After years of rampant borrowing by developers, the government feared a bubble was forming and imposed strict limits in 2021. "Houses are for living in, not speculation" was the mantra of China's leader Xi Jinping.
As a consequence of these measures, major companies have run out of cash to finish huge projects.
In October, Country Garden was forced to abandon two projects in Australia, selling off an unfinished development in Melbourne and another in Sydney.
Local political factors have also contributed to the current situation at Forest City. In 2018, Malaysia's then prime minister Mahathir Mohamad restricted visas for Chinese buyers, citing his objection to a "city built for foreigners".1
Other unexpected issues, such as Covid travel restrictions and controls on how much money Chinese citizens could spend abroad, have especially hampered overseas projects launched by giants such as Country Garden.
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When it comes to China's property crisis, Forest City is a classic case of ambition versus reality. Some local factors may have contributed to the current situation, but it is proof that building tens of thousands of apartments in the middle of nowhere is not enough to convince people to live there.2
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- 1. Some analysts have also questioned the wisdom of building a mega-development in a country whose political and economic environment is unstable. The current Malaysian government is supportive of the Forest City project but, to a prospective buyer, it is unclear how long that will last and to what extent.
- 2. Ultimately, the fate of Forest City - and hundreds of projects across China - depends on the Chinese government. Last month, there were reports that Country Garden had been placed on a preliminary list of developers that would receive financial support from the Chinese government - though the extent of that support still is not clear.
