SINGAPORE -- Malaysian Prime Minister Mahathir Mohamad has thrown stakeholders in the country's Forest City development into a state of confusion, with an abrupt declaration of a ban on foreigners buying residential units in the China-led project -- which some argue contradicts the country's laws.
Forest City is being built by a joint venture between Chinese real estate developer Country Garden Holdings and a company backed by the state of Johor.
The venture acquired the land for the project in 2013. Comprising four man-made islands covering 13.8 sq. kilometers, the $100 billion development will include commercial, residential and other facilities, and is scheduled for completion in 2035. Its proximity to the border with Singapore has appealed to foreign homebuyers, especially from China.
This kind of investment resonates with the "Malaysia My Second Home," or MM2H program, a government initiative encouraging foreigners to put down roots in the country. "Any foreigner may purchase any number of residential properties in Malaysia, subject to the minimum price established for foreigners by the different states," reads the program's website.
On Monday, however, Mahathir's comments appeared to go against the policy. "One thing is certain, the city that is being built cannot be sold to foreigners, we are not going to give visas for people to come and live here," he said. "Our objection is because the project is built for foreigners, not built for Malaysians. Most Malaysians are unable to buy those flats."
The MM2H scheme allows successful applicants largely unrestricted travel into and out of Malaysia. However, it comes with stringent eligibility criteria, including liquid assets of 350,000 ringgit ($85,000) to 500,000 ringgit, fixed deposits and a minimum price cap on purchasing property, designed to curb market speculation.
According to data from August 2017, the latest official figures, Chinese nationals were the largest participating group in the scheme. Between January and August last year, nearly 1,500 Chinese received long-term visas through the scheme, accounting for 46.7% of the total. South Koreans were the second-largest group, with about 300 enrollments, or 9%.
Hong Kong-listed Country Garden's share price dropped 3.29% on Tuesday.
Over 90% of the developer's assets are held in China, and the Forest City project is pivotal to its overseas expansion plans. Mo Bin, Chief Executive at Country Garden, said earlier this month that the company would only move on to new overseas projects if existing ones go well.
In response to Mahathir's remarks, the company released a statement on Monday saying that the project had "complied with all laws and regulations with the necessary approvals to sell to foreign purchases."
According to the statement, Mahathir met the company's chairman on Aug. 16, and the prime minister "reiterated that he welcomes foreign investments, which could create employment opportunities, promote technology transfer and innovations that could benefit Malaysia's economic growth and job creation."
Mahathir's comments also came as a surprise to the Johor state government. According to local publication The Star Online, Johor Housing and Rural Development Committee Chairman Dzulkefly Ahmad said that there had been no discussion between the central and local governments on the issue. "We are still trying to make sense of this new move as we have yet to be informed," he said.
Mahathir has expressed strong opposition to Forest City, as well as the $13 billion East Coast Rail Link project.
Chinese investment in Malaysia has soared in recent years. In 2017, about $2.36 billion left China for Malaysia, an increase of almost 350% from 2013, according to DBS Bank estimates.
Nikkei staff writers Coco Liu and Nikki Sun contributed to this report.