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China Real Estate Stirring?

By Dan Harris and Steve Dickinson

For months and months and 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 of our new deals involve foreigners taking out very very long term leases (rather than "buying") office buildings in need of renovation in great locations. All of 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 of them have already lined up some foreign businesses who 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 people in my firm working on these deals (I myself have not dealt directly with the clients on all but one of these), the response I get is something along the lines of good opportunities to make a "decent return." But why now? Is real estate 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? Since real estate seems to be reviving, I will trot out the four part series we did on China's real estate laws, back when they were revamped: Part I, Introduction, is here. Part II, General Principles, is here. Part III, Rules Of Real Property Ownership, is here. Part IV, Real Property Use Rights, is here. What is going on out there? Oh, and please remember, I took some heat only a few months ago for being pretty pessimistic on Chinese real estate.

Full post as published by China Law Blog on May 03, 2009 (boomark / email).