Country Garden shuts China showrooms for Johor’s Forest City project amid FX controls

A scale model of planned development at Forest City. (Photo: AFP/Roslan Rahman)

The Chinese developer last year sold around 18 billion yuan (US$2.61 billion) worth of apartments in its massive Forest City project in Malaysia’s ambitious Iskandar special economic zone, with Chinese nationals accounting for 70 per cent of the buyers.

However, as China tightens its rules on moving funds out of the country after the yuan fell to more than eight-year lows, firms or deals relying on Chinese investment are faced with extra challenges.

Country Garden said in a statement on Friday that it was overhauling its mainland Chinese sales centres “to better fit with current foreign exchange policies and regulations” and as the firm looked to diversify its development strategy.

“Country Garden Group resolutely abides by relevant foreign exchange related rules and actively adapts it(s) overseas development strategy to adapt to a constantly changing national and international policy and legal environment,” it said.

The firm added that the current foreign exchange controls were “necessary”, but that they could not continue forever.

The company said it will set up new Forest City showrooms in other countries including the Middle East, India, Vietnam, Thailand and Japan to expand its reach to other markets.

A visit to the Country Garden’s showroom in Shanghai on Friday showed it was closed. A sign on the showroom door said it was “temporarily closed for business due to internal renovations and upgrading work”.

A shopkeeper working in the premises next door said the centre had been closed for more than 10 days.

A Country Garden executive, who spoke on the condition of anonymity, told Reuters the company is going to integrate some Chinese projects into the Shanghai showroom to boost domestic sales as capital controls were hurting Chinese sales of Forest City apartments.

Its 4,000 square metre Ryde Garden project in Sydney was not affected, the executive added, as customers there are predominately domestic buyers, though many of them are Chinese nationals residing in Australia.

Among stricter measures in China, banks now require customers purchasing foreign currency to specify how they will use the funds and have been reminding individuals about restrictions on overseas property investment.

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.

Yu Runze, the chief strategy officer for the development, told Reuters last month that the project was seeking to decrease its reliance on Chinese buyers, and expand efforts in other countries.

Other developers have flagged similar problems with sales in overseas projects.

“(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 US and UK. The executive, who spoke on the condition of anonymity, did not provide details of sales on specific projects.

“Every developer who has projects overseas would be impacted.”

(US$1 = 6.9083 Chinese yuan)

(Reporting by Aradhana Aravindan and Adam Jourdan; Additional reporting by Clare Jim in Hong Kong and Shanghai newsroom; Editing by Sam Holmes)

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