Lawyer says rules on real estate market could be tightened up further
July 16, 2008 | BY
clpstaff &clp articles &Developers will struggle more as there is a lack of cash
Falling property prices and the squeeze on bank loans have quietened down the real estate market. But developers have been struggling, and these tough times might not go away any time soon.
“China's regulatory approach has already created difficulties for local developers,” said Kevin Wang, partner at Global Law Office. “But we haven't seen any sign that the government wants to loosen up the policy. Instead, we expect that more controlling steps will be done by the government.”
Some developers might leave the market as a consequence. Others, Wang said, could choose to merge with others to lessen their losses.
“We expect to see a lot of restructuring between the developers,” he said.
Many developers are lacking sufficient funding due to the squeeze on bank loans. In comparison to that of 2007, M&A activities in the real estate sector have dwindled dramatically.
Wang said a lot of his work in this area focuses on providing general counseling to small and medium enterprises, whereas last year, large M&A projects in the real estate sector were their core focus.
Meanwhile, foreign clients' investment strategies have also changed: instead of focusing on short-term deals such as buying and selling, foreign clients now tend to center on long-term investment, he said.
Regarding whether the squeeze on bank loans and falling property prices would create a good opportunity for foreign investors to enter the market, Wang said that the government, since 2006, has further controlled the flow of foreign developers entering the market.
“The real estate market is already peaking. Too much foreign capital could lead to a bubble burst, and that's risky,” Wang said.
But cities such as Shandong need foreign capital to help them to develop. So the government still welcomes foreign capital, but it might not be to Beijing and Shanghai, he said.
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