Amid the persistent downturn in the real estate market, local government revenue from land sales has declined for four consecutive years.

Recent data released by the Ministry of Finance shows that the revenue from the transfer of state-owned land use rights, a key component of local government fund budgets, amounted to 4.1518 trillion yuan in 2025, reflecting a year-on-year decrease of 14.7%.

This marks the fourth consecutive year, since 2022, that this revenue stream has experienced a double-digit decline. Compared to the peak of local land sales revenue in 2021 (8.7 trillion yuan), the 2025 figure has fallen by approximately 4.6 trillion yuan, a staggering drop of 52.3%.

Luo Zhiheng, Chief Economist at Yuekai Securities, stated that the deep adjustment in the real estate market has directly led to the continued decline in local land sales revenue, which reduces available local fiscal resources and intensifies debt repayment pressures.

He forecasts that land sales revenue will continue its downward trend in 2026, although the rate of decline is expected to narrow.

Luo Zhiheng explained that the sustained decline in land sales revenue stems from the profound restructuring of the real estate market, which is fundamentally driven by the transformation of the economic development model under the requirements of high-quality growth.

"The shift in the supply and demand dynamics of real estate has led to a sluggish market and operational difficulties for developers, which is the direct cause of the continued decline in 'land finance'," Luo said. "The development situation for urban housing has transitioned from a total shortage to a scenario of structural oversupply coexisting with a lack of high-quality product offerings. Sluggish property sales are causing hardships for developers, making them more cautious in acquiring land and making investments."

Data from the National Bureau of Statistics indicates that in 2025, national real estate development investment was approximately 8.3 trillion yuan, down 17.2% from the previous year. Sales revenue from newly built commercial housing in 2025 was about 8.4 trillion yuan, a decline of 12.6%.

The situation regarding local land sales revenue in 2025 showed significant variation across different provinces. For instance, according to official local data, Beijing saw a slight increase (4.7%) in its government fund budget revenue, which is primarily derived from land sales, last year; Guangdong's land sales revenue fell by 11% year-on-year; while Henan's plummeted by 27.7%.

Luo Zhiheng believes that macroeconomic structural adjustments and the demand for high-quality development require China to transition from real estate prosperity to becoming a technological and manufacturing powerhouse.

He points out that the traditional factors of production—land, labor, and capital—are experiencing diminishing marginal returns, making the "land finance" development model unsustainable and necessitating an accelerated cultivation of new, quality productive forces to find new engines for economic growth.

The four consecutive years of declining local land sales revenue have exacerbated fiscal revenue and expenditure contradictions for some local governments, as acknowledged by local fiscal officials.

Luo Zhiheng analyzes that the persistent decline in land sales revenue impacts local governments in three main ways: First, it reduces their available fiscal resources. As land sales revenue is a primary source for local government fund budgets, its decline directly contracts available funds, intensifying the already tight fiscal balance. Second, it increases the pressure on local government debt repayment. Many local government debts rely on land revenue as a source for repayment; a drop in income could affect their ability to service principal and interest. Third, it constrains local infrastructure investment. The shrinkage in land revenue leads to corresponding reductions in expenditure, creating insufficient funding sources for infrastructure projects, which could potentially hamper local economic growth.

For example, a research paper titled "Study on the Matching Relationship between Fiscal Revenue and High-Quality Development Support," published by a research team of the Anhui Provincial Department of Finance in October last year, stated that the significant decline in Anhui's land sales revenue has drastically reduced its contribution to fiscal revenue, creating a gap that is difficult to fill. For the province as a whole, land sales revenue accounts for over 40% of the combined revenue from the general public budget and the government fund budget. However, in 2024, this revenue was nearly 50% lower than the peak year (2021), forming a substantial revenue shortfall.

The Anhui article noted that the decline in land sales revenue reduces local fiscal capacity, which in turn lowers the allocation quota for new debt limits (excluding the portion of increased debt limits supporting debt resolution). In terms of debt structure, the proportion of general bonds has been continuously decreasing, down 4 percentage points in 2024 compared to 2019, deepening the financing difficulties for public welfare projects. Furthermore, the continuous devaluation of land resources hinders the operation of the government investment and financing chain centered on land. The declining asset quality of urban investment platforms affects their debt repayment capacity, and the diminishing value of collateral restricts credit extension by financial institutions, further weakening the government's overall available fiscal resources.

