Can You Buy Properties With Sale-and-Leaseback Agreements?

“After-sale leaseback” is a model that lures investors with the promise of high returns to sell commercial properties to property owners. This business model typically involves signing two contracts: one for the sale and one for the lease. The sale contract is the standard commercial housing purchase agreement between the buyer and the developer. The lease contract is an entrustment management agreement where the owner then leases the property back to the developer.
In this transaction, owners usually never take physical possession of the property—there is no actual handover of keys or possession.

When developers build a shopping mall normally, they typically sell a portion of the shops to individual owners while retaining the rest themselves, managing the entire property uniformly. Generally, beyond factors like location and shop positioning, what matters most is the property management and operational expertise of the mall. This management operates on two levels: property management and commercial operations.
Generally, the higher the proportion of shops the developer retains, the better the mall performs; conversely, the higher the sales ratio to individual owners, the worse it tends to be. The portion sold to owners normally wouldn’t need to be leased back from them at all. The fact that developers feel compelled to guarantee rental returns (typically lucrative, around 8%–16% of the property price) is primarily aimed at selling units quickly.
Developers specializing in commercial retail almost never use this structure today. Its essence isn’t really about selling real estate but rather using shops as a financing tool to rapidly absorb capital.
The after-sale leaseback model itself isn’t inherently flawed. However, many such arrangements suffer from poor shop performance and developers withdrawing investment. A project whose ultimate goal is fundraising rather than selling real estate can hardly succeed.
After-sale leaseback cases are often accompanied by a cascade of problems: unpaid rent, property management issues, inability to obtain property ownership certificates, poor business performance, developers absconding, and management companies going bankrupt or fleeing. In extreme cases, entire projects are left unfinished.
To address these recurring issues, the government explicitly banned after-sale leasebacks in the “Measures for the Administration of Commercial Housing Sales.”
Article 11: Real estate development enterprises shall not sell commercial housing through original-cost buyback sales or disguised original-cost buyback sales.
Real estate development enterprises shall not sell unfinished commercial housing through after-sale leaseback or disguised after-sale leaseback arrangements.
In 2011, the Supreme People’s Court issued a dedicated judicial interpretation.
Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fundraising
Article 2: Anyone who commits any of the following acts, meeting the conditions specified in Article 1, Paragraph 1 of this Interpretation, shall be convicted and punished for the crime of illegally absorbing public deposits under Article 176 of the Criminal Law:
(1) Illegally absorbing funds through original-cost buyback sales, after-sale leaseback, agreed repurchase, or sale of property shares, where there is no genuine content of property sales or property sales is not the primary purpose.
Under this judicial interpretation, after-sale leaseback arrangements can lead to criminal penalties of up to 10 years in prison.