As a result of macroeconomic changes and a slowdown in economic growth, the real estate industry in China is facing pressure from multiple sources including market forces, regulations, capital and costs.

Fraudulent activities are usually undertaken by individual employees or groups of employees for their own self-interest. They often take advantage of their positions and internal control deficiencies to conceal fraudulent and illegal conduct. We recommend companies stay alert in respect to the indicators, and closely monitor and further investigate immediately once the indicators were found at the early stage.

KPMG assisted a multinational real estate group in an internal investigation at its project company in China. Following customer complaints, the group management suspected that a sales manager in the Chinese project company was involved in a range of fraudulent activities, such as selling the same property to multiple customers and extending the property sales/purchase process without a justifiable reason.

KPMG helped an overseas-listed real estate group perform an internal investigation into the financial situation of its Sino-foreign joint venture (JV). According to an internal report, there was a material risk that the joint venture’s customer deposits, time deposits, and loans had been embezzled.

KPMG helped an HKEX-listed real estate group perform internal reviews of procurement and payment processes at three subsidiaries in its property and hotel management segments. Our review identified internal control gaps across different segments of the group. We also identified a number of red flags, such as rapid growth in procurement expenses, unreasonable land costs, frequent related-party transactions, and transactions with dubious business purposes.