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Saturday, 17 June 2017

(The Star) Country Garden Holdings: China's capital controls no serious impact on Forest City project

Private Chinese developer Country Garden Holdings Co Ltd (CGH) says Beijing-imposed capital controls have not really impacted its Forest City project although 70% of buyers last year were Chinese nationals.

Its chief strategy officer Yu Runze says there have been some rather negative statements made regarding CGH soon after Beijing imposed capital controls to curb its outflow of funds.

Yu says Forest City project, to comprise four reclaimed islands in the Johor Straits, is a joint project with Kumpulan Prasarana Rakyat Johor.

“Therefore, we are not 100% Chinese,” he says.

Secondly, Forest City is a project that will take more than 20 years to complete. It is a project that involves more than housing and property development because CGH is diversifying beyond property development, he says.

CGH and its partner will also be building schools, hotels, malls, offices and a slew of other amenities that together will create new destinations, he says. “We will go into other types of businesses.”

On the various press reports about closing down of sales galleries and other marketing service establishments in China soon after Beijing imposed capital controls, Yu says: “In China, for a period of time, we have stopped (sales and marketing) because we cannot go against the Chinese government’s tightening (monetary) policies in order to preserve China’s depleting foreign reserves.

“We cannot ask the people in China to buy properties because this will be going against the government policies.

“I cannot ask my mother who has all her money inside China to buy,” says Yu.

“We have to identify other buyers and at this juncture, I would like to point out certain things. Firstly, China is not our main focus today. Secondly, if we want to target the Chinese, we have to look for those with resources outside China. This means we have to start with our database in China.”

Beach view: A view of the Forest City beach area in Gelang Patah. Buyers from China like sea-front projects.



Yu says CGH is a big company with 700 projects around the world, although most of them are located in China. The company has a total of three million house buyers.

“Thirdly, we are seeking other target markets and this year, we are opening or planning to open sales galleries in South-East Asia and East Asian markets in Taipei and Tokyo. We are seeking new markets in the Middle East like Dubai.”

It will be opening more than 10 sales galleries in different parts of the world.

Returning to Forest City, Yu says although 70% its buyers last year were from China, CGH does not expect any issues to crop up resulting from the capital controls.

“Some of them have got their financing, others bought in cash,” Yu says.

Although there were reports that some of Country Garden buyers had money issues, Yu says “very few buyers actually told us they have difficulty paying for the properties.”

Because Forest City is a special promoted zone, and there are several such promoted zones in Johor, the company is able to sell properties priced at about RM500,000 to foreigners.

Although land is a state matter, and the minimum threshold for foreigners to buy properties in Malaysia is RM1mil, this does not apply to certain promoted areas.

“Forest City is on Malaysian territory but it is being promoted as a special area to attract international buyers and they can buy properties less than RM1mil,” says Yu.

Although CGH has several projects in Malaysia, Diamond City in Semenyih, Danga Bay in Iskandar Malaysia, Country Garden Central Park in Johor Baru (jointly with Damansara Realty Bhd which is under Johor Corp), its most ambitious – and some may say controversial – is the four islands that makes up Forest City development.

Yu says to date, about 300 acres of the first of four 1,000-acre island are completed.

Says VPC Realtors (JB) Sdn Bhd property consultant Bruce Lee: “Forest City will need a certain critical mass. So far, CGH has been very proactive. Chinese buyers in Malaysia not only prefer to buy from Chinese developers, but they also prefer to buy off-plan. Down payment is low and they have about four years to pay for the project.”

Lee says at its peak, CGH is believed to have sold about 200 units a day. Chinese nationals were being flown in by the plane loads. At its peak, up to 20 buses ferrying these potential buyers were at its sales gallery. Although this has stopped, Lee says what is significant is the fact that in one project alone, some 16,000 units have been sold, the bulk to foreigners compared to annual average of 2,000 units of foreign sales in the country between 2012 and 2015. Foreigners formalised sales of less than 1,000 units last year. However, these 16,000 units will remain unrecorded until Forest City is completed, Lee says.

Greenland Group

Another Chinese developer in Malaysia is Greenland Group, a Shanghai-based state-owned property developer.

