The Outlook of Real Estate Practice in the New Economic Climate

The Outlook of Real Estate Practice in the New Economic Climate
新经济形势下房地产法律业务的趋势

Over the past few years, the government’s tightening policy grip on the real estate sector, stacked up with the impact of pandemic controls, and the restructuring of supply chains worldwide, has caused a wide impact on the traditional real estate industry including residential, office, and commercial properties. More recently since the summer of 2022, the Chinese government has started to adjust its policy by reiterating the critical importance of the real estate sector as a major economy stabiliser and development booster. Under this macro-economic context, real estate companies are actively seeking the assistance of legal professionals to handle liquidity crises, enhance compliance, and take the opportunities offered by the policies, and law firms can serve the real estate businesses to better manage the challenges coming up.
近年来，政府对于房地产行业的调控政策的收紧与疫情防控之影响叠加，加上世界范围内的产业链重整，对住宅、办公、商业等传统房地产领域造成了广泛冲击，近期从2022年夏以来，中国政府又开始重新调整政策，重申房地产行业仍是稳经济、促发展的重要参与者。在这些宏观背景下，地产公司积极寻求法律专业人士的协助，来处理流动性危机，加强合规，充分利用政策带来的机遇。而律所可协助地产企业更好地应对接下来的挑战。 

Firstly, the traditional real estate sector in a sector downturn does not have sufficient increments to offer but turns to the revitalisation, renewal and dispute resolution of stock properties. This shift of clients' legal demands has set a higher requirement that lawyers not only need a deft hand to carry out in-depth research on new areas of law but a better mind with rich sector knowledge and experience. 首先在行业下行周期中，传统地产增量不足，只能转向对存量物业的盘活、更新，以及处理存量物业的纠纷解决。这类业务不仅要求律师拥有领先的专业研究能力，也对律师在地产行业的经验积累和洞察能力提出了更高的要求。具体而言：

I. The Bailout of the Troubled Real Estate Developers 困境地产公司纾困 

The combined forces of macroeconomic policies, COVID-19 pandemic and industrial chain transfer have changed the commercial environment of real estate developers, with a burgeoning number of developers struggling in operational hardship. Large real estate developers, including the top ones like Evergrande and Sunac China, have defaulted on a number of their debts, which have led to debt restructurings or even bankruptcy proceedings, whilst small and medium-sized developers find themselves in dire straits. In response to market changes, legal services have shifted from providing support for real estate investments, land transactions, and acquisition deals to assisting real estate developers in obtaining financing through multifarious channels, disposing of non-performing assets, undergoing bankruptcy and restructuring as well as providing services to financially robust developers in their purchase of troubled developers and selected properties. The ability to solve complicated problems is needed more than ever to revitalise distressed companies and assets so as to help unlock values that benefit parties involved. Unlike the new-build market, where business practice is relatively standardised, every distressed investment opportunity is peculiar and its risks very much varied, so it would take realty operators and legal professionals more to identify and respond to the issues based on their accumulated expertise.
宏观政策、疫情影响及工业产业链转移等原因，导致房地产企业经营环境变化，让越来越多的房企陷入经营困难，以致包括恒大地产，融创地产等排名前列的大型房地产行业也频繁出现债务违约事件，需要进行债务重组，甚至破产重整，中小房企的处境则更为艰难。法律服务跟随市场形势的转变，由之前的助力地产投资、土地交易、收购项目，转向协助地产公司以各种途径获取融资、不良资产处置、破产重组，及服务有实力的公司选择并购困境中的地产企业及精选的地产项目。盘活陷入困境的公司与资产更需要复杂问题的解决能力，以协助各方尽力寻找多方获益的价值点；与增量市场较为流程化的业务不同，各个特殊机会的特质差异万千，也更加需要操盘人和法律服务者基于以往的专业积累而具备的风险识别和应变能力。

