I. Introduction

According to the 2025 Basic Conditions of the National Real Estate Market released by the National Bureau of Statistics of China in January 2026, key indicators for the year showed a continued decline: national real estate development investment fell by 17.2% year-on-year to CNY8.28 trillion; the floor area under construction dropped by 10.0%; sales area of new commercial housing decreased by 8.7%; and available funds of developers (also referred to as project companies or real estate enterprises) declined by 13.4%.

This macro-level downturn of the real estate industry has been transmitted upstream and downstream along the supply chains and materialised into a huge number of disputes and cases among micro legal entities. Internally, there are joint venture and co-operative real estate development contract disputes and disputes over liabilities for damaging company interests filed by developers’ shareholders due to diverging interests during co-operative development. Externally, issues such as delivery and quality between developers and homebuyers give rise to real estate sales contract disputes, while conflicts with financial institutions result in financial loan contract disputes, and engagements with upstream and downstream construction units and suppliers of materials and equipment trigger a large number of creditors’ subrogation lawsuits. As an increasing number of debt-ridden real estate enterprises enter judicial bankruptcy reorganisation, the various aforementioned creditors can only realise their claims through collective liquidation procedures.

This article aims to conduct a brief analysis of five types of disputes that have been exacerbated by the current market predicament, thereby observing the current situation and trends of China’s real estate industry.

II. Five Common Types of Disputes

1. Among shareholders of project companies: joint venture and co-operative real estate development contract disputes; disputes over liabilities for damaging company interests

Amid the market downturn, disputes among shareholders of project companies commonly arise in three co-operative scenarios:

• In equity co-operation projects with the principle of “equal equity, equal investment”, all parties should, based on that principle’s core implication of “joint operation, risk sharing and profit sharing”, provide registered capital, shareholder loans and financing guarantees for the project company in proportion to their respective shareholdings, and enjoy/bear the profits/losses of the project company accordingly. However, when a project falls into the predicament of expected losses, minority shareholders may refuse to perform their obligations in proportion to their shareholdings, and the majority shareholder as the project operator has to bear the subsequent investment and expected losses of the project alone to safeguard its brand and reputation.
• In equity co-operation projects that do not follow the principle of “equal equity, equal investment”, the dominant co-operating parties often set various senior-subordinated arrangements for priority recovery of investment in the contract, resulting in inconsistent interests among shareholders at different development stages of the project. When the project returns cannot fully cover the expected returns of all shareholders, shareholders with priority in distribution will insist on advancing the project, while shareholders with subordinated returns will refuse to continue providing development funds considering potential losses or meagre profits in the later stage, leading to the suspension of project development, the deadlock of the project company and subsequent disputes among shareholders.
• In co-operative projects structured as “equity in name, debt in reality” against the backdrop of stringent regulation on real estate financing, investment and financing co-operation projects between financial institutions and real estate enterprises often adopt complex transaction structures to evade financial supervision and the consolidation of real estate enterprises’ financial statements. The co-operation contracts often intentionally obscure the true intent of both parties regarding this equity-debt arrangement and financing nature. When a project fails to proceed and generate repayments as scheduled, whether the investment from financial institutions constitutes equity investment or debt financing often becomes the core issue in disputes.

2. Between developers and financial institutions: financial loan contract disputes

Real estate development is a capital-intensive industry, and financial institutions are deeply involved in the real estate sector through various channels such as on-balance-sheet credit, bonds, non-standard financing and “equity in name, debt in reality” arrangements. Amid the continuous decline in housing prices and difficulties in project sales, real estate enterprises are facing enormous pressure on capital liquidity. At present, the non-performing loan ratio of financial institutions’ corporate real estate credit has risen significantly, which may even trigger systemic financial risks. Therefore, the Chinese government has repeatedly emphasised the need to stop the decline in housing prices and stabilise the market.

Financial institutions are also actively assisting real estate enterprises with debt restructuring and relief through debt reduction and refinancing, and have refrained from adopting judicial measures unless necessary. Now that the national task of “ensuring the delivery of completed housing” has been basically completed, the protective phase of the treatment of distressed real estate enterprises has passed, and financial institutions have increasingly initiated litigation and arbitration proceedings directly.

