A vast real estate development under construction in Malaysia’s southern state of Johor is in the spotlight over a widening political row pitting the country’s wily nonagenarian premier against a large private Chinese property developer backed by the state’s influential ruler, Sultan Ibrahim Ismail.
The ambitious US$100 billion mega-project, known as Forest City, is administered in partnership with an investment entity whose largest shareholder is the sultan. It is designed to span four artificial islands built adjacent to neighboring Singapore and if fully built will alter the area’s map by creating a new private residential township expected to accommodate 700,000 residents by 2050.
Though Forest City is at an early stage of development and barely inhabited, Chinese nationals reportedly make up some 70%, or two-thirds, of apartment buyers so far, with Malaysians accounting for just 20% of sales. Foreign property buyers from 22 other countries, including Indonesia, Vietnam and South Korea, have also invested in units.
Prime Minister Mahathir Mohamad announced in late August that foreigners could no longer buy properties there, surprising many – including Johor’s state government – and contradicting Malaysian law, which allows for foreign citizens and companies to acquire land and property subject to the prior approval of state, rather than federal, authorities.
Johor’s Chief Minister Osman Sapian, a member of Mahathir’s Parti Pribumi Bersatu Malaysia (PPBM) political party, pushed back against the premier’s remarks and defended the project’s contributions to both the state and national economy, suggesting the national leader was not given “a clear explanation” of the state’s property policy.
The push-back appeared to cause Mahathir to revise his stance by conceding that foreigners would be allowed to purchase resident units, but pledging instead to refuse the issuance of residency visas to buyers. That has stoked concerns that the Malaysia My Second Home (MM2H) scheme, under which foreigners can obtain a renewable social visit pass with 10-year validity, will soon be axed.
Mahathir’s strident criticism of Forest City, which he panned as a “foreign enclave” in early 2017, had set the stage for an election campaign that cast Chinese-backed mega-projects as evidence of his predecessor, ex-premier Najib Razak, selling the country out to Beijing to cover financial shortfalls caused by his administration’s fiscal mismanagement and alleged corruption.
“This is not Chinese investment, but a settlement,” he remarked ahead of his shock victory in elections held on May 9. He has at times compared the China-backed development with Singapore’s establishment as a British colonial settlement and stoked nationalistic fears that foreign property buyers would eventually become Malaysian citizens with voting rights.
Despite that vocal opposition, Mahathir had appeared to endorse both the long-stay visa scheme and the Forest City project during his visit to China last month at an August 16 meeting with Yeung Kwok Kwong, chairman of Country Garden Holdings, the Hong Kong-listed property developer whose subsidiary is leading the project’s construction.
According to the company’s director of strategy, Ng Zhu Hann, Mahathir’s latest public barbs against the sprawling real estate project were at odds with the private stance he took during last month’s 40-minute closed-door meeting, where he said the premier “reiterated that he welcomes foreign investments which could create employment opportunities.”
Azmin Ali, economic affairs minister and deputy president of the ruling coalition’s largest party, added to the confusion when he alleged that Country Garden was behind a “special scheme” to award free condominium units at Forest City to incentivize investment in China. Both the developer and Johor’s chief minister have denied the unsubstantiated claim.
Still, Putrajaya’s pronouncements raise the possibility of unilateral action taken to change investment conditions previously agreed to with the last administration, a move that analysts say would undermine foreign investor confidence over fears that private developments elsewhere could become targets of project-specific discrimination.
Others, however, regard Mahathir’s public remarks as tactical political posturing for mostly domestic consumption.
“Mahathir wants China to be more cognizant of Malaysia’s domestic sentiments when they invest in the country,” says Mustafa Izzuddin, a fellow at the ISEAS-Yusof Ishak Institute in Singapore who believes the premier’s private remarks were intended “to ensure the Chinese leadership that Malaysia is still open to China for investment.”
Mahathir has made the recalibration of ties with China a key foreign policy priority. During a recent state visit to China, he repeatedly welcomed Chinese trade, technology and investment and spoke of promoting bilateral and economic ties, even as he publicly cautioned against a “new version of colonialism” emerging from China’s outward investment.
Unlike the recently deferred High-Speed Rail (HSR) project with Singapore and the China-financed East Coast Rail Link (ECRL), the Forest City project – Malaysia’s largest foreign property investment – has no links to the Chinese state, nor does its construction rely on public expenditure that would further aggravate Malaysia’s substantial national debt.
While his moves to reset the terms for dealing with China were a signal to domestic constituents of Malaysia’s dignified return to a policy of non-alignment, Mahathir’s opposition to Forest City pertains to sovereignty concerns and racial inequity, the defense of which give the premier political mileage to stave off right-wing opposition headwinds.
Chinese state media has been relatively cautious in its response to Mahathir’s remarks and policy changes. Though careful not to criticize Malaysia’s newly elected government, especially as Beijing aims to court trade-reliant Southeast Asia amid rising trade tensions with the United States, certain publications have signaled a creeping sense of malaise.
“China should understand and adapt to Malaysia’s internal adjustments and remain consistent in cooperation with the country while Chinese firms should protect their own interests,” proclaimed an editorial in the nationalist tabloid Global Times which called on the Chinese government to help Chinese companies “safeguard their interests.”
Another factor is the historical animosity between Johor’s sovereign ruler Sultan Ibrahim and Mahathir, who pushed through constitutional amendments during his first premiership to curb the powers of Malaysia’s royals, stripping them of legal immunity from criminal prosecution after two assault cases involving the Johor royal family in the 1990s.
Johor’s charismatic ruler openly laments the Mahathir-era limitations, which prevent royals from exercising veto power on legislation. Addressing the Forest City controversy last year, the monarch leveled a stern rebuke against Mahathir, calling him “selfish and opportunistic” and accusing him of “creating fear, using race, just to fulfill his political motives.”
Sultan Ibrahim, constitutionally ascribed as one of the symbolic guardians of Malay culture, is also a wealthy businessman and champion of Iskandar Malaysia, a special economic zone in Johor touted as the “next Shenzhen.” Forest City is the largest among dozens of projects in the zone poised to become three times the size of Singapore when completed in 2025.
“Relations between Mahathir and the Johor royalty will continue to be strained, with the Johor royalty resenting any undue interference by the Mahathir-led federal government,” says Mustafa. “At present, the strained relationship is being managed privately and diplomatically so that it does not get amplified publicly.”
Political leaders from Pakatan Harapan, the ruling coalition led by Mahathir which governs the state of Johor, “want to cultivate good relations with the Johor royalty as the Sultan is revered by the people of Johor,” he says, adding that Sultan Ibrahim’s support is “important for Pakatan to govern the state effectively.”
The ministry of housing and local government announced in the wake of Mahathir’s recent salvos that it is looking into the possibility of imposing restrictions on foreign ownership of Forest City properties, with the aim to further constrain Johor state’s laws and policies that permit up to 70% foreign ownership in the mega-project.
Johor’s government has reportedly proposed reserving 30% of Forest City units for Malaysian buyers in a bid to allay xenophobic fears of an influx of Chinese residents, however, the Mahathir-led federal government appears intent on imposing tighter restrictions on foreign buyers, a move that will aggravate the premier’s already fraught ties with Johor’s sultan.