Cover Story: Forest City poses no threat to anyone, says ED

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THE promoter of the massive Forest City development on reclaimed land in the Straits of Johor has come out to insist that it poses no threat to the Port of Tanjung Pelepas (PTP), the environment or even the development of Iskandar Malaysia.

Country Garden Pacificview Sdn Bhd (CGPV) executive director Datuk Md Othman Yusof says in an interview that the project will be done in compliance with the rules and in consultation with the relevant parties.

“I believe [when you embark on] any sort of development, there will be people who will object [but] at the end of the day, they can see what this development can bring to the state,” says Othman. “It is wrong that people say we just bulldozed the project [through].”

CGPV is a joint venture between China’s Country Garden Holdings Ltd and Esplanade Danga 88 Sdn Bhd, a company with the Sultan of Johor as its main shareholder, while state investment agency Kumpulan Prasarana Rakyat Johor (KPRJ) is a minor shareholder.

Forest City, a mixed-use development comprising residential and commercial properties on four reclaimed islands, has a potential gross development value (GDV) of RM600 billion over 30 years.

Othman says estimates that CGPV can potentially make a profit of RM290 billion over 30 years were inaccurate, arguing that project profits are typically between 8% and 10 % of GDV.

Forest City is an international project and a new landmark for Johor. It is in line with the vision of the government’s Economic Transformation Plan (ETP) to increase the population and household incomes in Johor.

The project will create 60,000 jobs, says Othman. “Currently, most of the local community derives its income from aquaculture and agricultural activities. Forest City will become a platform for them to involve themselves in the services sector.”

The surrounding infrastructure will also be upgraded as new roads and other public utilities will be built, and landowners in the vicinity will see the value of their land go up, he adds.

“Upon completion, we estimate that Forest City will generate about RM1 billion annually for the state by way of quit rent and assessment. All the 4,012 acres will be constructed by way of reclamation, so we are creating a new land mass for the state government, which will contribute to income to the state,” Othman says.

He responds to the various issues raised by critics of the project in a question-and-answer session with The Edge:

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We complement PTP, not compete with it. If we can bring investors over, I believe there will be a lot more products coming into Malaysia and it is good for PTP.

The Edge: Critics say the project will impede the expansion of PTP and affect shipping lanes.

Othman: We will leave sufficient room for PTP navigation. As you can see from the map, the location of the [reclaimed] islands will not impede the growth of PTP. And if they need to build their extension, we have given them a buffer of 1km [to the nearest island], which is sufficient. In actual fact, we only need to provide 500m of buffer area but we have provided 1km.

There was a dispute earlier, as PTP claimed that we encroached on their area, but this was a small area of about 100 acres that overlapped, but we have adjusted our border and so it is no longer an issue. We compromised and as a result, our land area is now 4,012 acres instead of 4,888 acres.

We complement PTP, not compete with it. If we can bring investors over, I believe there will be a lot more products coming into Malaysia and it is good for PTP.
 
Surely a project of this size, of over 4,000 acres, will have an impact on PTP.

CGPV has discussed with LPJ [Johor Port] and PTP several times, either by way of private engagement or with the involvement of the state authority. We have agreed to provide the 1 km buffer to their approved development, and furthermore, our site is actually not within their navigation channel as the water depth is too shallow for cargo ships.

What will be the exact size of the reclaimed area? Is it 4,012 acres or 4,888 acres?

We have obtained land titles for 4,888 acres and after conducting the DEIA [detailed environmental impact assessment] and hydraulic study and taking into consideration PTP, the landform will now be 4,012 acres.

Is there also an acquisition of 877 acres of existing land along the shoreline of the area to be reclaimed? If no, what will be the access to the island and how many access roads will there be?

No. The parcels belong to LPJ and are being leased to PTP. We are not in any process of acquiring its land.  Forest City plans to have a main access road from Lebuhraya Tanjung Pelepas and we are still studying the final alignment to ensure the least impact in terms of area of acquisition and relocation.

Will the reclaimed islands have a direct link to the nearby Second Link to Singapore?