The contract documents of financial institutions are relatively well drafted, so there are few obstacles to them succeeding after entering judicial procedures. The real difficulties lie in the decline in the value of collateral, as well as the preservation and disposal of assets. In the case of real estate mortgages, financial institutions may face multiple risks in the process of recovering funds. First, the collateral (including land, properties under construction and completed buildings) may be repeatedly mortgaged to multiple financial institutions, or it may be subject to scenarios where the land and the structures on it are mortgaged separately. Second, such assets may also be subject to pre-emptive judicial seizure by other creditors. Third, there is uncertainty in the final stage of asset disposal – such as whether judicial auctions will proceed smoothly or whether they will undergo rounds of unsuccessful auctions, forced sales or even debt-for-asset settlements. Any of the above circumstances may have a significant impact on the recovery of funds by financial institutions.

Furthermore, the actual controllers of real estate enterprises often provide joint and several liability guarantees, and some may engage in “debt avoidance” acts such as asset transfer, including but not limited to disposing of assets in advance, bearing huge liquidated damages externally through valuation adjustment mechanisms, and emigrating overseas. In this regard, financial institutions protect their rights as creditors not only through civil legal means such as financial loan contract disputes and creditors’ revocation lawsuits, but also through criminal charges such as charges of fraud and of obtaining loans by fraud.

3. Between developers and upstream & downstream entities: creditors’ subrogation lawsuits

Disputes between developers on the one hand and upstream and downstream entities on the other mainly revolve around the payment of project funds, which are specifically reflected in the following aspects:

• (1) The coexistence of direct project fund disputes and derivative disputes from creditor’s right assignment. Due to capital chain rupture, developers fail to pay project funds as agreed, which on the one hand leads to direct project fund lawsuits filed by construction units; on the other hand, to activate their rights as creditors, construction units transfer project fund creditors’ rights to third parties, which in turn triggers relevant lawsuits filed by the assignees, resulting in a substantial increase in the number of lawsuits against developers.
• (2) The transmission of debt problems from Project A of a distressed developer to Project B of a financially sound developer. Specifically, a general contractor is the contractor of both the distressed Project A and the sound Project B. When the project funds of Project A cannot be received as scheduled, the creditors of the general contractor (including subcontractors and suppliers of Project A) will claim debt repayment through various means, including: applying to the court for serving legal documents such as notice of assistance in execution and notice of performance of mature debts to the developer of Project B; requiring the developer to provide the original construction contract with the general contractor; enquiring about the progress payment, settlement payment and other receivables of the general contractor in Project B, and taking freezing measures against the corresponding payables; and directly filing a creditors’ subrogation lawsuit against Developer B in the capacity of the general contractor’s creditor.

Faced with the above situation (2), the developer of Project B is confronted with the following challenges: (a) the interception of construction funds of Project B by the creditors of Project A will directly hinder the smooth development and construction of Project B; and (b) the developer of Project B and the involved general contractor often have not completed the final settlement, and issues such as whether the relevant funds meet the payment conditions and whether liquidated damages for construction period delays or quality problems should be deducted are not clear. Hasty external payment may make it impossible for the developer to exercise its legitimate right of deduction and damage its legitimate rights and interests. Ultimately, Project B, which was originally in a sound state, may fall into difficulties due to the transmission of debt risks from the distressed Project A.

4. Between developers and homebuyers: real estate sales contract disputes

On the one hand, due to the continuing implementation of real estate financing policies such as the “Three Red Lines” and the decline in commercial housing prices, most developers are facing financial pressure, leading to the failure of project development and construction funds to be in place as scheduled, which causes delayed payment of project funds, construction period delays, and frequent occurrences of delayed delivery and substandard quality of commercial housing, resulting in losses to homebuyers. On the other hand, fluctuations in housing prices have also caused psychological distress among homebuyers who purchased houses at a high price, often leading to mass petitions and complaints and irrational petitions and complaints. Relevant government departments handle such incidents based on the political consideration of “maintaining stability”, resulting in developers having to face unreasonable demands from homebuyers beyond the provisions of the sales contracts.

