Tuesday, August 28, 2018

Recent developments in Forest City

A few people have asked for my views on the latest development in Forest City.

I agree with the views expressed by Dr. Mahathir - Forest City should benefit Malaysia and Malaysians.

He wants to see more of the construction work and professional services provided by Malaysian companies. He wants the development to create more jobs for Malaysians. He also wants more of the apartments to be affordable to Malaysians.

I agree with these goals.

I believe that the developer of Forest City also agrees with these goals. They are already creating more work and jobs for Malaysians.

However, the approach taken by Dr. Mahathir may cause a loss of investor confidence in Malaysia. This is a real risk that he has to deal with.

It would be bad not only for Forest City but also for other Malaysian properties and industrial and commercial developments.

I do not think that Dr. Mahathir will want to see Forest City fail or to see a loss of investor confidence in Malaysia.

Someone told me that the Johor sultan and the state government had a 30% stake in Forest City. I do not know if it is as high as 30%.

The people who have bought properties in Forest City may be worried about the value of their investment.

As an investor
I have bought an apartment in Forest City but I am not worried. Here are my reasons:

a) Forest City builds the apartments based on completed sales. They pre-sell the apartments and when it has been fully or substantially sold, they start construction. They will not have many unsold blocks of apartments or landed properties.

b) The original plan was to construct 4 islands to house 700,000 people. If there is insufficient demand, they can scale down their development or take a longer time to complete it.

The developer has already announced that this would be their plan. If they stop work with the first island, it will still be a substantial development.

c) Would the first island be a ghost town, i.e. the apartments have been sold but are not occupied? It might be the case.

But with the proximity to Singapore, and the possibility of ease of travel through the checkpoints, I see more people living in Forest City or in Iskandar and working in Singapore.

d) I am investing in my Forest City apartment for the long term, using my spare cash.

In 20 years time, Dr. Mahathir would be 113 years old (if he is still around). I would be 90 years old (if I am still around). My grandchildren will probably inherit the apartment - and it is freehold in tenure.

e) The recent annual report from Country Garden showed a healthy profit. They are financially sound.

Global Financial Crisis
Let me share this story. In 2009, a friend told me that she had taken my advice earlier and had invested in the STI exchange traded fund. She had lost 30% of her investment due to the global financial crisis.

I told her to see me in 20 years time to discuss her investment. A year later, she told me that she had recovered her 30% loss and the investment was showing a 30% profit.

This is called "investing for the long term". One should not be worried about short term issues. They will be sorted out.

I will tell the same story to investors in Forest City. Let us discuss it in 20 years time.

Tan Kin Lian

1 comment:

Anonymous said...

Only 1 man's say to create his own environment over there.

Here a very small group of ambassador creating their own environment only for themselves to excel.

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