Can duty-free shopping inject life into Johor Bahru’s largely deserted Forest City?

KUALA LUMPUR – In its latest attempt to revive Johor Bahru’s Forest City and transform it from ghost town into boom town, Malaysia’s government is seeking to gazette an island in the beleaguered mega housing project as a duty-free zone.

Malaysia has passed regulations

that will declare Pulau Satu in Forest City a full duty-free zone as part of efforts to revive the struggling megacity.

The Lower House of Parliament on July 17 approved five amendment Bills to turn the 300ha Pulau Satu into a duty-free island, along with Labuan, Langkawi, Tioman and Pangkor. This comes on the back of several other measures to change the fortunes of the US$100 billion (S$135 billion) project a stone’s throw away from Singapore.

While these tax-free provisions will add to the appeal of the 2,800ha development – more than 5½ times the size of Singapore’s Sentosa island – it remains to be seen if the slew of measures over the years will inject more life into the project that has been dubbed “ghost city” due to its largely empty condominium units.

Already, the huge development, backed by Chinese developer Country Garden Holdings, was in 2023 designated as a special financial zone by Prime Minister Anwar Ibrahim. There are also ongoing discussions for infrastructure projects, including the Kuala Lumpur-Singapore High-Speed Rail, and the Johor-Singapore Special Economic Zone, earmarked for the area.

On top of plans for fast-track border crossing and income tax incentives, such as a 15 per cent flat tax rate for knowledge workers, the government is hoping Forest City’s duty-free status will revitalise the area.

Deputy Finance Minister Lim Hui Ying, while tabling the Bills last week, said the whole of Pulau Satu in Forest City will exempt chocolate, alcohol, cosmetics and perfumes from taxation, for starters.

“Among others, the designation of Pulau Satu Forest City as duty-free island is focusing on service, finance, retailing and hospitality industry. The island’s proximity to Singapore will attract Singaporean tourists,” she said in Parliament’s Hansard.

Attempts to make Forest City a duty-free zone were previously kick-started in 2016, by then Prime Minister Najib Razak. However, the legislative process took eight years to materialise.

Sources close to the matter told The Straits Times that more items could be added to the duty-free list after the Bills are deliberated and passed in the Upper House by Aug 1 and have received royal assent.

However, analysts say that Malaysia still needs to do more to enhance Forest City’s overall appeal.

“Duty-free sales in Forest City could, in principle, generate more foot traffic to the island. However, this will not address the overhang in apartments,” Dr Francis Hutchinson, senior fellow and coordinator of the Malaysia Programme at ISEAS – Yusof Ishak Institute, told ST.

According to him, most Singaporeans prefer to own landed property in Johor rather than apartments, as spacious houses are more appealing to residents of the island city-state.

Built by a joint-venture company led by embattled property developer Country Garden Holdings, the Forest City development suffered a downturn with 15 per cent of the entire project completed so far and has reached just 1 per cent of its targeted occupancy rate of about 10,000 people, according to several media reports.

Since its inception in 2016, Forest City has aimed to accommodate 700,000 people in total across four reclaimed islands upon completion in 2035.

However, the project has encountered setbacks ranging from environmental protection issues to China’s tightening capital controls that have stymied funding for buyers, the Covid-19 lockdown and a near-miss default coupon payment by Country Garden in September 2023.

On April 22, the Johor state government claimed that 70 per cent of the properties in Forest City have been sold. Yet there are reported anecdotes of empty corridors and closed shopfronts.

Mr Teh Kee Sin, adviser of SME Association for Southern Johor, was keen on the proposed duty-free status for Forest City, and suggested that “luxury clothes, jewellery, watches and leather goods” be added to the list of tax-free items.

“A duty-free zone is definitely a boost for local SMEs and retailing sectors,” Mr Teh, who has 25 years of experience in the Johor Bahru manufacturing sector, told ST.

Dr Hutchinson agreed, saying: “It is possible that expanding the range of (duty-free) items to include other items such as electronics would generate some additional foot traffic.”

Beyond that, Dr Hutchinson added that having an anchor tenant or a flagship facility in Forest City is crucial in order to attract more potential buyers and stimulate economic growth in the area.

There is also chatter about the future of Forest City as a destination for the meetings, incentives, conferences and exhibitions and medical tourism industries, and Mr Teh is optimistic that small and medium-sized enterprises will also benefit from such events.

With such hopes in mind, Johor Menteri Besar Datuk Onn Hafiz Ghazi said in March that the Asean Tourism Forum 2025, a cooperative regional effort to promote the tourism of the 10 nations, will be held in Forest City in 2025.