Country Garden shuts China showrooms as offshore investment curbs bite

Clare Jim and Aradhana Aravindan

* Temporarily shuts project showrooms in China

* Malaysia project sales hurt by China FX controls - exec

* Will expand marketing to other overseas market

(Recasts, adds Singapore showroom details)

HONG KONG/SINGAPORE, March 10 (Reuters) - Chinese property

developer Country Garden Holdings Co Ltd has shut some

mainland sales centres 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 centres 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

centre 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.

SEA CHANGE

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 kilometres. 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.

($1 = 6.9083 Chinese yuan)

($1 = 4.4550 ringgit)

(Additional reporting by Adam Jourdan in Shanghai, SHANGHAI

newsroom and Umesh Desai; Editing by Sam Holmes)