II. Urban Renewal Opportunities 城市更新机遇

China in the 14th Five-Year Plan has made plain its aim to “accelerate urban renewal by redeveloping and upgrading the functions of old residential areas, old factory areas, old neighbourhoods, and urban villages, among other idle zones, and by promoting the renovation of old buildings.” Beijing, Shanghai, Chongqing, and other cities have since lined up to introduce ancillary policies to implement the plan. The urbanisation rate of China, which stands at about 64.7% today, is projected to climb to the range of 65% to 70% during the 14th Five-Year Plan period but at a gradually reducing pace. As such, urban renewal in the new era, in contrast to the “Three-old Renovation” in the past, is veering from large-scale demolition, construction, and relocation to a “high-quality growth” focusing on the inventory and with people's needs and interests at it core. In the years to come,  areas such as smart cities and eco-cities will be key attractions for investments that could be worth up to tens of trillions in renminbi, and will generate an influx of legal services associated with the investments.
“十四五”规划明确提出，“加快推进城市更新，改造提升老旧小区、老旧厂区、老旧街区和城中村等存量片区功能，推进老旧楼宇改造”，此后，北京、上海、重庆等地纷纷出台了配套的政策。当前我国城镇化率水平大约为64.7%，十四五期间我国城镇化率水平预计处于65%-70%区间，城镇化速度逐步递减，在此背景下，新时期的城市更新有别于过去的“三旧改造”，不再是大拆大建大搬迁的模式，而是基于存量、强调以人为核心的“高质量发展”，诸如智慧城市、生态城市等领域都将是未来开启十万亿级投资规模的重点方向，也是法律服务将要支持的热点领域。

III. Real Estate-Related Dispute Resolution 地产相关的争议解决

In a sector downturn, real estate-related disputes continue to arise in high volumes, including disputes over real estate project cooperative development contracts, disputes over property sales contracts, disputes arising from late completion by constructors, disputes regarding real estate financing, and those over rents and early termination of leases between tenants and landlords. In an effort to better tackle surging litigation risks, real estate companies should work out preventative measures beforehand, heeding advice on potential risks at the beginning of business, and establishing compliance and risk management programs in a more proactive manner to effectively mitigate or avoid the costs that may arise out of future lawsuits.
行业下行周期中，地产纠纷涌现，房地产项目合作开发合同纠纷、商品房买卖合同纠纷、建筑商未能按时交付房屋的纠纷、地产相关融资纠纷、租户与业主关于租金及提前解约的纠纷都凸显出来。为更好地回应增加的诉讼风险，地产企业需将应对措施提前，在业务开展时即应关注到潜在风险点，更积极地建立合规、风控屏障，才能有效控制后续诉讼成本。

Secondly, new areas of economic growth and new regulatory trends are shaping and promoting new practices. Practices around new infrastructure such as internet data centres (IDCs) and legal compliance following tighter antitrust enforcement are two examples of that. 
其次，新的经济增长点及新的监管趋势推动了新业务板块的形成和发展，包括互联网数据中心在内的新基建以及反垄断监管收紧带来的合规业务是其中的代表。

