In what analysts describe as the latest setback for foreign investment in the mainland property market against a backdrop of tightening controls, Hong Kong-based real estate fund Gateway Capital has failed to buy into two projects in Zhuhai for a combined 800 million yuan. Huafa Industrial, a Shanghai-listed and Zhuhai-based developer, said the proposed sale of a 50 per cent stake in the projects to Gateway Capital had been called off because it failed to win government approval 'within the time limit stated in the proposal', according to a statement to the Shanghai Stock Exchange yesterday. A plan made public in May last year called for Gateway Capital to co-develop with Huafa two residential projects valued at 1.6 billion yuan. At the time, the company said it needed to find more financing channels to fund its landbank expansion and fast-track the development. This was the second time the Zhuhai developer's efforts to raise funds from foreign channels have been frustrated. In June last year, a company indirectly owned by Morgan Stanley failed to win approval to buy 24.7 per cent of Huafa in an open tender. The Zhuhai government stopped the deal. Sources said it was not surprising to see the Gateway Capital deal rejected, given the stepped-up efforts to curb foreign property investment. Shareholders of Gateway Capital include the Washington Investment Board, Morgan Stanley and investors from the Middle East. 'It must have been one of the high-profile foreign investors becoming victim of the mainland policy of restricting foreign property investment,' one analyst said. Raymond Ho, executive director of Vigers Appraisal & Consulting, expected more such cases to arise. 'With the tightening of bank lending, mainland developers need to seek more funds, but the government doesn't want too much hot money flowing into the sector, so more and more such cases will happen,' he said. However, Gateway Capital chairman Goodwin Gaw said the austerity measures had no bearing on the deal. 'This project actually was mutually terminated by us and Huafa a few months ago due to the investigation of Huafa in relation to its privatisation effort,' he said 'It was unfortunate that the proposed privatisation of its holding company and the subsequent government investigation led to a substantial delay of our pending project, which ultimately led to the lapse of our deal.'