Yu Yongding, Academician of the Chinese Academy of Sciences, writing in early March, indirectly predicts a continued growth in real estate disputes.
Clearly, China has gone too far in real estate development… By the end of 2015, the unsold house floor space for the country as a whole was 700 million square meters… Facing a double-digit growth in inventory, naturally, real estate developers cut their investment deeply. At the moment, the growth rate of real estate investment has dropped to almost zero. Without stretching the imagination, one can be sure that in 2016 growth of real estate investment will enter into negative territory.
Because the economics on which the participants in real estate development deals has changed greatly, that has meant a major increase in real estate disputes in 2015.
In 2016, as an earlier blogpost flagged, the Supreme People’s Court (SPC) is monitoring real estate disputes closely, because of their link with the government’s economic policy, social stability, and links with other parts of the economy. As Yu wrote, “real estate investment accounts for a fourth of the total investment. For a long period of time, real estate has been the most profitable area of investment in China.”
As set out in the earlier blogpost, in 2015, the SPC leadership identified the following problems in real estate development cases:
- developers suing to invalidate grant contracts (under which they purchase land for development) and seek the return of the land grant fees (upon which local governments depend);
- Developers who are short of funds and unable to hand over properties on time;
- Declines in property prices causing “mass incidents.”
- Cases involving real estate development and private lending, including illegal fundraising;
- Many cases involving unpaid migrant construction workers.
According to the “big data” that the SPC recently released, in 2015, the number of cases in all categories related to real estate development rose sharply:
- newly accepted grant contract disputes, 1368, up almost 21%. A quick search of the SPC’s case database reveals that some of these cases have been heard in the first instance in provincial higher people’s courts and on appeal in the SPC, because of the large amounts in disputes.
- disputes involving the sale (by developers) of real estate, 172,372 cases, up 42.29%. Cases are up substantially in provincial cities, such as Liuzhou, Guangxi province and Zhaoqing, Guangdong, where the number of cases in the first half of 2015 were almost as much as the total for the year before. Analysis by Zhaoqing judges of the cases revealed a laundry list of problems, such as poor government oversight of developers (because local government is desperate for investment); developers pre-selling real estate development projects although their rights to the land are in dispute; poor quality building, misleading sales advertising, and cases involving large numbers of litigants.
- joint venture real estate development cases, 1946, up 20%. These refer to domestic joint venture cases, when one company provides the funding and the other the land. Some cases involve deals between state-owned companies from different provinces, with the out of town party often trying to move the case to a more favorable venue ;
- disputes involving compensation for demolished housing, 24,871 cases, by 33% (despite legal obstacles to bringing these cases) .(For those who understand Chinese, the Xuzhou (Jiangsu) courts have posted this video of proceedings in one such case).
- Other types of real estate development cases, 33,605, up by 49%.
These cases (and related “mass incidents”) may be expected to rise in 2016. Litigators with real estate expertise can be expected to be very busy.
Related to this, the SPC also expects an increase in real estate development companies going into bankruptcy. It is for that reason that this month, one of the SPC journals has published an article by two Jiangsu High Court judges on priority in bankruptcy of real estate development companies.