The great gamble: A verdict on China's real estate obsession and Malaysia's white elephant.

1.0 Introduction

In recent years, two notable phenomena have emerged globally: the rise of ghost cities in China and the development of Forest City in Malaysia. These trends reflect contrasting reactions to urbanisation challenges, shaped by diverse socioeconomic, environmental, and cultural influences. Despite the term "ghost city" typically evoking images of abandoned urban centres, China's ghost cities are newly constructed and remain uninhabited. In 2014 there were approximately 50 cities in China, primarily third to sixth-tier cities, labelled as ghost cities, characterised by extensive infrastructure but lacking residents due to rapid urbanization and speculative real estate investments (Li, 2017).

In contrast, Forest City in Malaysia represents a concept that underscores the integration of urban development with natural landscapes and greenery. Unlike conventional urban areas, which often lead to deforestation and environmental degradation (Ramos, 2022), Forest City prioritizes the preservation and incorporation of existing forests and green spaces into urban planning. However, despite their noble intentions, the construction of Forest City in Malaysia has raised concerns and stirred debates regarding their potential negative impacts on the country's environment and biodiversity.

2.0 China's Ghost Cities and Malaysia's Forest City

China's rapid urbanisation presents a double-edged sword, driving economic growth, infrastructure development, and enhancing access to education and healthcare for millions, but also causing the phenomenon of "ghost cities." The emergence of ghost cities is due to the fact that a large number of new urban lands have been developed in order to address the high population density of old urban areas, however, the large number of vacancies in these newly developed properties has led to the phenomenon of the ghost cities. Faulty local planning results in mega-developments failing to attract residents, while affordability issues and demographic changes, such as ageing populations and sluggish growth, hinder urban settlement. Kangbashi, situated in Ordos, Inner Mongolia, stands as China's most renowned ghost city previously. Originally designed to house over a million inhabitants, as of 2021, it hosts merely 120,000 residents (Shepard, 2017). Estimates suggest there could be around 50 such ghost cities across China (Chiu, 2022).

In Malaysia, a comparable concern arises with Forest City, distinct from China's ghost cities. While the prevalence of unoccupied properties in Malaysia is significantly lower compared to China, it has emerged as a significant issue requiring attention in recent years. Forest City which was envisioned by Country Garden, one of the largest property developers from China, was intended to be an “eco-friendly metropolis” but became a “symbol of China’s [ongoing] property crisis” (Marsh, 2023). Located in Johor, Malaysia’s southernmost state, Forest City was established in 2016 as a collaboration between Country Garden Holdings LTD. and a state-owned company: Kumpulan Prasarana Rakyat Johor (KPRJ).

Forest City was promised to have homes for 700,000 individuals; however, despite Country Garden's investment of RM20 billion over seven years (Kok and Ananthalakshmi, 2023), only around 9,000 residents are occupying the city. Originally meant for Chinese investors who wish to have a second home in Malaysia, travel restrictions due to the COVID-19 pandemic left many units vacant. This, coupled with the unattainable prices for local Malaysians, led to a low population, resulting in the infamous Malaysian ghost town. 

3.0 Unoccupied Property: Current and Future Consequences

Abandoned housing projects, like the ones discussed, could lead to significant social issues. Several studies in the US have shown there is a strong correlation between vacated homes and property crimes (Lin and Walsh, 2015; Boessen and Chamberlain, 2017). Such illegal activity is known as ‘blight’ in the US context and is common across several US cities located in the Rust Belt, such as Baltimore, Detroit and Flint. A study from the University of Michigan has shown that Detroiters living in blighted neighbourhoods report lower neighbourhood satisfaction and perceived safety (The Regents of the University of Michigan, 2020).  As a result, as the security and environment surrounding the development decline as a result of illegal activities, it will further lead to a further decline in property prices (Han, 2013).

Empty houses could lead to a financial strain on municipal councils too, as the taxpayer income base declines, leading to potential declines in public services, leading to a vicious cycle as more residents choose to move out, leading to a lesser tax base, which resulted in a further financial strain on municipality incomes. (United States Government Accountability Office, 2011). A study by Shlay and Whitman (2006), for example, shows the impact of vacant housing units on nearby property values in Philadelphia and found that the presence of a vacant property on a block reduces the value of all the other properties by an average of $6,720.  China, where 60-70% of household wealth is concentrated around real estate (and 30% of its GDP), will see billions of wealth evaporated in a property slump, triggering an all-out financial crisis (Bracken, 2023). With property giants like Evergrande collapsing, an ailing property market, and billions of household wealth in peril, the ball now lies in the court of the CCP government. As for Malaysia’s Forest City, the once ambitious project now transitions into yet another ‘White Elephant project’ in Malaysia, with an immerse loss of RM116 million annually of environmental costs (from loss of fishing ground, destruction of mudflats, and loss of seagrass habitat productivity) to no avail (Rahman, 2017).

4.0 Government Interventions and Economic Strategies

Addressing the issue of vacant properties is critical to promoting community well-being, economic vitality and sustainable urban development. To solve the Ghost cities problem in China, government intervention commenced years ago. As an example of Ordos City, the primary solution involves addressing both surfaces through housing vouchers and underlying causes by urban development strategies. The "Housing Ticket" initiative was introduced in 2016.

This program involves the local government purchasing unoccupied properties from developers at discounted prices and distributing certificates to displaced residents. In the following years, the government made the economic improvement of Ordos by formulating specific development planning, focusing on the introduction of talents and diversified development (Shepard, 2016). These measures have succeeded in improving Ordos' economy. However its recovery is based on its rich natural resources, and the complexity of the local environment needs to be taken into account when addressing other ghost cities. In contrast to Malaysia, the housing voucher initiative may not be as applicable to Forest City due to its smaller population and lower housing demand than China. However, the Malaysian government has been focused on fostering economic growth within Forest City and various measures have been implemented to stimulate economic development in this region. 

In August 2023, with only 1% of the targeted population level reached, Prime Minister Datuk Seri Anwar Ibrahim declared the Forest City a Special Financial Zone (SFZ) aiming to boost the local economy and promote foreign direct investment. Along with the help of the Immigration Department and the Ministry of Finance, the Malaysian government will be using incentives including a 15% flat tax rate for skilled workers (compared to a 30% tax rate elsewhere), multiple visa entries, and a fast-track entry for Singaporeans. Implementing these policies will attract Singaporean firms who are “seeking lower labour and land costs” (Yusof, 2023) while also stimulating the local economy by sharing knowledge and providing employment. Given that the SFZ was only announced in August 2023, it would be too early to gauge the impacts on the local economy.

5.0 Conclusion

Ultimately, the emergence of ghost cities in China and Forest City in Malaysia reflects diverse responses to urbanization challenges. While China's ghost cities highlight rapid expansion and speculative investments, Malaysia's Forest City integrates urban development with green spaces, also an investment speculation. Both phenomena raise concerns about social, economic, and environmental impacts. Initiatives like China's 'housing ticket' and Malaysia's Special Financial Zone are crucial for addressing these challenges. By learning from successes and shortcomings, policymakers can create more resilient and livable cities in the future.

Written by Tu Yizhi, Woo Shinyi, Chua Yu Heng and Nur Farhana Binti Khairul Azhar

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