A model of the Forest City development is displayed at the Country Garden Holdings Co. property showroom in Iskandar Malaysia zone of Johor Bahru, Johor, Malaysia, on Tuesday, Nov. 02, 2016. While Chinese home buyers have sent prices soaring from Vancouver to Sydney, in this corner of Southeast Asia it's China’s developers that are swamping the market, pushing prices lower with a glut of hundreds of thousands of new homes. They're betting that the city of Johor Bahru, bordering Singapore, will eventually become the next Shenzhen. Photographer: Ore Huiying/Bloomberg
A model of the Forest City development © Bloomberg

On the southern tip of Malaysia, just across the strait from Singapore, the vast $100bn Chinese-built Forest City is rising from the sea.

Every week, busloads of potential buyers from mainland China are taken on tours of the well-tended lawns, spacious shopping arcades and glossy apartments being built on reclaimed land. The privately backed and funded development will house 700,000 people when it is fully finished in two decades’ time.

But with thousands of flats already reported sold, the first residents, many of them retirees and parents with young families, are expected to move in as early as next year.

Xing Han Jiang, 62, a small businessman from Shanghai, has bought two. “I fell in love with the greenery, the beach and the weather,” said Mr Xing, owner of a boat building business. “In Malaysia there’s no winter — but China gets very cold in winter, which is no good for my body. The distance isn’t very far between Malaysia and China, and there’s no language barrier.”

Two-bed apartments in Forest City sell for Rm780,000 ($175,000), less than similar apartments in Hong Kong, Vancouver or Sydney, other prime destinations for Chinese property investors.

“I checked out properties in Australia, America and Japan,” Mr Xing said. “If I bought in America it would be very foreign to me in terms of language. In Malaysia there’s not much of a culture shock and the price is reasonable. ”

Map: Forest City, Malaysia

For Malaysians, the giant Forest City development is the most visible example of China’s expanding financial might.

About 220,000 people are expected to work in Forest City, one of several mainly private construction projects in the Iskandar Malaysia zone, a special economic zone offering tax and regulatory incentives for investors.

The scale and ambition of the project has caused some alarm.

Malaysia’s former prime minister Mahathir Mohamad warned that the housing, commercial and industrial development, which will eventually occupy 20 square kilometres of reclaimed land, amounted to a “foreign enclave”. The Sultan of Johor, in whose state the project lies and an investor in Forest City, accused the former prime minister of “playing the politics of fear and race”.

Some fear this huge construction will weaken property prices. With Huawei and Microsoft establishing data centres, Sigrid Zialcita, managing director for Asia Pacific research at the real estate company Cushman & Wakefield, said there are “promising signs” that the zone is expanding commercial activities to match the housing construction.

Ultimately, the construction underlines the close ties between the two nations, with Southeast Asia being drawn ever more deeply into Beijing’s economic embrace.

“China-Malaysia relations have always been good. Last year, reaching the best in history,” said Runze Yu, chief strategy officer of property developer Country Garden.

Signs reading "Sold Out" are displayed on model towers of the Forest City development at the Country Garden Holdings Co. property showroom in Iskandar Malaysia zone of Johor Bahru, Johor, Malaysia, on Tuesday, Nov. 02, 2016. While Chinese home buyers have sent prices soaring from Vancouver to Sydney, in this corner of Southeast Asia it's China’s developers that are swamping the market, pushing prices lower with a glut of hundreds of thousands of new homes. They're betting that the city of Johor Bahru, bordering Singapore, will eventually become the next Shenzhen. Photographer: Ore Huiying/Bloomberg
© Bloomberg

At a time when China’s assertiveness in the region has offended some neighbours, and Malaysia’s international reputation has been hit by the multibillion-dollar embezzlement scandal at state investment fund 1MDB, Beijing and Kuala Lumpur are enjoying increasingly cordial ties.

In November Malaysian prime minister Najib Razak returned from a trip to China with $34bn in trade and investment agreements. Among the deals agreed on Mr Najib’s trip was the Rm55bn East Coast rail line, which will link ports on Peninsular Malaysia’s east and west coasts.

Meanwhile, Chinese investors are funding the expansion of a port in Malacca, a strategic point on the strait through which much of China’s crude oil passes.

Chinese groups are also expected to bid for a forthcoming Malaysia-Singapore high-speed rail link, due to be built by 2026. Ultimately, Beijing plans to extend a high-speed rail connection from the southern city of Kunming through Bangkok and Kuala Lumpur to Singapore.

“It’s like gravity,” says Mr Runze of the planned rail links. “Once you have two very heavy economies closer to each other time-wise, you will see bigger GDP being generated.”

Reclamation works continue at the Country Garden Holdings Co. Forest City development site in Iskandar Malaysia zone of Johor Bahru, Johor, Malaysia, on Tuesday, Nov. 02, 2016. While Chinese home buyers have sent prices soaring from Vancouver to Sydney, in this corner of Southeast Asia it's China’s developers that are swamping the market, pushing prices lower with a glut of hundreds of thousands of new homes. They're betting that the city of Johor Bahru, bordering Singapore, will eventually become the next Shenzhen. Photographer: Ore Huiying/Bloomberg
Reclamation work continues at the site on the southern tip of Malaysia © Bloomberg

Analysts say China’s interest in Malaysia reflects in part a desire to exploit the prospect of declining US influence in the region.

“With TPP [Trans-Pacific Partnership] dead, the Chinese think this is a wonderful opportunity to push their vision of the future,” said James Chin, director of the Asia Institute at the University of Tasmania. “The Chinese believe that in 100 years they will be the economic superpower, Southeast Asia will be dependent on them, and the de facto situation will be that the South China Sea belongs to China.”

So far, about 70 per cent of buyers at Forest City have been mainland Chinese but this year developers will seek to drum up more business from Southeast Asia, India and the Middle East.

Since Mr Mahathir’s criticism, the developers have worked harder to involve local people more closely in the project. Developers point out that 70 per cent of the staff working on the project are Malaysians.

“There is a conventional image about the Chinese and China companies: money-driven, hardworking and cheap — not good quality,” said Mr Runze. “In Forest City we are doing our best to provide quality . . . where we care about the local community and environment.”

Nosham Mohamad, a Malaysian store manager, bought an apartment in the Forest City project. Ms Nosham, 45, said: “Even an HDB [municipal housing] in Singapore would be more expensive than what I am paying for Forest City. I like to be around a place which has a lot of greenery — they use a lot of plants around the buildings. In Singapore it’s like living in a concrete forest.”

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