PETALING JAYA: Chinese property developer Country Garden’s worsening financial situation will likely impact its projects in Malaysia, and can potentially have a ripple effect on the country’s property sector, say experts.
One of China’s biggest property developers, Country Garden had racked up debts estimated at 1.43 trillion yuan (US$196 billion or RM936.9 billion) by the end of 2022.
The private real estate developer said yesterday it is unable to fulfill all of its offshore debt obligations. It reported a record US$7 billion (RM33.5 billion) loss for the first half of 2023.
Country Garden’s five projects in Malaysia include three in Johor – Forest City, Country Garden Danga Bay and Central Park – while its remaining projects are Lake City @ KL North and Diamond City in the Klang Valley.
Bait Al Amanah analyst Yugendran T Kannu Sivakumaran said Country Garden’s worsening financial situation will likely impact their projects in Malaysia.
Their most prominent project in Malaysia, Forest City, has only been partially opened and is struggling to meet its initial goals, he noted.
Seven years on, Country Garden has invested US$4.3 billion (RM20.55 billion) in the Forest City project from its original US$100 billion (RM478 billion) plan unveiled during its launch in 2016.
“Given the current outlook and the lacklustre interest in Forest City, the project’s sustainability and success are in doubt. This situation can potentially affect Malaysia’s property sector on a large scale,” Yugendran told FMT Business.
State participation in Forest City
Forest City is a joint venture development project with Country Garden Pacificview holding a 60% stake. The remaining 40% is held by Esplanade Danga 88, a private company owned by a Johor government agency and the state’s ruler Sultan Ibrahim Iskandar.
Yugendran said financial troubles at Country Garden could impact the funding for Forest City, putting significant pressure on Esplanade Danga.
He said the potential impact on the Malaysian property sector is substantial, where local Malaysian businesses contracted for Forest City will be adversely affected.
“If Country Garden cannot fulfil its financial obligations to these businesses, it may lead to the closure of many local contractors, indirectly affecting other businesses dependent on them.
“Additionally, this situation could deter retail property investors and individual home buyers, as even a large, government-supported project like Forest City can face financial issues,” he said.
Besides, he said, this issue could undermine trust in the government, especially when a state government agency is a partial stakeholder and tax breaks are being considered.
Adverse impact on property sector
Center for Market Education fellow Consilz Tan concurred that Country Garden’s worsening financial woes can potentially affect Malaysia’s property sector.
She said the scenario has created a perception of slow-moving property markets and headwinds ahead.
“It will not just affect the Malaysian property sector, but the slowdown in the property sector is going to affect the overall supply chain as well,” she told FMT Business.
Tan said that according to the National Property Information Centre property report, Johor is now ranked number one for the overhang units in the first half of 2023 (1H2023) with an overhang of 4,717 units, Selangor ranked second with 4,307 units and Perak third with 3,333 units.
In addition, she said, potential home buyers may not be eager to own a house or purchase a house from private developers, especially with the rise in interest rates. Investors may also be more risk averse towards property counters.
She said that according to Budget 2024, outstanding loans for residential property out of total loans increased from 38.2% in December 2021 to 39.1% in July 2023.
According to the Economic Outlook 2024 report, the total loan amount for the purchase of residential property increased from RM455.32 billion in December 2021 to RM470.29 billion in December 2022, and to RM478.46 billion in July 2023.
Hence, she added that with all these negative implications for home ownership, it is going to be a “challenging year ahead” for private developers.