IV. IDC Investment Continues to be Popular in the Context of Digital Transformation 互联网数据中心在数字化转型背景下持续成为风口

The smartphone and internet penetration rate in the pandemic is on a meteoric rise, fuelling the galloping growth of the digital economy. China is set to become the world’s largest data hub, further firming up the foundation for the high-speed buildout of data centres across the country. In February 2022, the National Development and Reform Commission of China (NDRC), as a step towards the goal of reinforcing digital transformation, unveiled the “Eastern Data and Western Computing” project, another national endeavour to optimise national resource allocation in addition to “South-to-North Water Diversion”, “West-to-East Power Transmission”, and “West-to-East Natural Gas Transmission”. The NDRC forecast in a press release a surge in big data centre investment at an annual rate exceeding 20%, which would stimulate investments across various industries and sectors beyond three trillion renminbi in worth. Riding the tailwind created by market development, increased demand on the strategic level, and preferential policies, IDC will continue to be a popular investment. Sitting at the intersection of asset-heavy businesses and high-tech industries, IDC forms a relatively specialised sector which requires both skills in the traditional practices of real estate, telecom, investment and financing, and expertise in the emerging realms of data security, energy conservation and carbon reduction, and ESG. Those requirements set the bar high in terms of depth and breadth of expertise for legal teams engaging the IDC services.
新冠疫情之下，智能手机和互联网的渗透率迅速提高，推动数字经济的快速增长，中国成为全球最大的数据圈，夯实了互联网数据中心在国内快速发展的基本面；围绕着强化数字转型的目标，国家发改委于2022年2月启动“东数西算”，成为继“南水北调” 、“西电东送”、“西气东输”之后，又一个优化资源配置格局的国家工程；国家发改委在新闻发布会上称，预计 “十四五” 期间，大数据中心投资将以每年超过 20% 的速度增长，将带动各方面投资超过 3 万亿人民币。在市场、国家发展需求和政策利好带动下，互联网数据中心持续成为风口。互联网数据中心作为重资产与高技术的交叉行业，同时对传统的房地产、投融资、电信行业的业务能力，和新兴的数据安全、节能减碳、ESG等领域的专业知识提出较高要求，形成了一个相对专门的行业领域，也对其法律服务团队的专业知识的深度和广度设立了门槛。

V. Increasing Demand for Industrial Parks 产业园区需求上升

As the time goes, many old factory buildings and traditional industrial parks are in urgent need of revitalisation as they can neither achieve their output targets, nor fit the purposes of the new industries. Meanwhile, for the purpose of optimising the urban design and planning as well as promoting the concentrated development, transformation and upgrading of industries, the industrial enterprises will gradually relocate from city centres to suburban industrial parks. That leads to an uptake in the renovation of old industrial parks and construction of new-type industrial parks, especially in eastern China and the Yangtze River Economic Zone. That increase of demand by quantity and quality also serves the purpose to accommodate and converge advanced manufacturing businesses. A successful renovation of an old industrial park requires the proper handling of the original project, the evaluation of the land use conditions and the management of the whole life cycle of any new industries. Legal professionals also need to adapt to this new demand and provide their services accordingly.
随着时代发展，不少老旧厂房和传统工业园区逐渐不能达到产出目标也无法满足新产业发展的需求，亟待盘活再利用，同时，为优化城市空间布局，推动产业集聚发展与转型升级，工业企业将逐步退城进园，因此，新型产业园区的改造和兴建项目增加，特别是在东部地区和长江经济带，当地新产业园区需求量质齐升，能适用于先进制造业的落地和聚集。对旧工业园区的成功改造有赖于对原有项目的妥善处理、对土地利用条件的评估、以及对新产业全生命周期的管理，律师也紧密配合新的需求，提供相应法律服务。

VI. The Impact of the Amendment to the Anti-Monopoly Law on Real Estate Legal Practice 反垄断法的修订对地产法律业务的影响

The real estate sector is generally deemed to be an industry with adequate competition and less market concentration, and therefore not considered as a key area of anti-monopoly regulation for long. Among the numerous M&A transactions in the real estate sector in the past, only a few were filed to the anti-monopoly regulator for concentration of undertakings review, and cases where parties were penalised for failure to declare were rare. However, with the implementation of the Amendment to the Anti-Monopoly Law on August 1, 2022, the legal liability for violation of laws or regulations of unfair competition has increased significantly, greatly strengthening the deterrence of the Anti-Monopoly Law. For a proposed real estate M&A transaction that falls into the scope of declaration under the new law, if the parties habitually fail to declare, such proposed transaction will be exposed to greater risk of investigation and a heftier fine than before. On the other hand, if the parties in transactions do comply and file a notification in accordance with the law, it is more likely to eliminate the regulatory risks through a speedy investigation process with relatively low costs and increase the transaction certainty, given the slim odds of a real estate transaction being identified as a monopoly practice. Therefore, legal services assisting with antitrust filings of real estate enterprises are expected to rise significantly.
房地产行业是竞争充分的行业，市场份额分散，长期以来并不被认为是反垄断监管的重点领域，在房地产行业过往层出不穷的并购案件中，向反垄断监管者提交经营者集中申报的项目并不多，但因未申报而受到处罚的案例亦不多见。但随着《反垄断法修正案》于2022年8月1日的正式实施，不正当竞争的违法责任大幅增加，极大加强《反垄断法》的威慑力。在新法之下，达到申报标准的地产项目若仍惯性地不进行申报，将面临更大的被调查风险以及更巨额的处罚风险。另一方面，如果房企依据法律要求进行申报，鉴于地产项目被认定为垄断的可能不大，更有可能通过快速的审查流程、以相对较小的成本排除交易中受到监管处罚隐患，增加交易的确定性。因而，协助地产项目进行反垄断申报的法律业务预计也将有显著上升。

