How China’s overseas property dream turned into a nightmare
South China Morning Post
20 March 2017
Middle-class mainlander Laura Zhang found the idea of owning a home
overseas irresistible after being bombarded by commercials for an
affordable project “near Singapore”.
The Forest City project in the southern Malaysian state of Johor, the
subject of the advertisement , is being developed by Country Garden,
China’s third-largest home builder.
Zhang said she was told a flat in Forest City, the developer’s flagship
project Malaysia, was not only an asset that would appreciate in value
but also one that offered a tropical, garden city lifestyle, access to
high quality international education for her son, and a chance for the
whole family to become permanent residents of another country.
However, capital controls introduced by Beijing have turned the dream
of a Malaysian property into a nightmare for many mainlanders.
Zhang, who lives in Hefei, the capital of Anhui province, was enticed
by Forest City commercials in early 2016, when China was witnessing the
largest wave of outbound investment the country had ever seen, with its
foreign exchange reserves, a rough gauge of capital outflows, falling
at a record pace.
Big Chinese investment deals abroad made frequent headlines, with
property deals being particularly eye-catching. Dalian Wanda chairman
Wang Jianlin, China’s richest man, bought a 10-bedroom home in
Kensington Palace Gardens in London at the end of 2015 for £80 million
(US$118 million at the time), and Anbang, a Chinese insurer controlled
by tycoon Wu Xiaohui, completed the US$1.95 billion purchase of the
Waldorf Astoria New York hotel, a Manhattan landmark, the same year.
Mainlanders view a model of the Forest City project at the sales centre in Johor, Malaysia. Photo: Handout
While the middle-class residents of second-tier cities such as Hefei
lacked the tycoon’s financial resources, they had been made wealthier
by China’s economic boom and hefty price increases for mainland
apartments. Many, like Zhang, longed to follow in the tycoon’s
footsteps and own a property overseas.
China developer Country Garden expects 20 billion yuan in sales from Malaysia project this year
In theory, the Chinese government prohibited direct individual
investment in overseas property projects, but there were numerous ways
to skirt around the restrictions. China’s foreign exchange regulators
usually turned a blind eye to such outflows because Beijing had been
focused for most of the previous decade on stopping hot-money inflows.
The government had even encouraged mainland companies to invest abroad
and had urged residents to hold more foreign currency in order to “hide
foreign exchange reserves among the people”.
That was the atmosphere when Zhang, her friends and relatives signed up
for a free “investment tour” of the Malaysian project in September.
Zhang said she thought “it won’t hurt if I just have a look at the project.”
She was part of an army of ordinary mainland residents who were trying
to buy property overseas, partly as a way to guard against yuan
depreciation, said Peng Peng, a senior economic researcher with the
Guangzhou Academy of Social Science.
“But actually it’s full of risks for these Chinese small investors
since most of them know little about laws and markets overseas,” he
said. “They blindly believe overseas property markets will soar in the
same way as the mainland market.
A model of the Forest City project on display at the sales centre in Johor, Malaysia. Photo: Bloomberg
On September 10, Zhang left on a three-day tour of Singapore and
Malaysia organised by the Nanjing branch of Country Garden. Most
members of the 20-strong group were residents of Nanjing –
businesspeople, retired civil servants and wealthy housewives – and for
most, like Zhang, it was their first overseas trip.
When they arrived in Singapore they were impressed by city’s
cleanliness and modernity, but they were told property there cost about
100,000 yuan (US$14,494) a square metre, more than they could afford.
The next day they took a two-hour bus ride, crossing the Malaysian
border at the Woodlands checkpoint and ending up at Forest City’s
massive sales centre, where they were greeted by futuristic-looking
models of the project and an army of Mandarin-speaking salespeople.
Chinese property investors still getting overseas deals done despite tighter capital controls, says ING
Every potential investor was accompanied by at least one salesperson,
and Zhang said they described a future in which their children could
easily attend an international school in Malaysia or Singapore and in
which their parents could enjoy the same social welfare as elderly
Zhang said she was told the price was only 20,000 yuan per square
metre, a quarter of that in downtown Beijing. They were also told they
could apply for the Malaysia My Second Home Programme, which allows
foreigners to live in Malaysia on long-stay visas of up to 10 years,
offering the families hope they would be able to commute between the
mainland, Malaysia and Singapore.
