Malaysia's Sultan seeks to create a new Shenzhen

Forest City is Malaysia’s newest postcode. Easily visible from Singapore, the city-state it seeks to emulate, this emerging metropolis rises from reclaimed land off Singapore’s north-west coast, next to one of the world’s busiest shipping lanes.

If projections for this ambitious $50 billion venture are realized, Forest City will become Malaysia’s third-biggest city after Kuala Lumpur and Penang’s George Town, a massive cluster of towers and islands housing upwards of 700,000 people.

Forest City is the centrepiece of the 60-odd projects planned or propagating in the vast Iskandar Malaysia development that sprawls across much of the southern tip of peninsular Malaysia. Iskandar Malaysia aims to transform the southern Malaysian town of Johor Bahru from a sleepy frontier crossing into a bustling conurbation, Malaysia’s Shenzhen to Singapore’s Hong Kong.

And with property prices here just a fraction of those in Beijing and Shanghai, the area is marketed as a discounted south sea haven for fresh-air-starved mainland Chinese. At its recent sales peak, a reported 500 investment-hungry mainlanders were being flown here on developer-chartered flights from China for inspections.

With some 500,000 dwellings planned across Iskandar Malaysia there are now fears that a property glut could dampen prices. On top of that, culturally sensitive Malaysia may grapple with the idea of a flood of foreigners, primarily Chinese, pouring into this conservative, mostly Muslim, mostly ethnic Malay region, particularly with the approach of crucial elections.

The Chinese government in Beijing has also expressed disquiet about its citizens investing in places like Iskandar Malaysia, albeit for different reasons. Beijing wants to ramp up funding for its $1 trillion One Belt, One Road project and is actively discouraging Chinese from foreign property investment, describing it as irrational activity. Zhou Xiaochuan, governor of Beijing’s central People’s Bank of China, has called the Chinese splurge on foreign property “blind” and “over-the-top.”

So far Beijing’s crackdown has had the desired effect of holding funds back at home. Chinese investment in foreign property worldwide has slumped by 80% so far this year, according to a recent Morgan Stanley study, as China’s bank regulators tighten procedures for sending cash abroad.

That pullback has had an impact in prestige locations around the world, wherever Chinese investment has been a primary driver of real estate prices. But in Malaysia, Forest City’s Chinese developers have responded by including a free apartment in the complex for buyers purchasing more expensive property in sister developments back home in China. And with concerns over the future of Chinese private property investment abroad and Forest City’s viability, these projects are now targeting other countries’ nationals such as Vietnamese and Thais.

However, there’s another element of this property boom that doesn’t sit well with those Malaysians who like their aristocracy to remain ceremonially symbolic

That’s because the Iskandar Malaysia property developments will also make the regional royal – the Sultan of Johor, who already occupies one of the more controversial royal seats in Malaysia’s revolving monarchy – an extremely wealthy businessman.

“The Sultan has always quietly earned modest amounts of money from his land bank in Johor,” says Singapore academic Mustafa Izzuddin of the Institute of Southeast Asian Studies, “but his business activities now are very high profile and on a large scale.”

Royals aren’t supposed to be active business tycoons, or so goes the conventional wisdom about how the world’s aristocrats should behave.

Picking up modest land rents here and there from inherited estates to supplement handouts from a state’s privy purse is fine for most. But, with the notable exceptions of the resources-soaked Gulf billionaire royals, for a monarch to actively pursue a conventional corporate career is frowned upon.

If staying away from the boardroom is good aristocratic form in Malaysia, it’s clear that Johor’s extravagantly named Field Marshal Sultan Ibrahim Ismail ibni Almarhum Sultan Iskandar Al-Haj didn’t get the memo.

When he’s not busy marrying off his only daughter in a lavish ceremony before the world’s media, the half-English Sultan Ibrahim is emerging as one of Asia’s leading property barons, largely on the back of the Forest City project, a joint venture with Chinese real estate company Country Garden.

But that’s not half of the Sultan’s emergent business activities. Sultan Ibrahim has large investments in technology start-ups, telecoms, retail and power generation. Transport also looms large in the Sultan’s business orbit, with grand plans to dominate the road, rail and sea connections between Forest City and its sister developments in Iskandar Malaysia to infrastructural grids in Singapore, Malaysia and beyond.

Before he began on his rapid-fire investment spree, the avuncular 58-year-old head of the House of Temenggong was best known among Malaysians for his enthusiasm for motorcyles, and his schooling at military colleges in Malaysia and the US. His late father, Iskandar, who died in 2010, was notorious for a succession of assaults, notably the death in 1987 of a golf caddy who had laughed after the Sultan missed a putt. These scandals eventually led to the Malaysian royals being stripped of their immunity from prosecution.

But as the current Sultan of Johor told a Malaysian newspaper when he was formerly crowned in 2015, “I believe it is healthy for royalty to be involved in proper and legitimate businesses rather than to be in dubious businesses that harm the image of the institution”.

He went on to stress: “I have to earn my living like everyone else. I cannot depend on my allowances of RM27,000 ($6,425) a month. I must earn a living, like ordinary Malaysians.”

The Sultan has managed to make that modest monthly allowance go a long way – and quickly.

