Do Instrument Landing Systems restrict building heights and can these be overcome? A recent territorial spat between the countries Malaysia and Singapore over an ILS implementation made me curious. I'm interested in finding out about ILS and how an implementation of one would affect the surrounding urban restrictions. 

In that specific example, one country is saying that the ILS implementation would stifle its economic growth by restricting building height if the flight path went according to the yellow path showed on this picture



The question is, can the ILS still work if the flight path is altered to, say, an angled landing going through the water (along the thin white line) from North to South? Is it possible for a plane to turn and land into the airport (and bypass the land, hence removing building height limits) while still benefiting from the ILS in this case?

Note: The airport is 2km away from the other side of the shore (which is a separate country)
This is a fairly interesting case as it crosses international borders. Technically, as a sovereign nation they are free to build and approve construction as they see fit. Depending on where you are in the world this is handled in all kinds of different ways. Blocking the runway of another nations airport may not be great for international relations but there is nothing stopping them from doing it. There have been some fairly infamous real estate holdouts that test the limits of what you describe.

As for the latter part of your question, there have been instrument approaches that don't necessarily point you right at the runway initially. as @mfarver notes in the comments the classic example of this is the old approach into Kai Tak Airport which basically pointed you to the side of a mountain. The mountain face was painted in a checked pattern, when it came into view a right turn was executed and you were lined up with the runway. The approach is no longer in use but has been pretty notorious, you can see it in action here. With the prevalence of GPS approaches coming into use all sorts of things can be done that cant be done with a traditional straight line radio signal ILS. The issue with your described approach is that the airplane lands on the runway in the reverse direction which may not always be possible with the current winds. 

The other option if things do get in the way is to have a really steep, slam dunk style final approach as they do in St. Barts. This, however can lead to other issues.