Forest City Faces Uncertain Future in Light of New Chinese Restrictions


China’s increasingly tough clampdown on money flowing out of its borders is having far reaching implications not just for its own citizens, but also for property developers across South East Asia, with Forest City in Johor being one prominent project starting to feel the effects.

Forest CIty
Forest City

Since the slowing down of China’s economy, many domestic investors have increasingly turned to offshore investments, where there is the promise of higher returns. In response, the government has put in place new legislation limiting the ways that its citizens can both invest abroad, and use their credit cards outside China. At the back end of last year, its foreign exchange regulator declared it would be taking a harder line on property purchasers and investments, while in the spring of this year China’s biggest player when it comes to processing bank card payments – UnionPay, stated it would prohibit all future use of its cards in cross border property deals.


It is thought that the Chinese accounted for in the region of US$33 billion last year in both commercial and residential overseas property, with the largest markets being Hong Kong, New York, Australia and Malaysia. It is not only seen as a good investment for buyers and a good business opportunity for the developers, it was also viewed as a very good way of taking up some of the slack in the country’s industrial overcapacity.


All that is changing however, and the Forest City project – and its investors, are bearing the brunt of these changes in policy. The S$140 billion beachfront development in the Iskandar special economic zone is a joint venture between Country Garden Pacific View (CGPV) – the 3rd largest home builder in China, and Malaysia’s Esplanade Danga 88, and 70% of the thousands of homes already sold have gone to mainland Chinese. Despite the joint venture involving a Chinese company, all payments need to be made in Malaysia, and these new regulations are preventing that happening. The investors are in danger of losing their 10% deposits, and have been told by CGPV that they will have to pay a penalty of the equivalent of 30% of the purchase price if they want to back out of the deal, something that has understandably caused a lot of anger.


CGPV has said that the penalty clause is all above board and was in the contracts that the buyers all signed, but many of the purchasers – who are now in a state of limbo – have hit back saying that not only was this clause not explained to them, but many only ever received an English version of the contract, and never saw a Chinese-language version.


Another separate issue that has also caused dissention among investors revolves around claims that CGPV’s salespeople gave the wrong impression regarding the tie in between the development and the Malaysia My Second Home (MM2H) Programme which gives foreigners the right to 10 year visas. It transpires that the scheme is not officially linked to the Forest City Project, and though CGPV has said their agents will help their buyers with their applications, it is down to Malaysia’s Ministry of Tourism and Culture to grant approval, something that is in no way guaranteed.


Investors and developers alike will be keeping a keen eye on developments as if this policy is upheld for the foreseeable future it cannot fail to have ramifications far and wide.






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