrous housing project that holds around 700,000 people, and is built on four interconnecting islands between Singapore and Johor. This is on the prediction that Johor will be “the next Shenzhen”.

What does Forest City mean for Singapore?

Although it’s a bit early to say, we can provide some reasonable assumptions about Forest City’s impact, if all goes according to plan. We know, for example, that besides 700,000 residential units there will also be a lot of commercial and retail space. And at the opening ceremony, Malaysian Prime Minister Najib Razak declared the area a duty-free zone, along with corporate tax incentives for select industries (tourism and healthcare were mentioned).

Here’s what we think the likely impact will be on us:

  • Singaporean investors in Iskandar might be in trouble
  • We might stand to benefit from an influx of Chinese tourism
  • Likewise, this means bigger crowds of Chinese tourists
  • Possible ecological havoc
  • Singaporean investors in Iskandar might be in trouble

700,000 homes! Johor had better watch out. If all those units are filled by Chinese buyers, that’s probably enough for them to secede and declare independence*.

(*I’m just joking. China would never go around stealing islands in South East Asia).

It doesn’t take a genius to realise that Iskandar, already threatened with an oversupply of properties, is now in an even worse position. Iskandar was facing a supply issue as far back as mid-2014, when it was noted that developers were putting up buildings faster than a Korean gamer in a StarCraft tournament.

At the time, we kept chanting that “spillover demand from Singapore and a low ringgit will make it okay”, over and over like a panic-control mantra. Guess what: the low-ringgit did absolutely zilch to drive up sales, and the spill-over demand from Singapore turned out to be a fantasy.

The arrival of Forest City is just a squeeze of lemon in an open wound.

The Singaporeans who invested based on prime location (units nearer to Kuala Lumpur or where the future High Speed Rail will be) have some hope – no matter how many new units spring up, their property retains an advantage. However, Singaporeans who bought mass market properties in Iskandar with the hopes of garnering rental yields might want to start looking for an exit strategy.

  • We might stand to benefit from an influx of Chinese tourism

The idyllic kampungs along the south of Johor aren’t being bulldozed for no reason. There’s obviously a critical purpose: it’s to build high end luxury homes with designer shops, which most of the locals in the area will never be able to afford. But don’t worry, they’ll probably get a complimentary tea bag or something.

A lot of the prospective buyers, who are flown in by the plane load, are from China. And assuming they’re the well-heeled crowd, they’d also have easy access to Singapore. That could be good for our increasingly moribund retail scene. It’s more customers for businesses, just from across the causeway.

  • Likewise, this means bigger crowds of Chinese tourists

The High Speed Rail terminus will be in Jurong Gateway and the nearest causeway is the second link at Tuas. This is where the flood of tourists will arrive.

But I’m sure Singaporeans – particularly those in the Jurong area – understand that tourism is important, and that huge crowds of tourists raising the noise levels are a welcome addition to their quiet environment.

Good times ahead.

  • Possible ecological havoc

We don’t have much say in this project, since it was approved by Malaysian authorities, and it’s on their side of the fence. So far though, the project has been slated to alter tides, kill marine life, and ruin the Merambong Shoal. That’s according to activists, but there is also a strong counter argument of the developer having a lot of money.

Singapore is still “studying the impact”, but those who enjoy fishing activities in the area may have to find a new spot.

This is a long term project, and we don’t know if it will succeed

The project is meant to be complete over 30 years, and while sales have been made on one of the first islands, we don’t know the entire thing is too ambitious. It’s plausible that half-way in, the developers will find out there’s insufficient demand and give up.

Whatever the case, it’s a reminder that sometimes a sure bet (like Iskandar) can have a lot of different ways to go south.

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