The Chinese love construction projects. They’ve built railways, airports, entire cities and even government buildings for their allies. They’ve taken the wisdom of “build it and they will come” quite literally, but that is a dangerous maxim to rely on.
Their latest project was in Johore Bahru. Forest City is a $100 billion project that will span four artificial islands. It is capable of housing 700,000 people on an area four times the size of New York’s Central Park. Office towers, parks, hotels, shopping malls, it is being marketed as the next “Shenzhen”; close to Singapore but more affordable.
It’s a beautiful story, but there’s just one problem: who on earth wants to work and live in Johore Bahru?
The salaries are low, crime rates are high, the Ringgit is weak, protectionism is strong. Infrastructure is horrible; towns are poorly planned, roads are poorly designed. And governance! Policies are fickle, corruption is rampant (and intimatly experienced through traffic cops).
Let’s put it this way: I won’t invest my money where the government won’t invest theirs.
They should be putting their money into education, infrastructure, attracting people to come and do business – creating real demand and according care to the people of Johore Bahru instead. Build those first, then fortunes will follow.
Instead what have they done? They’ve taken Chinese money for very short term gains with very small impact. The downside is worse than their upside: the consequence of this is that JB property prices are driven lower! The opposite of what an investment is supposed to do!
Around the vicinity of Johore Bahru, there are already some 60 projects going on – Forest City will add another half a million homes to an already burgeoning property situation. High supply and low demand: any teenager studying economics will tell you it means prices will fall. And indeed it has, the influx contributed to a drop of almost one-third in value of residential sales in JB in 2015. Developers continue offering big discounts in hope of attracting buyers.
Average resale prices per square foot for high-rise flats in JB fell 10% in 2015, according to property consultant CH Williams Talhar & Wong.
This same theory goes for all other investments that China makes into countries in the region. The billions of dollars they’ve put into investments and initiatives bring strategic value to them, it allows them future military presence and also to establish relationships with the governments of the target country. But will these bring value to the wider community? The ordinary citizens of the country?
It is not useful to build one mega project, but it ends there. What about continuity?
Take a plane into almost any airport of a country in this region. Chances are you will land in a beautiful steel and glass structure with acres of marble flooring. But once you collect your luggage, the airport spits you into the middle of nowhere into the arms of taxi touts, traffic congestion and the harsh reality of life in the country.
The Singapore Changi Airport was not designed in a silo. It was planned for user experience from the plane, up until the passenger gets into the hotel. That is why the roads outside Changi are lined with flowering bushes and trees. Public and private transport routes are available for the user, the prices forecasted for his convenience.
The Chinese are now building a $9 billion port in Malacca. Multi billion dollar rail and road projects have been poised to threaten Singapore with diverting hundreds of billions worth of trade from us. “This is a dream of a lifetime for Malaysia to eventually stop cargoes transiting through Singapore, with the generous inflow of direct investments and expertise from China now. In 10 years or so, Malaysia can say bye-bye to Singapore,” quotes a “veteran port operator” to The Star Online.
Ought we be concerned? We should be if all these projects start off with strong political and sociological fundamentals. For now, it appears that the motivation for all is short-term gains and political strategy. If these are not planned and manoeuvred well, these moves could hurt Malaysia more than it will help them for the same reasons discussed with the Forest City project.
Forest City is facing its own set of problems. Last week, all its sales centers in mainland China had been shut down. The Chinese government issued a ban in January on its citizens from converting yuan into other currencies for overseas property purchases.
Raymond Cheng, a Hong Kong based property analyst at CIMB Securities told local media that “The project doesn’t have much appeal to Malaysians” and that “There would be insufficient demand from Chinese buyers to keep sales going anyway”.
With 90% of Forest City buyers of Chinese origin, the project looks headed for disaster.