China’s largest commercial property company has pulled out of a £470m purchase of Nine Elms Square in south-west London after pressure from regulators in Beijing over its overseas investments.

A joint venture between St Modwen Properties and construction firm Vinci had exchanged contracts to sell the 4-hectare (10-acre) site, previously home to the New Covent Garden flower market, to Dalian Wanda’s Hong Kong division in June.

The site has now been sold to two Chinese developers, R&F Properties and C C Land Holdings. Because the deal was done offshore it did not require approval from Chinese regulators, a source involved with the transaction told Reuters. The CC Land, which is based in Hong Kong, bought London’s “Cheesegrater” tower for £1.15bn in March.

Nine Elms Square, which has planning permission for 1,900 “high-quality” flats, most with river views, forms part of the revamp of the area south of the Thames around Battersea power station, where 20,000 mainly luxury homes are being built by a number of developers. It is London’s largest residential development area.

Dalian Wanda, whose assets range from property to cinemas, is run by one of China’s richest men, Wang Jianlin. It is one of the companies that have been most affected by the Chinese government’s clampdown on capital outflows to protect the yuan from further weakening.

Beijing issued rules last Friday to limit overseas investment in property, hotels, entertainment, sports clubs and the film industry, and threatened to blacklist firms that violated those rules.

This could put an end to Chinese firms’ recent spending spree in the UK. Chinese investors have spent a record £4bn on commercial property in the City of London and the West End so far this year, according to data from real estate firm CBRE. The “Walkie Talkie” tower in the City was sold to Hong Kong food conglomerate Lee Kum Kee for a record-breaking £1.3bn last month.

The new rules are the latest setback for Wanda, whose planned $1bn (£780m) acquisition of the US TV company Dick Clark Productions fell through in March under pressure from Beijing.

Squeezed for finance, the conglomerate agreed last month to sell most of its hotels and theme parks for $9.5bn to R&F Properties and another developer, Sunac China, in separate transactions. The Chinese government has reportedly blocked banks from funding some of Wanda’s overseas investments.

The downturn in the London luxury housing market amid a glut of new properties coming on to the market made Nine Elms Square a risky investment for Wanda. It is still building the £700m One Nine Elms twin-tower complex nearby.

The Malaysian developers of the nearby Battersea power station redevelopment have also been hit by the slump in sales at the top end of the market, and are scaling back plans for luxury homes.