It is on our wish list and part of our long-term plan. But it is too premature to discuss this matter, as no firm plan has been drawn and it will be subject to the approval of various authorities.

What is the land premium levied by the state government on the reclamation? Has CGPV paid it in full?  

The land premium has been fully paid but we can’t disclose the sum as this is something you have to get from the state government. The cost of reclamation is fully borne by the developer, which is actually the biggest part of the land cost. [Sources tell The Edge that the land premium paid was around RM225 million.]

Critics have also said such a massive development will have a major negative impact on the overall development of Iskandar Malaysia as it was not part of the master plan. They estimate that the gross floor area (GFA) will be around one billion sq ft. This makes the project almost 80 times the size of the sprawling Mid Valley City development by IGB Corp in Kuala Lumpur or 40 times the combined sized of Mid Valley and the KL Sentral development.

Yes, Forest City is not part of the Iskandar Malaysia Master Plan, but it does not mean that no development can take place outside IM (Iskandar Malaysia) [and] we have obtained written support and zoning approval from the state government. Moving forward, we will work with IRDA (Iskandar Region Development Authority) to integrate ourselves into their master plan.

Based on the commercial zoning approval, we estimate our GFA to be one billion sq ft at maximum. However, it depends on the components and the development strategy for the various parcels of land.

CGPV has regularly stated, even in its presentations, that it is a 60:40 joint venture between China’s Country Garden Holdings Ltd and KPRJ. Companies Commission of Malaysia (CCM) records show that the shareholders of CGPV are actually Country Garden Holdings (66%) and Esplanade Danga 88 Sdn Bhd (34%), and the main shareholder of Esplanade Danga 88 is the Sultan of Johor (99.9%). KPRJ has only 80,000 redeemable convertible preference shares (RCPS) in Esplanade Danga 88. Isn’t it misleading to give the impression that KPRJ is the main local partner in the project?

KPRJ directly owns 20% of Esplanade Danga 88, which owns 40% of CGPV. Representatives of KPRJ also sits on the board of CGPV to oversee the operations of the company. CCM’s records will be updated soon.

How will the project be financed? CGPV’s current authorised paid-up capital is only RM400,000.

CGPV has obtained the land titles for Forest City, and it gives us flexibility when it comes to project financing. We will initiate discussion with potential financiers as soon as we have obtained our DEIA and planning approval. Potential financiers will be both local and international. For the time being, all funds are [being] generated by internal financing.

Is this project exempted from the ruling that foreigners can only buy properties that cost more than RM1 million? And what about the low-cost and affordable housing requirements?

In general, Forest City will be imposed with all available development guidelines. However, for such a pilot project, we will strive to do our best to apply for some incentives and support from the relevant authorities to ensure that the project has a smoother start and create differentiation from adjacent developments.

In terms of low-cost housing, our current land use is categorised as commercial. Considering that the land cost after reclamation is going to be quite high, we will engage and work with the state government to evaluate how best to contribute to low-cost housing, either by constructing [these houses] on a mainland site or a contribution to the state government.

Fishermen say their livelihood will be affected.

There is not much fishing going on, except maybe in the seagrass area. This area is actually designated as port limits, so fishermen are not supposed to fish there. We are not disrupting their livelihood.

At the same time, we will also preserve the seagrass areas. We will provide a fund for the preservation of seagrass, with IRDA as the regulator. The reason we want to preserve the areas is because they could be a tourist attraction.

Singapore has also raised its concerns.

As you can see from the map, we leave about 1.2km of buffer zone from the international border. The closest is 1km to the international border. What we are doing is more than sufficient. We conform to the [required] standard. On the other hand, Singapore’s closest point to the international border is only 600m.

Singapore is not complaining, it just wanted to know what we are doing. So, we are giving information. It is not a protest by Singapore, it is just a diplomatic note requesting information on the project. For us, once we have come up with the DEIA report, we will pass all the information to Singapore.

Singapore also does a lot of reclamation, so it understands.

