Forest City’s Chinese buyers in limbo over developer’s penalty clause

SINGAPORE — Chinese buyers of homes at the Forest City megaproject in Johor who cannot proceed with their purchases after capital controls introduced by Beijing are now in limbo after they found out that they have to pay the developer a hefty compensation for backing out of the deals. 

Some of the buyers told TODAY that they had discovered this when they tried to seek refunds for the 10 per cent deposit that they paid for the units by developer Country Garden PacificView (CGPV).  

They wanted to cancel their purchases as restrictions on capital outflows introduced by the Chinese government late last year had resulted in them not being able to transfer payments from China. 

Instead, CGPV told them they would have to pay a penalty equivalent to 30 per cent of the purchase price for forgoing the deal. 

This clause was in the sales contract, a copy of which TODAY has seen, but some of the buyers said that this was not made clear to them at the time of purchase.  

“Nobody told me anything about this clause, not even the lawyer who was present when I signed the agreement,” said Ms Vicky Wu, a 42-year-old joint venture employee from Guangdong. She had purchased a 59sqm apartment for about RM693,000 (S$219,000), and made the 10 per cent down payment on the day she visited the Forest City sales centre in Johor last December. 

Ms Wu, a member of the newly set up “Quit Forest City and get refunds” WeChat group, said she tried to get a refund from CGPV but was rejected. 

Other members of the 50-strong chat group say they are in the same predicament as Ms Wu. 

“The developer rejected outright my request for a refund,” said Mr Gu Wen, a Chongqing native who had bought a 70sqm unit for about RM950,000 as an investment. 

Asked to comment on the 30 per cent compensation clause, CGPV’s chief strategy officer, Dr Yu Runze, said the buyers who sought refunds belonged to a small group and were not representative of the majority of its buyers. 

“We are in discussions with these concerned buyers and will facilitate the refunds based on the terms and conditions in the purchase agreement,” he added. 

“Country Garden Holdings and its subsidiaries and entities are law-abiding businesses.” 

The developer did not disclose how many people have asked for refunds or whether it was seeking compensation from any of the buyers for breaking the sales contracts. 

The US$100 billion (S$140 billion) Forest City housing development on four man-made islands off Johor — when completed — combines lush beachfront property with amenities aplenty, according to CGPV. A joint venture between China’s third-largest home builder Country Garden and Malaysia’s Esplanade Danga 88, it has sold thousands of homes in the project. 

Mainland Chinese constitute 70 per cent of Forest City buyers.  Some of the Chinese buyers who want to back out of the deal now claim that when they bought the units, they were not given the Chinese-language version of the agreement to sign. As they signed only the English contracts; they were not aware of the exact terms. 

In response, Dr Yu said both the Chinese and English contracts contained the same terms and conditions, and did not contradict one another.  

“Our sales and marketing team at Forest City does make the time and effort to carefully explain the terms and conditions to buyers before they sign the contract,” he said.

Property lawyer Derek Fernandez told TODAY that a 30 per cent penalty clause was “not normal” by Malaysian standards. 

“In the event the buyers cannot get a loan to finance their purchase, then the down payment should be refunded. If they have breached the agreement, then only the down payment should be forfeited,” said Mr Fernandez, who is a partner of a Malaysian law firm and well-versed in planning and development laws. 

Asked about this, Dr Yu said that the 30 per cent penalty clause was not a down-payment fee. 

“The terms and conditions outlined in our sales and purchase agreements are in accordance with Malaysian laws and standards,” he added. 

Several Chinese buyers said they were also attracted to the Forest City project as they were told by salespersons that, by purchasing a unit there, they could apply for the Malaysia My Second Home Programme (MM2H). 

This initiative allows foreigners to live in Malaysia on long-stay visas of up to 10 years, offering the families hope that they would be able to commute between China, Malaysia and Singapore.

“We found only later that MM2H is not officially linked to the Forest City project,” Ms Wu told TODAY.

In response, CGPV said that, while its sales and marketing staff helped the buyers in applying for the scheme, the approval has to be given by the Ministry of Tourism and Culture. 

“We cannot guarantee the success of obtaining the MM2H status for applicants who are homeowners of Forest City,” he said. 

Buyers such as Mr Wei Youle from Qingdao, who bought a 84sqm unit for around RM963,000, said that they hope they could resolve the issue with CGPV soon. “I just hope we can get refunds,” said Mr Wei. 

“The whole incident is a nightmare that I want to wake up from,” said Ms Wu.