HONG KONG/SINGAPORE (Reuters) - Chinese property developer Country Garden Holdings Co Ltd has shut some mainland sales centers promoting its $40 billion Forest City project in Malaysia, in response to Beijing’s moves to stop capital flight into offshore investments.
China’s tighter grip on funds moving out of the country after the yuan plummeted to more than eight-year lows has hurt the overseas sales of Chinese developers, and created extra challenges for firms or deals reliant on mainland investment.
Country Garden, the nation’s third largest homebuilder by sales, said in a Chinese-language statement on Friday it was closing and refurbishing mainland sales centers that promote its Forest City development “to better fit with current foreign exchange policies and regulations” and as the firm looked to diversify its development strategy.
It said the group “resolutely abides” by foreign exchange rules and adapts its overseas development strategy to “a constantly changing national and international policy and legal environment”.
In a separate statement issued later on Friday, the Forest City project said the closures were in line with an earlier shift in marketing efforts and “not a knee-jerk reaction” to Chinese policy.
“We have always planned to sell beyond China and have therefore chosen to bring those plans forward this year,” it said in an English-language statement.
The developer last year sold around 18 billion yuan ($2.61 billion) worth of apartments at the Forest City site in the ambitious Iskandar special economic zone in Malaysia’s Johor state, with Chinese nationals accounting for 70 percent of the buyers.
Sales from the project accounted for 6 percent of the group’s 309 billion yuan in contracted sales last year.
Country Garden said it will expand its reach to other countries and set up new Forest City showrooms in other markets such as the Middle East, India, Vietnam, Thailand and Japan.
The group’s showroom in Shanghai was closed when Reuters visited on Friday and a sign on the showroom door said it was temporarily closed due to internal renovations and upgrading work.
A shopkeeper working in the premises next door said the center had been closed for more than 10 days.
A Country Garden executive, who spoke on the condition of anonymity, told Reuters the company would integrate some Chinese projects into its Shanghai showroom to boost domestic sales and offset the impact of Chinese capital controls on Forest City transactions.
In Singapore’s financial district, a Forest City showroom, mainly for buyers living in the city-state, was open and operating.
Mainlanders have been arriving in Iskandar in droves every week on tour buses and direct flights from China to buy homes in Forest City, lured by the greenery, beaches and access to international education.
Country Garden plans to invest $40 billion into Forest City over the next 20 years to build an eco-friendly development covering 14 square kilometers. The project expects to create 220,000 new jobs by 2035.
In June last year, the company’s net gearing ratio was 62.6 percent, up from 60 percent six months earlier.
While Forest City only accounts for a small portion of Country Garden’s sales and debt, analysts said China’s capital controls could nonetheless cause problems downstream.
“This could hamper the sale of the next phases of the project in Malaysia and hence the cash flow as it has only completed one phase out of several to our understanding,” said Christopher Yip of S&P Global.
Among stricter measures in China, banks now require customers purchasing foreign currency to specify how they will use the funds and have reminded individuals about overseas property investment restrictions.
Economists expect forceful policing of capital controls this year, though China’s financial system is notoriously porous, with speculators often able to find new ways to get money out.
Other developers have flagged similar problems with overseas sales.
“(Chinese) customers can’t take their money out now, of course there’s an impact on our overseas sales,” said an executive of state-backed Greenland Holdings, which has developments in Malaysia, the U.S. and U.K. The executive, who spoke on the condition of anonymity, did not provide details of sales on specific projects.
Additional reporting by Adam Jourdan in Shanghai, SHANGHAI newsroom and Umesh Desai; Editing by Sam Holmes