Malaysia’s Forest City $100-Billion Mega Project in Jeopardy

Malaysia’s $100 billion Forest metropolis development, an island mega-project funded by Chinese funding, is an artificial metropolis growing from palm oil trees, where condos, roads, and shops lies empty.

Forest City, aimed at middle-class Chinese purchasers, has survived low sales, Chinese currency regulations, a pandemic shutdown, and public outrage over China’s rising influence in Malaysia. However, its survival is once again in jeopardy due to the financial difficulties of Chinese property giant Country Garden.

From a farmer’s dream to Beijing’s largest private real estate enterprise, the project developer has amassed US$196 billion in debt.

This week, it reported a record loss for the first half of 2023, but got creditor consent to extend a major bond repayment date, averting a potential default that would have jeopardised thousands of developments in and outside the world’s second-largest economy.

Another deadline looms next week for an outstanding multi-million dollar interest payment, putting it at risk of default once more.

“I hope Country Garden can overcome their financial difficulties,” said Zhao Bojian, 29, of the Chinese province Henan, who bought one of 26,000 Forest City apartments five years ago for roughly $430,000.

“We can’t do business in Forest City if no one comes.”

The enormous private town in Johor state, which sits across from dazzling city-state Singapore, was one of Country Garden’s many bold gambles that brought the corporation to great heights but now threaten crashing it back down to reality.

Forest City, which was launched under China’s Belt and Road Initiative with a corporation partly owned by a strong Malaysian sultan, housing roughly 9,000 people, well short of its 700,000 target.

By day, construction workers chip away at the island metropolis, while at night, an eerie silence falls over its abandoned four-lane roadway. In the dark, only a few lights shine from the windows of the project’s more than two dozen high-rise skyscrapers.

Below those are rows of shuttered storefronts, some with court notices affixed to the doors demanding unpaid bills. Inside, there is trash all over the place.

Chinese Absentee Ownership in Malaysia

A security official told AFP that many buyers do not live in the fake city and instead keep their money as absent owners. Model sculptures of the completed city’s four artificial islands sit in the foyer of a sales showroom to entice potential purchasers directed by Mandarin, Malay, and English road signs.

Previous governments have rejected residence for expat investors, claiming that the project is only for foreigners. Malaysian Prime Minister Anwar Ibrahim has intervened to save Forest City, which is on the verge of becoming a white elephant.

Last week, he announced the establishment of a “special financial zone” with benefits such as a lower income tax rate and numerous entry permits.

Forest City faces an uphill battle

Regardless, observers believe Forest City faces an uphill battle. “Liquidity constraints may limit their ability to complete overseas housing projects,” said Bernard Aw, chief Asia-Pacific economist at credit insurance provider Coface.

The city, a three-hour drive from the capital Kuala Lumpur, attracts visitors who want to see the space-age structures or buy duty-free alcohol.

“Everyone comes here for the spirits,” said Denish Raj Ravindaran, 32, a Singapore-based technician. “I’m not going to stay here; it’s a ghost town.” There are no street lights, so the route is dark and unsafe.”

Foreign labourers, many of whom are from Nepal or Bangladesh, are responsible for maintaining the city’s bushes, sweeping its streets, and guarding its towers.

A sign warns would-be swimmers about crocodiles on an artificial sand beach filled with beer cans as families dine under coconut trees. An official at one 45-story tower claims that only two floors are occupied, with the rest for sale.

As Country Garden fights for life, substantial efforts from both Beijing and Kuala Lumpur are going to be required to get Forest City back on its feet.

“I came here for a holiday after seeing TikTok videos,” retail employee Nursziwah Zamri, 30, of Malacca state, explained. “If you ask me if I would live here, the answer is no.”