Real-Estate Lawsuits Surge in China

By Esther Fung
SHANGHAI — The slumping property markets in many Chinese cities are generating one kind of boom: in legal
disputes.
Even as the beleaguered property market shows signs of inching out of a two-year property downturn, some home
buyers have begun suing property developers over facilities advertised at the time of purchase that were never built.
Developers, meanwhile, are taking local governments to court for refunds of money spent to buy land when prices were
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“The spike in legal disputes reflects economic realities,” said Zhao Xianlong, a Shenzhen-based partner at law firm
King & Wood Mallesons, who has represented Wal-Mart Stores Inc., HSBC Holdings PLC and others in real-estate disputes in
China.
Developer Ningbo Fuda Co. in March filed suit against the land bureau in Ninghai county in coastal Zhejiang
province for a refund on the 1.2 billion yuan ($183.7 million) it paid for land near the city center in 2011.
The lawsuit seeks 1.78 billion yuan in damages and returned interest payments and other fees. Ningbo Fuda filed the
suit after its lawyers tried to chase down local authorities for a couple of years, to no avail, said an employee in the
chairman’s office.
“We felt that filing a lawsuit would expedite the process from all departments involved,” said the employee. The
legal department of Ninghai’s land bureau declined to comment on the case other than to say that “with a market slump,
property developers might try to find all sorts of ways to return the land they had earlier bought.”
Overall civil suits involving contracts related to real-estate development, from purchases to deeds and taxes, rose
36% in 2015, the Supreme People’s Court said in March. Such cases increased by 5.5% in 2014, the year that the real-
estate downturn began to bite. The lion’s share of cases — 172,372 — involved new homes sold by property developers.
Mr. Zhao, the lawyer, said volatile property prices are upending terms of many contracts, and for those wanting to
renegotiate “the majority of conflict resolution is through lawsuits.” One of China’s biggest law firms, Zhong Lun Law
Firm, doubled the size of its dispute-resolution team in the past two years.
When Shenzhen-based property developer Kaisa Group Holdings defaulted on interest payments on its bonds in early
2015, for example, dozens of legal actions ensued, from requests to freeze the firm’s assets to claims for as much as
three billion yuan for unpaid loans.
The litigiousness has hit the better-off markets in major cities such as Shenzhen and Shanghai, where home prices
have rebounded. Complaints are rising about unscrupulous property agents and developers who try to drive up demand. Some
employ actors in their showrooms to give buyers the impression of scarcity so they feel pressure to make a purchase
quickly.
Housing authorities in Shanghai in March said some couples are faking divorces to get around restrictions limiting
families to only one additional home purchase.
Midsize and small cities, where the real-estate glut abounds, are seeing the fastest growth in legal cases,
according to Cheng Xinwen, chief judge of the first civil tribunal of the Supreme People’s Court in a late December
speech.
In Yuyao, a small city set amid industrial parks south of Shanghai, a group of nine home buyers last year sued
state-owned Poly Property Group Co., alleging false advertising. Home prices have been falling in Yuyao, according to
local residents and property developers, though its prices aren’t covered by major real-estate tracking services. In the
nearby city of Ningbo, average new home prices are more than 12% below the level of June 2010, according to SouFun
Holdings.
The plaintiffs said Poly failed to build a shopping mall, theater, school and other amenities included in the
marketing for Poly Jordan International.
Poly Property, the property arm of Chinese conglomerate China Poly Group Corp., which is also involved in arms
dealing, said that it will respect the verdict. Earlier the company said that it is delaying the remaining construction
due to an oversupply of commercial complexes in Yuyao. Initially, the company offered a settlement that included 50,000
yuan in cash and a parking lot, but the plaintiffs declined.
“We’ve tried to talk to the developer many times to resolve this but they never offered fair compensation,” said
Zheng Zhixin, one of the plaintiffs, who bought an apartment in 2012. “Litigation appears the only way left.”
In the cradle of the communist revolution, the northwestern city of Yan’an, department store operator Xi’an
Minsheng Group and Shanxi Yulong Real Estate Development Group are suing each other over a shopping complex. After Xi’an
Minsheng bought the complex in 2011, it discovered that Shanxi Yulong previously sold the same property to another
company and withheld about a 10th of the 388.3 million yuan sales price.
Suits and countersuits each demanded about 99 million yuan in damages. Xi’an Minsheng was ordered by a local court
to pay about 53 million yuan for the overdue payment plus compensation. The company said in a stock exchange filing last
month it would appeal.
Write to Esther Fung at esther.fung@wsj.com

(END) Dow Jones Newswires
05-17-160544ET
Copyright (c) 2016 Dow Jones & Company, Inc.

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