According to a source, the distinction between a private listed developer and a state-owned one is important in view of the Beijing capital controls.

Greenland is planning more than 2,000 units of residentials in Danga Bay area. It has so far launched about 500 units. Of this, 30% are Chinese buyers, 10% are from Singapore and the rest are locals.

Like Country Garden, the source wants to correct perception that the company has problems and that construction has “halted”.

Two sources familiar with the investment and operations of the company say construction has “not stopped”.

“For our Danga Bay residential project, the management in Shanghai were not happy with the design. Other than the 500 units under construction, the rest are pending approval from Johor authorities,” the source says.

Its Danga Bay project is expected to be completed in 2019.


Good sales: Sold condominium blocks marked by signs at the Country Gardens’ Forest City showroom in Johor Baru. Yu says very few buyers actually say they have difficulty paying for the properties. – Reuters



The source says Greenland was not really impacted by the capital controls because its buyers are allowed to pay directly to its offices in China.

“Money does not need to leave Chinese borders,” the source says.

Buyers were attracted to its project because it was priced at about RM850 per sq ft, which was a lot lower than some of the other projects in the area, the source says.

As for its Permas Jaya mall development, there was some restructuring in the management.

The source says the mall is targeted to open later this year.

As for resources to complete its projects in Malaysia, the source says there is unlikely to be an issue here because Greenland is a state-owned company.

According to the Financial Times, citing data from Real Capital Analytics, Chinese groups have invested more than US$2.1bil in Malaysian real estate over the past three years, compared with US$985mil invested by Singaporean companies between 2014 and 2016.

Johor-based property consultants KGV International executive director Samuel Tan says: “The Chinese like sea-front projects. So Forest City and other water-front properties appealed massively to them.”

Agents dealing directly with Chinese buyers concurred as large parts of China are land-locked.

Oriental Realty branch controller Stefanie Loh says since the last several years, Chinese buyers have been actively buying in Johor, the Klang Valley and Penang. “Post-capital controls, the number of enquiries has dropped. There are different groups of buyers; some have completed their purchases, some in the beginning stage and some have only signed the sales and purchase agreements. There are others whose money has been refunded by developers.”

Additional controls

There is another group who is waiting for the dust to settle before they make a decision. But one thing is for sure, they will buy off-plan, and mainly from their own developers who promote and market their projects around the globe massively using different channels and events.

But even as China’s foreign exchange reserves rose in May for a fourth consecutive month and by more than markets had expected, additional measures are expected in the coming months.

According to Reuters on June 7, stringent capital control measures and a weakening in the dollar has helped staunch outflows.

Reserves rose US$24bil in May to a seven-month high of US$3.054 trillion, compared with an increase of US$21bil in April, central bank data showed on June 7. Under new rules, Chinese banks will be required to report any overseas credit card transactions exceeding 1,000 yuan to the State Administration of Foreign Exchange. The data should be submitted to the regulator on a daily basis starting from September, Reuters reported.

Loh: ‘Post-capital controls, the number of enquiries has dropped.’



Retail Group Malaysia managing director Tan Hai Hsin says contributions by Chinese tourists to the Malaysian retail sales is insignificant.

“Tourist shopping in Malaysia does not account for more than 12% of the total retail sales,” he says in an email.

On the 1,000 yuan threshold, Tan says the move is unlikely to be significant.

“For retailers, including food and beverage operators, their retail sales will be affected. However, it is still too early to gauge the extent of impact since it will only be implemented in September 2017.

“Chinese tourists may use more cash instead of credit card. Or retailers may introduce other forms of payment to allow Chinese tourists to spend more,” Tan says.Chinese tourists are found in major cities such as Kuala Lumpur, Johor Baru, Kota Kinabalu, George Town and Kuching.

Malaysia targets to bring in three million Chinese tourists this year, 9.7% of estimated total 31 million arrivals, and four million next year, said Tan, quoting the Tourism and Culture Ministry. Chinese tourists form the third largest group after Singaporeans and Indonesians.

The Home Ministry said in January this year that about 1.7 million Chinese tourists, including those residing outside of China, visited Malaysia in 2015 and spent more than RM5.7bil during their stay.

It is still early days yet but buying designer bags in multiple colours may be a thing of the past.