In 2013, three years after his father’s death, Sultan Ibrahim raised $1.5 billion by selling six prime development properties on the downtown Johor Bahru waterfront, directly adjacent to the causeway connecting Malaysia to the island of Singapore. The buyer was a Chinese developer R&F Properties, which is developing the area into a $6 billion high-rise complex called Princess Cove.

Since then, the Sultan has quickly built up an investment portfolio that analysts estimate to be worth close to worth around $1 billion. He has a 20% stake in Malaysian mobile phone carrier RedTone, and 15% in RedTone’s competitor U Mobile. He owns around 10% of the 7-Eleven Malaysia Holdings, the convenience store chain with more than 2,000 stores across the country, and has a 20% share of Kuala Lumpur’s landmark shopping centre development Times Square, plus 15% of MOL Access, Malaysia’s leading online payment processor.

One constant in many of the Sultan’s investments is Vincent Tan, one of Malaysia’s richest men: he’s best known outside Malaysia for changing the century-old blue playing strip of Cardiff City football club to red after he bought control of The Bluebirds in 2010.

Billionaire Tan’s Berjaya Corporation holds the leading stakes in several of the Sultan’s plays, notably the MOL, 7-Eleven and mobiles phone plays RedTone and U Mobile. Sultan Ibrahim sold his stake in the Tan-developed Times Square to Tan’s Berjaya in 2015.

The Sultan’s 31-year-old daughter Tunku Tun Aminah Sultan Ibrahim, who was married in an extravagant ceremony at her father’s palace in Johor, was appointed RedTone’s chairwoman last March. She is also the chairwoman of Tan’s property arm in downtown Johor, Berjaya Waterfront, which is developing a site adjacent to the Chinese-owned Princess Cove project facing Singapore.

The Sultan’s corporate profile in his regal frontyard has also ignited fireworks in Malaysia’s increasingly toxic politics. The Sultan’s plans at Iskandar Malaysia have been backed by prime minister Najib Razak, who continues to be dogged by the scandal at state investment house 1MDB, where he stands accused of embezzling $1 billion from the fund – a charge he denies.

But the Sultan’s property plays have been bitterly opposed by Malaysia’s former prime minister, Dr Mahathir Mohamed, who is Najib’s most virulent critic over 1MDB. Now 91 years old, Mahathir has said that Najib and the Sultan, who is constitutionally one of the symbolic guardians of Malay culture, are selling out Malaysia’s sovereignty and physical land to Chinese interests. State-owned Chinese companies have bought some of 1MDB’s assets in strategic Malaysian infrastructure as part of Najib’s firesale unravelling of the controversial sovereign fund.

Earlier this year, an outraged Mahathir quit the United Malays National Organization (UMNO), the Malay party he led for years and which has run the multi-racial coalition ruling Malaysia since its independence from Britain in 1957. Mahathir then formed the anti-Najib Bersatu (United) movement with Najib’s former deputy prime minister, Muhyiddin Yassin. He was UMNO’s long-time chief minister in Johor and has been a member of Malaysia’s parliament for a key Johor seat since 1978, that now promises to be a crucial election battleground.

Mahathir also has history in Johor, and with the Sultan in particular.

Regarded as contemptuous of Malaysia’s royals, during 1992 and 1993, Mahathir moved to abolish the Malaysian aristocracy’s immunity from criminal prosecution after two assault cases involving the Johorian royal family. These incidents involved the current Sultan’s father, Iskandar, and his half-brother Abdul Majid, both accused of assaulting two hockey coaches after a Johor team was beaten in national championships.

As prime minister, Mahathir forced Malaysia’s royals to assent to the constitutional amendments, which was both popular among ordinary Malaysians while casting Mahathir as the nation’s strongman. The legal changes also allowed Malaysians to criticize an aristocracy, which, until that time, had been considered semi-divine and beyond legal reach.

How that all plays out for the future of the Sultan’s business activities in Malaysia’s is anyone’s guess. ISEAS’ Izzuddin describes the situation as potentially very volatile. In Singapore, where a once-booming property market has softened in recent years, property agents worry that a glut of new building across the causeway in Iskandar Malaysia could further dampen demand and prices. The Singapore authorities are planning to extend their urban rapid transit system to Johor by 2024.

In July, Asiamoney applied to interview the Sultan on his plans for his realm. A month later, his palace press officer Ravi Nambiar responded, pleading for patience. “These things take time. You are dealing with royalty here. There is protocol to be followed.”

Asiamoney sent a series of questions to the Johor palace, inquiring as to the Sultan’s net worth, the size of his land bank in Johor and the local implications for Iskandar Malaysia of the new Chinese guidelines. At the time of publication, we had received no response.

Still, if Shenzhen is the model and Malaysia and Iskandar Malaysia escape unscathed to follow its experience in becoming a regional economic powerhouse, the fears of a longer-term impact on regional property will be unfounded. About 10% of Hong Kong households claim to own property in and around Shenzhen, with little noticeable impact on the market in Hong Kong itself.

Indeed, thanks to Hong Kong’s investment drive in the 1990s, Shenzhen was transformed from a sleepy village of 30,000 in the late 1970s, when it was first designated as a special economic zone by Beijing, to the 10-million-strong manufacturing metropolis it is today, its property market driven by internal Chinese demand.

If that happens, and Malaysia can contain its volatile ethnic politics, the Sultan of Johor, his family and friends will get even richer.