Lastly, fundraising expansion via infrastructure REITs is expected to accelerate in order to expand channels for private investors into the market. The market also calls for policy easing on foreign investors. Should investment capital become abundant again, the real estate market could bottom out and gradually return to the track of development.
最后，为拓宽社会投资渠道，基础设施REITs将加速扩募，外商投资亦有放宽的呼声，充裕的资金助力地产业筑底并逐步走上发展的轨道。

VII. Expanded Offering in REITs 房地产投资信托进一步扩募  

After one-year implementation of the pilot program of infrastructure-backed real estate investment trusts (REITs), the rules for expanded offering in REITs have been issued, which make clear that the efficiency of project recommendation and review is to be improved to encourage more qualified infrastructure REITs projects to be listed in the market. The rules further specify the areas of affordable rental housing, ecological and environmental protection, industrial parks, warehousing and logistics, new infrastructure project and others as the key ones for the development of infrastructure REITs. It is foreseeable that the accelerated development of infrastructure REITs, driven by policy preference and market demand, will effectively revitalise the existing assets and promote the virtuous cycle of existing assets and new investments. Throughout this process, legal professionals can provide necessary protection for the parties involved and assistance in structuring the infrastructure REITs.
基础设施领域不动产投资信托基金（REITs）试点一年后，扩募规则也已出台，明确将进一步提高项目推荐、审核效率，鼓励更多符合条件的基础设施REITs项目的发行上市，并将保障性租赁住房、生态环保、产业园区、仓储物流、新型基础设施等资产列为基础设施REITs发展的重点领域。可以预见，在鼓励政策的推动和市场的需求的促进下，基础设施REITs将加速发展，以有效盘活存量资产，并促进形成存量资产和新增投资的良性循环。在这一过程中，法律服务者将为基础设施REITs的构建和交易参与者提供必要支持和保驾护航。

VIII. New Investment Opportunities in Real Estate for Foreign Investors 外商房地产投资的新机会

The previous stringent policies applied to foreign investors in real estate have been eased up in steps. The real estate sector has been removed from China’s Negative List for Foreign Investment Access and now foreign real estate investors are entitled to national treatment. The newly promulgated criteria of the application for developer qualification are very friendly to foreign investors, which allow investors with no project in process to file such an application. Although there are still restrictions on real estate enterprises in foreign debts borrowing, the voices calling for further easing up are getting louder with the hope of bringing more benefits to foreign real estate investors. Meanwhile, foreign real estate investors may adopt a more flexible, asset-light investment strategy, which is in line with the need of further urbanisation in the new economic climate, by providing high-quality operation management services and brand value so as to increase investment flexibility and ROI. Again in the process of such transition, legal advice to foreign real estate investors on key regulatory issues is indispensable for a compliant and successful new business or strategy.  
外商投资房地产的政策已逐步放宽，房地产行业现未被列在市场准入的负面清单，可享受国民待遇；最新的房地产开发资质申办条件对外资十分友好，即便没有开发项目也能申请开发资质；虽然房地产企业借外债还存在限制，但亦有越来越多声音呼吁放开，希望给外商房地产投资带来更多利好。同时，在新经济形势下，顺应提升城市化水平的需求，外资地产投资者可采用更加灵活的轻资产投资方式，通过提供高水平的运营管理服务和品牌价值增加投资的灵活性及提高投资的回报率。同样的在这样的转型过程中，对于重要监管问题的法律意见对于协助外商地产投资者发展合规且成功的新业务或战略至关重要。