Back in bloom? Malaysia seeks to revive China-backed Forest City megaproject

The malaise starts on entering the wedge of reclaimed land in Johor where cars have to navigate a partially collapsed motorway that was built just a few years ago, while dense tropical undergrowth reclaims buildings and boulevards lined by closed shops.

“People in JB don’t go there,” said Darren Lim, a quantity surveyor in Johor Bahru a short drive away. “There is really nothing to do.”

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In a bid to revive interest in the beleaguered development, Singapore and Malaysia on Thursday approved a new special economic zone that aims to enhance the cross-border flow of goods and people. Passport-free QR code immigration clearance is set to be introduced under plans for the zone, which would also see a one-stop business/investment centre be established and pave the way for cooperation on renewable energy.

In many ways, Forest City is a victim of forces outside of Malaysia’s control. It was built as China’s banks poured money into the expansion plans of the nation’s biggest developers.

But in 2020, worried by the dangers posed by a property bubble, China’s government imposed tight controls over the amount of capital held by highly-leveraged home builders.

Now in a slowing Chinese economy, the banks want their cash back, leaving those same developers struggling to make repayments on a debt-funded gamble that once seemed intertwined with the irresistible rise of China’s vast middle class.

A “danger crocodiles” sign is seen on a beach at the Forest City development. Photo: Hadi Azmi

But Malaysia’s government has not given up on Forest City.

It is hoping new tax and visa incentives for expatriate workers – as well as strong backing from Malaysia’s next king, Johor state’s monarch Sultan Ibrahim Iskandar – may revive the megaproject’s flagging fortunes.

But there is still much work to be done and that will take new investment.

The master plan for the project envisioned four artificial islands dotting the waters between Malaysia and Singapore at the point where the narrow Strait of Johor that divides the two nations widens as it meets the busy Strait of Malacca, a key international shipping lane.

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However, so far only one island has emerged from the sea, built on sand dredged from Ramunia Shoal, off the east coast of Johor, by a sand extraction business with links to the Sultan of Johor, according to research by Joseph Marcel R. Williams at the Massachusetts Institute of Technology.

“The sultan appears to be involved at every stage of the value chain,” Williams said in a 2016 report on the project.

Meanwhile, a new pool of non-Chinese investors may be needed.

Initially, developers bypassed the Malaysian market and aimed straight at upper-middle-class citizens from China looking to park some of their wealth abroad.

Overgrown greenery is sen on a condominium building in Forest City. Photo: Hadi Azmi
That became a talking point in the 2018 election campaign with Mahathir Mohamad criticising then-Prime Minister Najib Razak for “selling the country” to China.

Then, after he returned as prime minister in that year’s election, Mahathir promptly banned the sale of Forest City properties to foreign nationals, saying Malaysia did not want to give visas to people to come and live in the country just for buying a property.

“Our objection is because it was built for foreigners, not built for Malaysians. Most Malaysians are unable to buy those flats,” Mahathir said.

Property agents remain bullish over the prospects of the site.

A view of an empty shopping centre at the Forest City site last month. Photo: EPA-EFE

Four-bedroom condos are selling off-plan for US$1.6 million and upwards on some websites, with a prominent “negotiable” tag next to listings and completion dates of January 2026.

Around 28,000 condominium units have been built so far under the project’s first phase. But only about 9,000 people currently call Forest City home – a fraction of the total project’s 700,000 population target.

In September, Forest City developers claimed that more than 100,000 people had visited its water parks and international golf courses in just the previous month.

Yet, when This Week in Asia visited on a recent Sunday, the water park and the beach overlooking Singapore’s industrial district of Tuas were empty, except for some wild dogs weaving between dozens of sculptures of sea lions.

A water park in Forest City. A recent visit to the site revealed its water parks and beaches to be practically deserted. Photo: EPA-EFE

Ramesh, a Nepali security guard at one of the condominiums, confirmed that residents are far and few in between.

“These people walking around here are workers tending the place,” he said, giving one name fearing for his job if he fully identified himself.

Other sweeteners to new buyers include making the whole area a duty-free zone.

Yet that appears to have backfired as the “ ghost town” is now infamous as a spot for day drinkers who buy cheap alcohol for a guzzle along the city’s empty beaches, while rumours of rampant smuggling are getting louder.

Unregulated medicines are also being openly peddled there, with one doctor posting on X saying that he found azithromycin – an antibiotic not available over the counter, to treat bronchitis, pneumonia, and some sexually transmitted diseases – at a pharmacy there.

Back from the dead?

In the absence of Chinese expatriates, the small number of occupied units in Forest City appear to be filled by Malaysian workers at the nearby Port of Tanjung Pelepas, a container port that is the only major industrial site in this corner of the state.

One port worker said they had chosen to live in Forest City due to the cheap rent of just 800 ringgit (US$172) for a studio unit that retails for between 300,000 and 1.3 million ringgit.

“It’s a new property and it’s cheap,” said port worker Ahmad Razif. “The only hassle is food, there’s very limited options.”

Proximity to the Malaysia-Singapore Second Link bridge also makes it a handy location for some Malaysians who are working in Singapore.

The synergy that exists in Johor is different from other states and we can take advantage of Singapore’s achievements

Malaysian Prime Minister Anwar Ibrahim

“I work in Tuas, just across from Forest City. The Second Link is much more convenient for me to get to work,” said another worker called Arjun Nair.

But Nair is not who Country Garden and its partners got into business for.

The ailing project received a shot in the arm in August last year after Malaysian Prime Minister Anwar Ibrahim signed tax breaks and easy visa access to lure expatriates from across the causeway to settle in the city’s vacant apartments.

This came in the form of a new special financial zone for Forest City and the Iskandar Malaysia economic zone in the southern state of Johor, with low income tax bands and multiple entry visas aimed at Singaporeans.

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“The synergy that exists in Johor is different from other states and we can take advantage of Singapore’s achievements,” Anwar said.

At the same time, the government has slashed the entry price to qualify for the Malaysia My Second Home programme from a lofty US$539,000 to just US$100,000, hoping to ignite a surge of interest from potential expatriates, including from China.

More recently, Johor’s sultan floated the idea that the previously scrapped Kuala Lumpur-Singapore high-speed rail project could be brought back, with its track realigned to cross through Forest City before entering Singapore.

The sultan, who has stakes in the Malaysian joint venture company that built Forest City, will become the next head of state in February under Malaysia’s unique form of rotational constitutional monarchy.

A view of residential apartments in Forest City last month. Changing domestic politics in Malaysia may weigh against the project as the government comes under increasing pressure to provide for its own middle class. Photo: EPA-EFE

Experts however are sceptical about the line-up of incentives, saying that Chinese buyers are more worried by their domestic economy than overseas home ownership.

Hard-pressed Chinese citizens “won’t be making big investments like real estate,” said analyst Angeline Tan from the Institute Of Strategic and International Studies Malaysia. “This has more to do with the problems in China than the incentives Malaysia can offer.”

Changing domestic politics in Malaysia may also weigh against the project as the government comes under increasing pressure to provide for its own middle class after the gruelling years of pandemic and cost of living crisis.

“There will be little interest to exclusively focus on the needs of the Chinese real-estate investors,” analyst Collins Chong from University of Malaya told This Week in Asia.

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“Pressure and policies will be mounting on developers and industry players to focus predominantly on local needs.”

For now, buyers of any kind are being welcomed, if the posts planted at regular intervals in the ground reading “land to be developed” are anything to go by.

“There used to be a popular Chinese restaurant there,” Darren Lim, the Johor Bahru local said, grasping for Forest City’s positives. “But it didn’t survive the pandemic.”

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