China Real Estate Stirring?

China real estate bubble

For months and months, my law firm had not been involved in a single China commercial real estate deal. Not one. Sure, we assisted a foreigner or two in buying (or selling) a condo in which to live, but nothing at all on the investment front.

Now, just in the last month, we are in the midst of a number of such deals (for a number of clients old and new) and I read the news and the news says commercial property (retail, office, industrial, etc.) is not selling in China. And I know all real estate is local, but our new deals are in cities where the news clearly applies.

All our new deals involve foreigners taking out very long term leases (rather than “buying”) office buildings in need of renovation in great locations. All these deals involve fairly small buildings (certainly small by China standards) owned by Chinese developers who want out. Our clients are small to mid-sized foreign developers who have their “own people” standing by to do the work necessary to renovate and upgrade these buildings (for between $3 and $8 million) and all have already lined up some foreign businesses that want to move in. The plan is to rent out space to at reasonable rates to foreign companies that want nice space (but not top of the line) in a great location, with a reliable landlord.

Is this an uptick in the market, a trend, or an anomaly? Is this a sign of an uptick, or just companies carving out a previously underexploited niche?

I am not sure why this is happening now. When I ask the China lawyers in my firm working on these deals (I myself have not dealt directly with the clients on these), the response I get is something along the lines of “good opportunities to make a decent return.”

But why now? Is real estate in China reaching a bottom? Are Chinese property owners needing to sell (I should say lease out for the long term)? Are Chinese property owners realizing they need to price their properties at today’s prices and by their doing so sales (long term leases) are being stimulated?

What is going on out there?

For a comprehensive overview on China’s real estate laws go here.

10 responses to “China Real Estate Stirring?”

  1. Another sign that a few companies are feeling a little more bullish than they were 6 months ago; it’ll be interesting to see whether they got back in at the bottom or whether property markets still have a little way to fall.
    Either way, it’s good to have people buying…

  2. It’s the way that market economies are supposed to work. Some tries something, loses money, sells at a loss to someone who tries something else, and in the process the asset is put to the most efficient economic use.
    The problem with real estate in the United States is that because a lot of money was financed with borrowed money under extremely inflexible conditions, people are not willing or able to sell at a loss and so the market just freezes. That problem is being solved right now, but it’s happening slightly more slowly in the United States.

  3. Not sure if real estate has reached bottom. But sales seem to be on the rise. Property prices are not likely to soar as they used to be even if the economy recovers.

  4. Zunk!! That Dear Dan is the happy sound of the Chinese real estate market hitting bottom. I don’t remember you taking much heat a few months ago, I remember you turning the heat on me without actually reading my report as I recall. Those outside China seem to forget one simple fact, the Chinese financial system is broadly functioning today as it did a year or two ago, not perfect but not broke either. This is important. While US and European taxpayers money is being spent on propping up bankrupt industries, banks, autos etc and anyone else with a strong enough lobby. In China it is being spent on new investment infrastructure etc generating jobs. Yes alot of the new liquidity in China gets spilt but not down a black hole, at least not down any new ones. This means sectors such as resources and real estate can see activity return earlier than those economies that are dead and buried for the next couple of years. The kind of activity you are seeing your colleagues involved in is the sort of trading that goes on at the bottom of the market, past the ‘nobody move’ stage and into smaller ‘toe in the water’ dealing. Hope this helps!

  5. Also I’m increasingly optimistic about the US and European economy. The US financial system has had some problems, but they are manageable and being managed.
    I disagree strongly that the US is paying massive amounts of taxpayer money to bail out bankrupt industries. The US is paying massive amounts of taxpayer money to clean up bankrupt industries. Bankruptcies (as China knows from first hand experience) are extremely expensive, and you need massive amounts of cash to clean up a financial mess.
    Give it another year, we’ll be out of this mess. Give it another two or three, and we’ll be back into doing stupid things with money once again.

  6. I believe the real estate in China is booming again now. We have a self owned factory and the bank now offers us twice amount loan than one year ago against our property

  7. It is so indeed. I recently got quite a lot of phone inquiries about real estate disputes over property purchase (rather than leasing) involving most home buying deals. I cannot receive such a single inquiry for long two months ago.
    Apparently, it seems that the propert market is turning around.

  8. Dan, thanks for re-posting the four part series you did on China’s real estate laws back when they were revamped in 2007.
    Have there been any significant changes since then that we should know about?

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