China worried about its citizens parking money outside the country where they feel it’s safe from legal detection and capital market volatility, has put in place several control measures to stamp-out this. China is concerned that capital flight will devalue the Chinese currency as well as undermine economic stability which (at least partly) is dependent on a strong foreign exchange reserve.
Several countries will especially be affected by this currency control measures of China – chief among them is Malaysia.
China’s direct investment in Malaysia was worth $480 million in the first half of 2017, and much of this investment is its Belt and Road Initiative. A significant portion of investments however, come without state approval and a large part of it finds its way to real estate.
One ‘victim’ of China’s capital flight control measure is Forest City, a mega property project undertaken by Chinese developer Country Garden Holdings Company. The developer had an estimated gross development value (GDV) of $145.6 billion. Many investors in Forest City have made public the troubles they had when making payments on Forest City apartments, and their inability in getting their deposits back. Malaysian newspaper, The Star, reported that another developer with six sites in the same state may be hampered by this as well.
McMillan Global Law Office says on its website that even if China eventually let small carefully thought-out investments proceed, it won’t stop every yuan from leaving the country. “There has been near unanimous commentary that Beijing is concerned about the quality of Chinese overseas investments,” McMillan said.
The Chinese government allows investments under $5 million to proceed offshore without regulatory approval, but the Chinese government is concerned that some transactions are rushed through without proper vetting.
One only needs to drive through the city of Johor Bahru, to realise that oversupply is a real risk for potential investors in that city. Property consultant CH Williams Talhar & Wongverage reported last year that resale prices per square foot for high-rise flats in JB have fallen by 10 percent.
Despite these negative reports and inherent risks, Johor’s market outlook looks cautiously optimistic for this year as mismatch evens out. This makes it very important for investors to choose a trusted developer, lawyer, real estate agent, and property-type. But before all this, make sure what your real goals are to buy the real estate in Johor.
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