What This $100B Ghost City Reveals About China’s Property Crisis | WSJ

(dramatic music) - This is forest city a mega development in Southern Malaysia, built by the troubled chinese real estate firm, Country Garden. The plan was to build housing for some 700,000 people with luxury facilities throughout. There's a waterpark, a garden maze, a beach that no one can swim in, and a commercial street which will eventually be something like a shopping mall but hardly anyone is using them. Only about 9,000 people live here and most of the units that you see behind me are actually still empty. Forest City is emblematic of some of the core issues that have led to China's property crisis. Like overbuilding, over borrowing, and a streak of bad luck. So here's what Forest City tells us about some of the challenges facing China's economy today. Traditionally, real estate has been the main way that people in China have grown their wealth, buying into a booming property sector that makes up a significant portion of the world's second largest economy. But over time the demand to buy has far outstripped the amount of housing that was actually needed. That's led to mostly empty, unfinished developments sometimes called ghost cities around the country which now mainly function as a place for investors to park their money. The developers building them took on huge amounts of debt, confident that China's population would keep buying new property, but trouble started in 2021 with the default of China Evergrande Group triggering protests from angry suppliers and investors trying to recoup their losses and homeowners demanding that their unfinished homes be completed. The next year it was followed by Sunac China, another major developer. Over the past two years, dozens of chinese real estate developers have fallen into financial distress. Country Garden was one of the largest survivors and it was previously viewed as more stable and prudent than its competitors. Part of Country Garden's strategy within China was to build tier three cities where land was cheap and they had a lot of support from local government. They were confident that over time these places would grow and there would eventually be demand for their buildings. They could build really big, really fast at a very low cost. In Forest City, they tried to replicate that success. Country Garden launched the project about a decade ago. It's a joint venture with the local government of the state of Johor. Southern Malaysia is quite underdeveloped but it's just a few miles away from Singapore, which is one of the busiest commercial hubs in Southeast Asia. Initially, the project was pitched as a place where wealthy Chinese people could have a second home or an investment property. It's cheaper than Singapore, but still very close by. But in August, Country Garden estimated that it had lost the equivalent of $7.6 billion for the first half of 2023, and was struggling to repay its roughly $190 billion of outstanding debts. This is a big problem for places like Forest City. The company says it has sold more than 80% of its units, many of them to Chinese investors who don't actually live here. But the value of these units have plummeted from an average $280 per square foot for one bedroom units to about $116. That's partly because Chinese buyers have been discouraged from buying in Malaysia with Beijing limiting overseas payments and protectionist rhetoric from Kuala Lumpur spooking potential buyers. The economic downturn during the COVID-19 pandemic, as well as China's recent real estate crisis has also hurt the confidence of investors in mega developments like Forest City. But the fate of the project is still in question. In September, Country Garden narrowly avoided defaulting on its debts. Now the company's creditors are waiting to see if it will find a solution. In a statement, the company said it was still optimistic about Forest City's potential, but what happens here and across China's housing market could have ripple effects around the world.

Channel: The Wall Street Journal

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Keywords: forest city, china, china news, china real estate, china real estate crisis, china real estate collapse, china economy, ghost city, country garden china, real estate firms, souther malaysia, iskandar puteri, forest city malaysia, iglesia forest city, forest city malaysia ghost town, unfinished developments, megadevelopments, evergrande group, sunac china, sunac stock, country garden stock, southeast asia, singapore, johor, kuala lumpur

Id: D0PxRxwTa50

Length: 4min 6sec (246 seconds)

Published: Mon Sep 11 2023