After two days of sales pitches, most of the visitors were persuaded
and opened up their wallets to make down payments. Zhang signed an
off-plan purchase agreement with Country Garden Pacific View, a
Malaysian unit of the mainland developer, and paid 63,500 ringgit
(US$14,321) with her China UnionPay bank card as a 10 per cent down
payment on a 59 square metre flat.
“I’m not so rich that I can afford those properties in North America or
Australia, but I was very interested in buying an apartment abroad for
my child’s education or possible emigration in the future,” Zhang said.
“That’s why I joined the tour. Besides, the Forest City project is very
famous among Chinese as you can see its advertisement everywhere in
Country Garden president Mo Bin said in August that it expected to see
at least 20 billion yuan in sales at Forest City by the end of last
“We expect sales at Forest City in the second half will not be below
the 10 billion yuan recorded in the first half,” Mo told the South
China Morning Post at Country Garden’s interim results briefing.
The company said the first tranche of flats in the 14 sq km project,
being built on four artificial islands, would be completed late this
Chinese firms that ‘went global’ at Beijing’s request now hit hard by capital controls
It has said the project will receive total investment of 250 billion
yuan over 20 years, but Mo said Country Garden had only paid five
billion yuan by August, including the cost of land.
Forest City was the subject of one the biggest advertising campaigns
China has seen. Commercials extolling the lure of a tropical island
home were broadcast on state television, placed on billboards at
railway stations and played time and again in apartment lifts. The
company even set up sales centres in dozens of mainland cities to
promote the project, but they all were closed “for renovation” early
this month, with a Country Garden spokeswoman denying the move had
anything to do with Beijing’s crackdown on capital outflows.
The mainland has lost nearly US$1 trillion in foreign exchange reserves
from the peak in 2014, and about two months after Zhang’s visit to
Johor, Beijing ordered a halt to “irrational” outbound investment,
especially that which ended up in overseas property projects.
A closed Forest City showroom in Shanghai this month. Photo: Daniel Ren
Zhang discovered this year that no bank on the mainland would help her
pay for her overseas property dream. When she attempted to transfer
money to the vendor’s bank account in Hong Kong in January, her local
bank told her the Hong Kong account was “not correct”. However, she had
managed to pay 20 per cent of the amount she owed for the property to
the same Hong Kong account in October.
She told the Post she was now trapped in limbo and was trying to get a
refund. Other purchasers are taking the same course of action.
“Now we understand all further instalments need to be paid abroad. But
this is not allowed due to the foreign exchange controls from the
Chinese government,” said another Forest City purchaser, Vicky Wu from
Guangzhou. “If we do so, we will be put on the government’s black list.”
Some mainland purchasers said they had been misled by Forest City salespeople, something Country Garden denied.
It said in a statement last week that development and construction of
Forest City was carried out “under the legal framework, with its sales
in strict accordance with laws and regulations and contractual
“Forest City is a world-class township developed for the global
market,” the company said. “All sales procedures have been approved by
the local government, while implementation of relevant operations are
in strict accordance with the requirements of the Malaysian government
and legal compliance.”
About 40 people, including Zhang and Wu, have joined a WeChat group “to
quit Forest City and get refunds” set up two weeks ago by Leo Wang from
Hunan. They’ve made down payments for Forest City flats but are now
unable to transfer money out of the mainland or get their money back.
“We thought it was a good and affordable deal to invest in overseas
property, without thinking of the possible risks, and even signing the
agreements in English even though we don’t know the language,” Wang
Developer Country Garden led its rivals in January’s land purchases
Liu Zhenbiao, who runs a company, Kit Hei, that helps wealthy
mainlanders snap up real estate overseas, said such disputes were not
“Similar disputes will happen when growing numbers of Chinese nationals
try to invest in overseas properties because many Chinese do not
understand the local language and law,” he said.
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