A Chinese property developer constructing a huge housing project in southern Malaysia has become the latest corporate victim of Beijing’s crackdown on capital flight.
Country Garden has closed showrooms in mainland China for its flagship $100bn Forest City development in response to measures by Chinese regulators that have made it harder for individuals to move money out of the country.
A slowing Chinese economy, rising US interest rates and a weakening renminbi have combined to draw capital out of China at an unprecedented pace during the past two years.
In recent months, China has imposed a series of measures to limit capital outflows, including tighter approvals for foreign acquisitions by both Chinese companies and individuals.
The developer said in a statement on Friday that it was renovating the sales centres “to better fit with current foreign exchange policies and regulations”.
Forest City, a township of glossy apartments and manicured lawns being built on reclaimed land at the southern tip of Malaysia, is heavily reliant on mainland Chinese, who account for about 70 per cent of buyers so far. The first residents are due to move in next year.
For individuals, Chinese authorities have toughened enforcement of rules governing the use of foreign currency, emphasising existing regulations that permit consumption purchases but forbid investment.
Banks now require details of travel itineraries or university admissions before disbursing foreign exchange.
The foreign exchange regulator has also warned of penalties for individuals who sell their quota allocations to others, the most common loophole for individual investors to acquire enough foreign exchange to purchase an apartment abroad.
Forest City is a major project for the Hong Kong-listed developer, which anticipates that it will house 700,000 people when it is completed in two decades’ time. The project is a joint venture between Country Garden and a company controlled by the Sultan of Johor.
Country Garden is now seeking to broaden its customer base for Forest City, opening an office in Dubai last year in an effort to attract Middle East buyers. It has already sold some apartments at Forest City to Koreans, Japanese and Russians.
The project is the most high-profile of a swath of Chinese property developments in southern Malaysia, which have provoked fear of Chinese economic dominance.
Sigrid Zialcita, managing director of Asia Pacific research at Cushman & Wakefield, the real estate services company, said: “The capital controls have necessitated a shift in their sales strategy. It may not necessarily be a bad thing. It could catalyse the strategy to be more international . . . [but] there may be a lag in terms of selling some units.”
A spacious Shanghai showroom for the Forest City project was deserted at midday on Friday. A sign on the door said the space was closed for “renovation and upgrading” though no workers or activity were visible inside.
Above the main reception desk, the project appealed directly to investors looking to move money abroad with the slogan “Preferred selection for overseas asset allocation. Forest City, adjacent to Singapore”.
The showroom featured an elaborate beach tableau with real sand, a deckchair and surfboard — a reminder of the tropical lifestyle available in Malaysia.
Capital control measures appear to be having an impact. Outbound foreign direct investment from China tumbled by 36 per cent in January, including an 84 per cent decline in outbound real estate investment by companies.
China’s foreign exchange reserves rose slightly in February, breaking an eight-month run of declines.
Additional reporting: Ma Nan in Shanghai
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