Several buyers of homes in Medini, the centrepiece of the Iskandar development zone, have backed out of their purchases after developers failed to produce a sales and purchase agreement.
These agreements look to have been tied up in red tape, with the Malaysian authorities seeking to produce a standard document.
Singapore developer Melvin Ho, who had about 20 per cent bookings for his upscale 200-unit condo Prive Medini in Malaysia, is not surprised at the withdrawals.
"It was inevitable that some buyers lost confidence in the project after the signing of the sales and purchase agreements was delayed several times."
The managing director of Optimus Medini, a privately held real estate company, declined to say how many buyers have pulled out of their purchases after his project was delayed for about a year.
The Straits Times understands that at least two other developers face the same problem.
Developers have had to refund booking fees of up to RM25,000 (S$9,300) to each buyer.
One buyer of a two-bedroom condominium unit in Medini said he lost interest after the sales and purchase agreement was delayed.
The 53-year-old businessman, who spoke on condition of anonymity, said: "The developer did not explain to me what is causing the delay. I thought maybe I am just a small buyer and decided to withdraw from the purchase while I still could do so."
Malaysian lawyer Hong Chin Heng told The Straits Times that, unlike other parts of Iskandar, developers in Medini are required to submit their sales and purchase agreements to Malaysia's Ministry of Housing and Local Government for approval.
But some time towards the end of last year, the ministry stopped granting approval as it was looking to have a standard agreement for all developers to follow.
It was only last month that Mr Hong, who drafted the sales and purchase agreement for Grand Medini Residences, finally got approval from the ministry, after waiting for about seven months.
News of the ministry's approval spread quickly among the other developers, who were anxious to seal their deals with their buyers.
But developers faced another obstacle when some banks refused to grant housing loans to buyers in Medini, due to the special lease status of the area.
Spanning an area of 9.3 sq km, Medini Iskandar is the flagship development designed to become the central business district of Iskandar Malaysia. There is no quota on foreign ownership, no real property gains tax or minimum purchase price of RM1 million.
Even though the area is freehold land, home buyers in Medini are granted leases only by Iskandar Investment (IIB), the registered landowner.
"So instead of selling land, IIB is selling the lease and that is different from leasehold land granted by the state," said Mr Hong.
Mr Kang Ban Aik, deputy director-general of the ministry's national housing department, said: "It is the first of its kind in Malaysia. "Prior to 2013, the ministry had in principle allowed IIB to sell the lease... but we later discovered that there were all kinds of sales and purchase agreements issued by different developers. So we decided to standardise the terms for everyone to follow."
Mr Kang said the ministry will grant developers approval as long as they follow the standard contract terms set.
With his sales and purchase agreement approved, Mr Chai Ka Foong, executive director of Grand Global Medini, said he hopes to launch the third tower of Grand Medini Residences, which sold 80 per cent of the units in its first two towers last year.
Meanwhile, Mr Ho is optimistic Prive Medini will take off "as long as both the Malaysian and Singapore governments continue to deliver what they have promised". He said "Medini will eventually take over JB city".