The Rise and Fall of Forest City, Malaysia: A Cautionary Tale
Over two decades ago, Malaysia embarked on an ambitious urban development project. Officially launched in 2014, the Forest City project aimed to transform four artificial islands into a futuristic city. Led by real estate developers, the project envisioned a comprehensive development including high-end residential areas, commercial hubs, and industrial zones. Initially, Forest City garnered significant media attention and attracted a wave of international investors, holding the promise of a vibrant and thriving community.
However, the dream quickly faded. Forest City became known as a "ghost city," devoid of life and plagued by stalled construction. What went wrong? Can the Malaysian government, under Prime Minister Anwar, revitalize this struggling project and transform it into a new financial zone? This article explores the factors that led to Forest City's decline and the potential pathways to its revival.
Project Overview and Initial Success
Forest City was spearheaded by Chinese real estate developer Country Garden (Bighuiyuan) in a joint venture with Malaysian company Esplanade Danga 88, forming Bighuiyuan Pacificview Sdn Bhd. Country Garden held a 60% stake, while the Malaysian company held 40%. The geographical location was strategically chosen, being approximately 17 kilometers from Singapore, making it attractive to individuals seeking residency in Malaysia and Chinese citizens frequently traveling to Singapore.
The project involved an investment of US$1 billion, with plans for 300,000 residential units spanning 1,740 square meters. Forest City aimed to accommodate an estimated 700,000 residents and offer amenities such as shopping centers, luxury hotels, golf courses, and international schools. The initial sales focused on attracting international residents, emphasizing the project's green city design, environmental protection measures, and proximity to an international school branch. The Malaysian government's "Malaysia My Second Home" (MM2H) program further incentivized foreign buyers by offering long-term residency permits.
In its first year, 80% of the first island's properties were sold. By 2016, Forest City generated over $300 million in revenue, attracting numerous overseas buyers despite the ongoing construction.
The Descent into "Ghost City" Status
Despite its initial popularity, Forest City's fortunes took a turn for the worse. By 2022, only six years after its launch, it had earned the moniker "Ghost City." The once-vibrant development became a desolate landscape, with empty buildings and few residents. Reports indicated that only around 2,000 residents occupied the area, significantly below expectations.
Reasons for Failure
Several factors contributed to Forest City's dramatic decline:
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Chinese Government's Foreign Exchange Controls: In 2017, China implemented stricter regulations on foreign exchange, restricting the outflow of funds. This measure directly impacted Forest City's sales, as many Chinese buyers were unable to transfer funds to complete their purchases.
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Suspension of the Malaysia My Second Home (MM2H) Program: The MM2H program, which had attracted many foreign residents and investors, was temporarily suspended. Prime Minister Mahathir criticized the Forest City project, believing it diverted funds and employment opportunities from locals to the Chinese. The suspension of the MM2H program significantly reduced the interest of potential overseas buyers, who constituted the project's primary target market.
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COVID-19 Pandemic: The COVID-19 pandemic and associated movement control orders (MCO, CMCO, RMCO) disrupted travel between Malaysia and Singapore, impacting residents and businesses within Forest City. Many foreign residents returned to their home countries, and shops were forced to suspend operations.
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Financial Troubles of Country Garden (Bighuiyuan): Country Garden, the primary developer of Forest City, experienced significant financial losses and mounting debt. This financial instability raised concerns about the company's ability to continue investing in the project.
Government Intervention and Potential Revival
Recognizing the potential negative impact of Forest City's failure on Malaysia's economy, Prime Minister Anwar announced plans to transform it into a financial special economic zone. This initiative aims to attract international investors and skilled workers by offering incentives such as a 15% special tax rate for qualified individuals and streamlined customs procedures. The government believes that this transformation can revitalize the area and drive economic growth.
Recommendations for Revitalization
The video outlined several recommendations:
- Negotiate with China: Explore the possibility of transferring the project to other Chinese developers if Country Garden lacks the financial capacity to continue. The Chinese government should ideally support this project given its connection to the Belt and Road initiative.
- Collaborate with Singapore: Offer Singapore a stake in Forest City to foster mutual economic benefits and encourage Singapore's support in promoting the project.
- Revive the MM2H Program: Expedite the reinstatement and improvement of the MM2H program to attract more foreign residents.
- Incentivize Multinational Companies: Offer tax benefits to multinational companies that establish operations in Forest City, creating employment opportunities and attracting investment.
Conclusion
Forest City's trajectory serves as a valuable lesson in the complexities of large-scale urban development projects. While the project's initial vision was promising, a combination of external factors and internal challenges led to its decline. The Malaysian government's proposed transformation into a financial special economic zone offers a glimmer of hope for the project's revival. However, successful revitalization will require strategic planning, strong collaboration with both China and Singapore, and a commitment to addressing the underlying issues that contributed to Forest City's past failures. Only time will tell if this ambitious project can truly realize its initial potential and become the thriving city it was once envisioned to be.