Of course, since a significant portion of land sales revenue is used to cover costs such as demolition and relocation, some research suggests that net land income constitutes only about a quarter of the gross land sales revenue. Therefore, as land revenue falls, corresponding expenditures also decrease, meaning the overall impact might not be as severe as perceived externally. The Ministry of Finance has previously stated publicly that due to the linkage between revenue and expenditure for state-owned land transfers, the impact of the revenue decline is not that substantial. For instance, the 2 trillion yuan reduction in land sales revenue in 2022 only affected local general public budget resources by about 300 billion yuan.

Affected by the reduction in local land sales revenue, expenditures related to land transfers have also seen a significant decline. Ministry of Finance data shows that in 2025, local expenditures related to land sales revenue were approximately 4.7 trillion yuan, down 7.6% year-on-year. This represents a decrease of about 39% compared to 2021 expenditure levels.

So, what is the outlook for local government land sales revenue this year?

Judging from the expectations for government fund revenue—primarily from land sales—disclosed by some provinces for 2026, most anticipate this revenue to achieve growth.

According to local budget reports disclosed by provincial finance departments, Guangdong expects its local land sales revenue to reach 253.66 billion yuan in 2026, a 5% increase. Henan forecasts its local government fund budget revenue to be 248.46 billion yuan, surging by 57%. Hebei anticipates local government fund budget revenue of 224.97 billion yuan, an increase of about 22%. Jiangxi's government fund budget revenue for 2026 is projected to be 162.45 billion yuan, growing by 2%.

Naturally, some provinces expect this revenue to decline. For example, Zhejiang's budget report indicates an expected government fund budget revenue of 491.842 billion yuan for the province in 2026, a decrease of 16.2%.

Luo Zhiheng believes that, underpinned by multiple rounds of real estate policies, China's property market is gradually moving away from the risk of a "hard landing" and entering a phase of more prolonged, gentler, but continuous adjustment.

He identifies two favorable factors for the land market in 2026: First, the intensive implementation of local government special bond purchases for land reserves will improve the supply and demand structure of the land market, facilitate inventory digestion, and the offering of premium land plots by local governments will help stabilize transaction prices. Second, the accelerated resolution of developers' existing debt risks will improve the industry's financing environment, potentially restoring confidence in land acquisition and investment. He predicts a marginal improvement in the land market for 2026, with the rate of decline in land sales revenue narrowing compared to 2025, although a return to positive growth remains unlikely.

Historically, local governments' expectations for land sales revenue have often differed significantly from the final actual revenue, primarily influenced by the actual real estate market conditions in a given year. The Central Economic Work Conference at the end of last year called for efforts to stabilize the real estate market this year.

Luo Zhiheng argues that to stabilize land sales revenue, it is essential to push the real estate market towards "halting the decline and stabilizing" as soon as possible, employing extraordinary and systematic policy measures with firm determination and strong signals to rebuild market confidence.

He recommends establishing a "Real Estate Stabilization Fund" at the central level, possibly funded by methods such as additional government bond issuance. This fund would be dedicated to two core areas: firstly, providing support for "ensuring project delivery" for troubled but market-viable projects, effectively safeguarding the legitimate rights and interests of homebuyers; secondly, acquiring some of the idle land held by developers to inject crucial liquidity into them.

Local governments remain key to stabilizing the property market. The National Housing and Urban-Rural Development Work Conference at the end of last year, while deploying tasks to stabilize the real estate market this year, required city governments to fully utilize their autonomous regulatory powers, adjust and optimize real estate policies in a timely manner, support rigid and improved housing demand, and promote the stable operation of the real estate market.

Luo Zhiheng suggests increasing fiscal support to local governments this year to regulate land supply at its root. To compensate for the sharp reduction in land sales revenue due to the real estate downturn, he proposes that the central government provide compensation through increased transfer payments or by further raising local government debt quotas. This would grant local governments greater fiscal space, fundamentally control and reduce non-essential land supply, and vigorously advance the repurchase of existing idle land, thereby reversing the supply-demand imbalance in the market.

"This year, consideration could be given to further substantively easing restrictive measures such as home purchase restrictions in first-tier cities like Beijing, Shanghai, and Shenzhen, to release pent-up genuine demand, leverage their role as market bellwethers, and boost nationwide market confidence," Luo said.

Regarding both supply and demand in the real estate sector, Luo Zhiheng advises placing high importance on effectively resolving the liquidity risks of real estate enterprises. He encourages actively supporting high-quality leading developers in the industry to integrate projects and assets from developers facing liquidity difficulties or operational distress through mergers and acquisitions. Additionally, he recommends continuing to guide the 5-year Loan Prime Rate (LPR) downward to further reduce mortgage interest rates for residents, and lowering various transaction taxes and fees associated with home purchases to genuinely alleviate the burden on buyers.