China capital controls leave buyers of foreign property in bind (VIDEO)

Prospects look at a model of the development at the Country Gardens' Forest City showroom in Johor Baru February 21, 2017. — Reuters pic
Prospects look at a model of the development at the Country Gardens' Forest City showroom in Johor Baru February 21, 2017. — Reuters pic

KUALA LUMPUR, March 21 – Beijing’s new restrictions on capital outflow has prompted around 40 Chinese nationals to seek refunds of their down payments for purchases in a housing development in Johor.

The South China Morning Post reported that these buyers were unable to secure financing for commitments in the Forest City project as banks in China are rejecting such loan applications following Beijing’s measures to stabilise the yuan.

“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,” Leo Wang, one of the affected investors, was quoted as saying.

According to the daily, Wang was using text messaging app WeChat to coordinate the 40 or so investors to jointly seek the refunds.

Another Chinese national, Laura Zhang, reportedly said said she paid RM63,500 as a 10 per cent down payment for 635 square feet flat.

Zhang she had been sold on the idea of not just a high-value property, but also the chance to give her son a quality education in Malaysia.

“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.

“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 China,” Zhang was quoted as saying.

The report said Zhang had travelled to Malaysia and Singapore with 20 others on a “free investment tour” before being convinced by Forest City sales persons to make the purchase.

“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,” another Forest City buyer, Vicky Wu from Guangzhou was quoted as saying.

“If we do so, we will be put on the government’s black list,” she added.

Peng Peng, a senior economic researcher with the Guangzhou Academy of Social Science, said the buyers are investing overseas partly as a way to protect themselves against yuan depreciation.

“But actually it’s full of risks for these Chinese small investors since most of them know little about laws and markets overseas … They blindly believe overseas property markets will soar in the same way as the mainland market,” he said.

Country Garden has denied claims of misrepresentation, saying in a statement last week that the 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 commitments”.

It was reported that, since late last year, the People’s Bank of China has been carefully examining the outflow of all transaction and funds from Chinese companies, especially of mega projects, to stabilise the Chinese currency.

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