Some people say the land to be reclaimed is within federal jurisdiction and so requires federal approval.

The whole thing is within the state territory because it is within three nautical miles from the shore. It is still within the state’s jurisdiction. Federal jurisdiction is only when it comes to the DEIA, but the environmental impact is very minimal.

How about water flow along the Straits of Johor?

The water will flow until a certain distance and it will be flushed out. But at the moment, the water flow has stopped because of the reclamation.But the water quality is still okay. In terms of [impact on] water flow, impact on fishermen and the port’s development, everything is minimal. We are now in the late stages of conducting a DEIA. We have done the necessary technical studies to assess all the potential impact and how best we can mitigate it. It is unfair to judge us prematurely.

As far as the hydraulic study is concerned, our study shows that the impact on current water flow is minimal, and it could actually be mitigated. The study is done by our consultant. It is already completed. On Sept 30, we will have a public viewing of the report.

Why did you choose this location to reclaim?

The way we look at it, this is a good project to balance out the development in Johor. At the moment, development is concentrated on the east side of Johor. So, by bringing this development to the west side, you can see the advantage to the people here. If the people here can realise that their land value will increase, I think they will fully support the project. If this project is not carried out, I don’t see that anything will be done to develop this area.

Since the islands will be very close to Singapore on the Tuas side, will there be ferry services or even a direct road link, and what sort of demographic mix do you anticipate among the 300,000 people who will one day live there?

There will be a mix of nationalities on the islands. And if we can attract Singaporeans to stay over here, and if there is an MRT (mass rail transit) going directly to our islands, Singaporeans staying here would not feel like they are staying outside Singapore.

After work, they can just hop on the MRT and return to the islands here, and they can still feel like they are within Singapore. If that can be done, the impact will be tremendous because there is a big difference in the prices of properties in Forest City and Singapore.

How did Forest City come about?

When I first joined KPRJ, I spoke to Tuanku (Sultan of Johor) and we discussed a lot of things, and he managed to convince Country Garden to invest here. So, that’s how Tuanku came into the picture, he brought in the investor. And then, he gave some shares to KPRJ. So, that’s how KPRJ came into the picture. Tuanku could have just done it by himself with Country Garden. But he decided to bring in KPRJ as it is a state-owned company.

How will the utilities be supplied?

This is a 30-year development, so the government will have to start planning with all the utilities [companies]. It will not disrupt the rest of the state, because we go phase by phase. In fact, for the first phase, we will source the power supply from a plant in PTP. 

You are an “unplanned” competitor for other developers in Iskandar.

I think in any business, you’ve got to be prepared. Whatever comes next, you have to adapt. The way I look at it, our project is still in the planning stage, so they [competitors] have the [first-mover] advantage of getting out to the market and they also enjoy all the incentives provided by the government.

But there is the Tuanku factor, which will be of advantage to you.

That is not true.  Even though Tuanku is there, the market will determine whether they want to be part of the development here. Tuanku cannot force anybody to buy. Acceptance will still be determined by the market. All that we can do is do the best, but everything else is determined by the market. What we want to do is providing a six-star facility here. In actual fact, we are the ones who should be worried, as we are the latecomer. The other developers have already got all the incentives and benefits, we haven’t got any yet.

When will you have the first launch?

We are expecting to launch no later than the second quarter of next year. We have to move very fast. We can restart reclamation anytime now. There were reports saying that the Department of Environment has given us a stop-work order, which is not true. We stopped voluntarily after Singapore raised its concerns, just to sort out all these issues. When all parties are happy with the information we will be giving them, we will restart. At the moment, because of the halt in the reclamation work, we are seeing a monthly loss of RM6 million.

Are you not worried about the market now?

It is very soft, but we have a long-term plan and we are confident that the project will be well received.

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Detailed location of the four islands in the Forest City project and their immediate surroundings. Forest City developer Country Garden Pacificview says there is enough buffer between the islands and the Port of Tanjung Pelepas and Singapore for vessel navigation

This article first appeared in The Edge Malaysia Weekly, on September 29-October 5, 2014.