The growth in Chinese investment in Malaysia is linked to two significant factors: proximity to prosperous Singapore, and the Sultan of Johor. Until the last few decades, Johor Bahru, the largest city and capital of Johor, Malaysia’s southernmost state, primarily acted as a border town to Singapore. Historically, it was mostly agrarian farmland. In 1999, the Port of Tanjung Pelepas began operations at the mouth of Pulai River and became one of the fastest growing ports in the world. Recently, Johor has witnessed a dramatic increase in investment, triggered predominantly by the creation in 2006 of Iskandar Malaysia (IM), a federally-supported special economic development region that includes Johor Bahru and large portions of southern Johor. In the past 20 years, this area has experienced rapid industrialization.

Managed by the Iskandar Regional Development Authority (IRDA), IM provides substantial economic incentives to foreign investors and seeks to capture the “spillover effects” of business activity and real estate demand in Singapore. Additional benefits specific to Forest City include a ten-year corporate tax abatement, unlimited employment of foreign workers, and low income tax rates for future residents.

Malaysia offers lower land prices than Singapore and fewer restrictions compared to many other Asian real estate markets. This makes it particularly attractive to foreign investors looking for rapid financial returns in frontier markets. In Johor, ruling monarch Sultan Ibrahim Ismael has particularly encouraged Chinese investment in the region. The sultans, Malaysia’s nine traditional monarchs, act as stewards of Islam and often exert considerable economic and political influence in their respective states.

The 2012 launch of Danga Bay, Country Garden’s first project in IM, was a resounding success, with 70% of 9,500 luxury condominium units sold within the first three months on the market. Encouraged by this rapid absorption, Chinese real estate investment in the region exploded, driving up land prices in Johor and stoking fears of an oversupply of residential units in the region.

In 2013, the Sultan of Johor sold 116 acres of land in Johor Bahru to Chinese developer Guangzhou R&F for USD $1.13 billion. According to media reports, the Sultan also initiated the Forest City development as a 66–34% partnership between Country Garden’s local subsidiary, Country Garden PacificView, and Esplanade Danga 88. The latter holding company is associated with Kumpulan Prasarana Rakyat Johor (KPRJ), Johor’s public investment arm, with the Sultan of Johor and his close associate retaining a large majority of its assets.