Forest City's Chinese buyers face hefty penalty clause

KUALA LUMPUR (April 3): Mainland Chinese purchasers of homes in Forest City, Country Garden’s megaproject in Johor, are now staring at the daunting prospect of having to pay a penalty of 30% of the purchase price for pulling out of the deal. 

Some of the purchasers had this penalty clause painfully revealed to them when they sought to cut their losses by seeking refunds of the 10% deposit they paid for their Forest City homes from the developer Country Garden PacificView (CGPV), Singapore’s TODAYonline reported on April 1.

The Chinese government in January banned its citizens from converting yuan into other currencies for overseas property purchases in an effort to further curb capital outflows.

As a result, Chinese purchasers of foreign developments such as Forest City cannot send money out of China to continue making payments. And with this revelation, not only are they not getting their money back, but they may end up paying a pricey penalty.

According to the TODAYonline report, the penalty clause is in the sales contract but some buyers said this was not made clear to them during the time of purchase.

“Nobody told me anything about this clause, not even the lawyer who was present when I signed the agreement,” Vicky Wu, a purchaser from Guangdong told TODAYonline.

Wu purchased a 59sq m unit for about RM693,000, and made the 10% down payment when she visited the Forest City sales centre in Johor last December.

The South China Morning Post reported recently that about 40 people, including Wu, have joined a WeChat group “to quit Forest City and get refunds”.

On the developer’s part, CGPV’s chief strategy officer, Dr Yu Runze, told the TODAYonline that buyers who sought refunds belonged to a small group and were not representative of the majority of Forest City’s buyers. 

“We are in discussions with these concerned buyers and will facilitate the refunds based on the terms and conditions in the purchase agreement. Country Garden Holdings and its subsidiaries and entities are law-abiding businesses,” he told the Singapore daily. 

Meanwhile, some of the Chinese buyers also complained that they were not given the Chinese-language version of the agreement to sign.

Yu told TODAYonline: “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.”

As for the 30% penalty clause being “not normal” by Malaysian standards, Yu also told the Singapore daily that “terms and conditions outlined in our sales and purchase agreements are in accordance with Malaysian laws and standards”. 

Country Garden is the second-largest in China. Aside from Forest City, Country Garden has three other developments in Malaysia, namely Central Park and Danga Bay, which like Forest City are also in Johor, and Diamond City in Semenyih, Selangor.

Forest City, covering 14 sq km of land on four artificial islands in Johor and with a gross development value of RM444 billion, has been successful in attracting Chinese buyers by offering affordable prices and access to Malaysia’s visa programme for long-term stays.