The 26-year-old playmaker has been in sensational form since joining Bayern Munich on loan in the summer and the Bundesliga giants are more than keen to land his signature on a permanent basis before the 2018/19 campaign.
Despite joining the club during the final weeks of Carlo Ancelotti's reign, the Ex-Monaco ace has remained a key figure under Jupp Heynckes' tutelage and has bagged four goals and six assists in the league this term.
James is now looking to gain assurances over his future and is plotting for a potential departure in the near future, should Bayern decide not to facilitate the £37m move and send the midfielder back to the Bernabeu.
Assuming he's not in Zinedine Zidane's central plans going forward, his favoured destinations - in the seemingly very unlikely event Bayern don't activate his permanent transfer clause - would be Arsenal or Liverpool, according to Don Balon, who cite the player's Colombian teammate Yerry Mina as their source.
While both Arsenal and Liverpool may be more focussed on adding to their defences come the summer, James could be a modern day steal at around £40m - should Real agree to sell for the same clause they provided Bayern.
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The former Porto man was one of the stars of the 2014 World Cup and collected awards for Goal of the Tournament and Golden Boot, earning his £55m move to Spain in the same year.