The main focal points of such disputes include:

• The validity of standard terms in sales contracts: In practice, the terms of model sales contract documents formulated by the government are usually neutral and reasonable, while developers often add content favourable to them or delete content unfavourable to them using supplementary agreements. Disputes arise over whether sufficient prompts were given regarding the modification of the main contract terms in the supplementary agreements. Failure to give sufficient prompts may result in the modified terms not being deemed as contract terms, and even if sufficient prompts are given, the terms may be invalid due to obviously aggravating one party’s obligations.
• Liabilities for delayed house delivery and quality problems: Developers and homebuyers mainly dispute over the causes of delayed delivery and the standard of liquidated damages, as well as whether the house quality complies with the contract agreement.
• Changes in project planning and design: Partial changes to the planning and design of public and common areas of a project must be implemented upon approval by homebuyers through voting and submission to theMinistry of Housing and Urban-Rural Development for examination and approval. If a developer arbitrarily changes the planning and design without obtaining the consent of the majority of homebuyers, it will face the risk of homebuyers claiming that the developer had no right to dispose and demanding restoration of the original state and compensation for losses, as well as the risk of administrative penalties.

5. Between developers and numerous creditors: bankruptcy reorganisation of real estate enterprises

According to the work report of the Supreme People’s Court of China and statistics from the China Real Estate Association, the number of bankruptcy cases accepted by Chinese courts has been gradually increasing in recent years, while the number of bankruptcy cases of Chinese real estate enterprises has shown a trend of first decreasing and then rebounding. The main reason is that after China’s real estate industry fell into a crisis in 2022, many real estate enterprises that met the bankruptcy criteria stipulated in the Enterprise Bankruptcy Law were unable to enter the judicial bankruptcy reorganisation procedure because courts refused to accept the cases due to the national task of “ensuring the delivery of completed housing” to protect the interests of numerous pre-sale homebuyers, forming a logjam in the orderly exit mechanism of China’s market economy.

Now that the national task of “ensuring the delivery of completed housing” has been basically completed, distressed real estate enterprises will exit the market in accordance with the principles of “marketisation and legalisation”. At present, an increasing number of real estate enterprises will enter the bankruptcy reorganisation procedure – those with reorganisation value may undergo reorganisation, and the rest will exit through bankruptcy liquidation.

The bankruptcy reorganisation of real estate enterprises, especially those involving urban renewal projects, is one of the most complex types of bankruptcy cases. On the one hand, it involves multiple stakeholders, including creditors (such as homebuyers, relocated households, construction creditors, employees, etc), debtors, investors, relevant government departments and reorganisation investors. On the other hand, there exist multiple layers of conflicting rights and interests. Over the debtor’s primary assets – commercial housing – complex legal relationships are entangled, involving multiple property rights (eg ,ownership rights, limited real rights, beneficial ownership interests not reflected in the registry) and multiple creditors’ rights (general creditors’ rights, creditors’ rights with survival attributes, creditors’ rights in the form of “equity in name, debt in reality”).

The order of creditors’ rights repayment and the repayment plan are often full of disputes. Formulating a draft reorganisation plan that can balance the interests of all creditors, investors, contributors and other parties requires proficient legal skills and a profound understanding of the industry. At present, the greatly revised draft of the new Enterprise Bankruptcy Law is open for public comments, and the legal system and rules for bankruptcy reorganisation are being further improved and optimised. It is expected that the number of bankruptcy reorganisations of Chinese real estate enterprises will increase significantly in the years after 2026. Through the bankruptcy reorganisation of real estate enterprises, the backlog of a huge number of real estate-related disputes and cases can be handled efficiently in terms of trial and enforcement, and the market environment can be purified.

III. Conclusion

The authors’ team has long provided full-chain legal services for the real estate industry. The above five types of cases are the high-frequency types of real estate disputes that have been handled by the team in recent years. This brief analysis presents an overview of real estate dispute resolution in China’s real estate industry for readers.

It is predicted that the next three to five years will still be a period of market adjustment, exploration of a new development model, and a high-incidence period of disputes in China’s real estate industry.