Pitfalls of Buying an Overseas Home – The Cautionary Case of Forest City

September 10, 2018

Pitfalls of Buying an Overseas Home – The Cautionary Case of Forest City

By Property Soul (guest contributor)

Malaysian leader Mahathir Mohamad recently organized a five-day official visit to China. Besides asking China to withhold two major Chinese infrastructure projects, an agreement was reached to directly import Malaysian durians to China. As early as 2019, perhaps thousands of tons of Mao Shan Wang will be exported to different provinces in mainland China.

Foreigners are not welcome

While working on stronger ties with China, Mahathir didn’t forget about Forest City.

Last Monday, the Malaysia Prime Minister said at a press conference that foreigners will not be allowed to buy residential units at the Country Garden project. They also won’t be granted visas to come and live there.

As I mentioned in my podcast “Mahathir, China Projects and Forest City”, Mahathir has been uneasy with the astronomical amount of Chinese investment in Malaysia even before the election. And Forest City has always been a thorn in his eye.

He once said, “I hope Forest City will truly become a forest … Its residents will consist of baboons, monkeys and so on.”

Look like Mahathir is determined to make Forest City to live up to its name as a residence for wild animals rather than for humans.

Blame it on politics

Meanwhile, Country Garden clarified that they just held a closed-door meeting with Mahathir before his Beijing trip that ended on a positive note. Forest City had obtained all necessary approvals to sell to foreign buyers.

So what?

The Singapore-Malaysia water agreement was concluded by both governments a long time ago in 1962. Official agreement to build the high-speed rail was confirmed back in 2013.

When the ruling party changes, everything starts on a new page. Mahathir is showing the world that he is the pilot and makes the key decisions on takeoff and landing. You will hear his initiative and decision from the Malaysia local media. You must sit back and wait for your turn to get any clarification or confirmation from the relevant authority.

Malaysia is only following the global trend to restrict foreigners from buying properties in the country. It is also handy to leverage on the worldwide angst against the cash-rich Chinese by blaming Chinese buyers for rising home prices.

At a time when New Zealand bans foreigners from buying existing properties; when Singapore just slapped a 25 percent Additional Buyer Stamp Duty on foreigners buying private homes, what is the big deal of controlling the foreign ownership of only one project in the Johor State?

Foreign buyers are at the mercy of policy changes

Besides, the $100 billion Forest City mega project is an easy target. It is a white elephant built for foreigners. Locals can hardly afford to buy those homes and are unlikely to be benefited by the luxury development.

Mahathir once commented, “The Chinese coming in here, buying land, developing luxurious towns, is not beneficial for us.” Some media use strong words like “crackdown” or “clampdown” to describe Malaysia’s curb on foreign buyers in the Iskandar project. Since when did foreigners investing in overseas properties becomes a crime?

When a government rolls out a grand development plan, the country welcomes foreign direct investment and appreciates foreign investors to inject huge capital, bring in new technologies and create job opportunities.

But once the government decides to pull the brakes, the country can interpret foreign investment as an unscrupulous act to seize land in other people’s country, deprive the locals of their housing rights, and impose the modern form of colonization.

Regulations that restrict foreign property ownership can change from time to time, or even worse, change overnight with no notice. Local governments can step in any time to turn the tables and change the rules of the game.

Unlike the locals, overseas buyers and foreign owners don’t have the rights to be consulted, or to debate, object and protest. They are entirely at the mercy of the policy makers.

Bad reputation is a big weakness in negotiations

What is the bargaining power of a foreign developer like Country Garden in Malaysia?

The largest developer in China is running out of luck recently in their country. On top of frequent work accidents from tight completion deadlines, poor quality control is also a big damage to Country Garden’s reputation.

A China property agent told the Hong Kong media that he is afraid of accompanying buyers of Country Garden projects to collect keys. Because owners are often shocked by the poor building quality and bad workmanship once they open the door.

There are incidents of collective actions of owners to return the keys to the developer and refuse to accept the units. The problem also caused widespread protests in different parts of China. Reputation is another card Mahathir is holding in his hands that he can play any time.

Selling the Chinese the dream of becoming an international citizen

Why are two-thirds of Forest City’s buyers from China?

Chinese buyers sold on the project are mainly the middle class and SME owners. Like other Chinese nationals who are keen to leave the country, they long for clean air, safe food, western education and freedom.

Yet they are not eligible to migrate to Western countries. They may lack the financial means to migrate as investment immigrants. But they do have some spare cash to invest. The developer’s promise to help them apply for permanent resident status though Malaysia My Second Home Programme was the best answer. The developer’s plan to build international schools for their children is a cheaper alternative for their children’s education. The developer’s projection of 700,000 residents by 2050 in a $100 billion project is the guarantee for a high return overseas investment.

According to the Prime Minister’s Office, purchase of properties does not guarantee automatic residency in the country. Only renewable multiple-entry social visit passes for 10 years will be issued to successful applicants through the Malaysia My Second Home programme.

In early August, the Shattuck St Mary’s International School near Forest City opened. It is originally designed to accommodate 1,000 students. So far only 60 children have been enrolled in the new school.

To invest in an overseas property without due diligence is to buy a cat in a sack. When the developer let the cat out of the bag, naïve buyers must face the consequences.

Interestingly, Chinese citizens buying Forest City is like the Malaysian Mao Shan Wang being exported to China.

The durians are always eager to get out of the country – thinking that the grass is greener on the other side and they can be sold at a good profit there. Little do they know that, with mass production and high volumes, supply will catch up with demand in no time.

Instead of traveling all the way to Malaysia or queuing at the durian festival, Chinese durian lovers can now buy the fruit in a nearby market or order online. Even people who can’t afford it previously can taste durians in the street.

When it is no longer a precious fruit reserved only for the privileged, who is going to pay a premium just to have a taste of Mao Shan Wang?

By guest contributor Property Soul, a successful property investor, blogger, and author of the No B.S. Guide to Property Investment.

by Propwise.sg on September 10, 2018 · 0 comments

Posted in Singapore Property Market

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