Chinese developers flooding Johor home market

JOHOR BARU • While Chinese home buyers have sent prices soaring from Vancouver to Sydney, in this corner of South-east Asia it is China's developers that are swamping the market, pushing prices lower with a glut of new homes.

They are betting that Johor Baru, bordering Singapore, will eventually become the next Shenzhen, the economic zone in Guangdong province.

Chinese developer Country Garden Holdings is building the US$100 billion (S$142 billion) Forest City on four artificial islands in southern Malaysia that will house 700,000 people on an area three times the size of Singapore.

It will have office towers, parks, hotels, shopping malls and an international school, all draped with greenery. Construction began in February and about 8,000 apartments have been sold, the company says.

"These Chinese players build by the thousands at one go, and they scare the hell out of everybody," said Mr Siva Shanker, head of investments at Axis-Reit Managers and a former president of the Malaysian Institute of Estate Agents.

"God only knows who is going to buy all these units, and when it's completed, the bigger question is who is going to stay in them."

Forest City is the biggest of about 60 projects in the Iskandar Malaysia zone around Johor Baru, known as JB, that could add more than half a million homes.

Country Garden, which has partnered with the investment arm of Johor state, launched another waterfront project down the coast in 2013 called Danga Bay, where it has sold all 9,539 apartments.

China's state-owned Greenland Group is building office towers, apartments and shops on 52ha in Tebrau. Guangzhou R&F Properties has begun construction on the first phase of Princess Cove, with about 3,000 homes.

The influx contributed to a drop of almost one-third in the value of residential sales in the state last year, with some developers offering discounts of 20 per cent or more. Average resale prices per square foot for high-rise flats in JB fell 10 per cent last year, according to property consultant CH Williams Talhar & Wong.

The influx has also affected local developers such as UEM Sunrise, Sunway and SP Setia.

The Chinese companies have come to Malaysia as growth in many of their home cities is slowing, forcing some of the world's biggest builders to look abroad to keep erecting the giant residential complexes that sprouted across China during the boom years.

"The Chinese are attracted by lower prices and the proximity to Singapore," said Ms Alice Tan, head of consultancy and research at real estate brokers Knight Frank. "It remains to be seen if the upcoming supply of homes can be absorbed in the next five years."

A decade ago, Malaysia decided to leverage on Singapore's success by building the Iskandar zone.Singapore's high costs and property prices encouraged some companies to relocate to Iskandar, while JB's shopping malls and amusement parks have become a hot spot for day trips.

"The Chinese developers see this as an opportunity," said Mr Jonathan Lo, of CH Williams Talhar & Wong.

But construction soon outpaced demand. To sell the hundreds of new units being built every month, some companies took to flying in planeloads of potential buyers from China. But JB is not Shenzhen.

In Malaysia, investment growth is slowing, slipping to 2 per cent year on year in the third quarter, from more than 6 per cent in the previous quarter. The value of residential sales fell almost 11 per cent last year, according to official data.

"I am very concerned because the market is joined at the hip. If Johor goes down, the rest of Malaysia would follow," said Mr Shanker, who estimates that about half the units in Iskandar may remain empty. "If the developers stop building today, I think it would take 10 years for the condos to fill up the current supply. But they won't stop."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on November 23, 2016, with the headline 'Chinese developers flooding Johor home market'. Print Edition | Subscribe