Date
13 December 2017
Johor Bahru bordering Singapore has been a popular spot for Chinese developers but there is a danger of excess property supply. Photo: AFP
Johor Bahru bordering Singapore has been a popular spot for Chinese developers but there is a danger of excess property supply. Photo: AFP

Missing MH370 stirs turbulence for Chinese realty firms

It’s been more than a month since Malaysia Airlines flight 370 went missing with 152 Chinese on board, and searchers are still scouring the seabed off the west coast of Australia for signs of the jet. The incident, as well as the Malaysian authorities’ disastrous handling of the incident, stirred strong public resentment in China, prompting many to boycott holidays in the Southeast Asian nation.

Not surprisingly, tourism has been hard hit but a bunch of Chinese realty developers with projects in Malaysia are also caught in the fallout.

Before the incident, many Chinese firms, including big names like Greenland, Country Garden (02007.HK), Agile (03383.HK), R&F Properties (02777.HK) and Macrolink Real Estate (000620.CN), were using Malaysia as a springboard to grab land for hotels and homes in Southeast Asia, a top destination for Chinese tourists on their first trip overseas.

On the surface, Malaysia has its virtues — it’s just three to four hours by air from major cities in China and big-spending Chinese tourists love its beaches, tropics and Chinatowns. And with speculation curbs at home, many would consider buying housing there, given the cultural and language links. 

Also, Malaysia has chunks of cheap land available for Chinese developers to snap up at around 2,000 yuan (US$321.6) per square meter and resell as homes at 16,000 yuan per sqm, as Guangzhou-based R&F Properties chairman Li Sze Lim {李思廉} told the Economic Observer. The fat margin is luring more Chinese firms marooned at home by fiercer housing curbs and soaring land prices.

Danga Bay {金海灣}, Country Garden’s first Malaysian venture, reportedly amassed almost 7 billion yuan in contractual sales last year, and now the firm has three residential projects in the country. Greenland is said to have splashed out 20 billion yuan to build homes and commercial complexes there while Agile bought a 41,000-sqm prime plot in downtown Kuala Lumpur. In December, R&F’s 8.5 billion yuan purchase of a 45-hectare site in the Malaysian state of Johor set a new high for a land auction there.

But all of a sudden, the MH370 incident has become a force majeure clouding the prospects of these Malaysian projects.

Take R&F, which plans to start selling its Malaysian homes — tailor-made for Chinese tourists and investors — in a few weeks. There are no exact figures for the drop-off in visitor numbers but the Guangzhou-based developer is likely to have a tough time. An added factor is security concerns triggered by the seizure of a Shanghai tourist by gunmen in Sabah.

But that’s just part of the trouble.

The Malaysian authorities are now drafting rules that would subject homeowners to a 30 percent capital gains tax if they resell their properties within five years, extending the period from three years.

Also, to ensure the benefits of ethnic Malays, all foreign enterprises investing in the country have to form joint ventures with local companies and 30 percent of the stake must be held by Malays. Chinese realty firms are no exception.

The danger of excess supply also lurks in the country’s southernmost city of Johor Bahru and surrounding districts like Iskandar. The area has a cluster of sizable developments by Chinese firms promoting its proximity to Singapore as a major selling point. Greenland, Country Garden, Agile and R&F have all poured big money into projects, advertising some as “a Luohu on the doorstep of Singapore”. Luohu is Shenzhen’s bustling downtown border district next to Hong Kong.

Sooner or later these Chinese firms will have to wage bitter battles in the scramble for compatriot buyers as the supply of medium- to high-end homes in and around Johor Bahru bloats by 145 percent in the next three years, according to projections by Singapore-based realty consulting firm Orange Tee {橙易}.

Some Singaporeans have also bought villas and townhouses in the area either for recreation or investment, but wooing more from across the border is difficult because Singapore has a sound public housing system and many are put off by Johor Bahru’s security problems. With a small population, most of whom are industrial workers, tapping local buying power is not a realistic option either.

Media reports say R&F is now offering some of its homeowners from around China free three-day trips to Malaysia and Singapore to encourage them to buy more R&F homes in Johor Bahru. R&F wants to sell five billion yuan worth of homes in Malaysia this year, but the target was set before MH370 disappeared. Now the housing goal is just a castle in the air.

– Contact the writer at [email protected]

SK

EJ Insight writer

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