The Chinese real estate crisis remains unresolved, and the gradual expiry of land use rights is adding new pressure, with analysts calling it a “time bomb.” Some local governments have issued regulations to replenish their fiscal revenue, requiring high fees for renewing land use rights.
On the mainland, including office buildings and shopping centers, real estate land use rights are gradually expiring. Cushman and Wakefield estimate that currently, over 1 trillion RMB of non-residential real estate leases have terms of less than 20 years, indicating that many leases are already half over or even longer.
The current land use system dates back to the early 1990s. According to the current regulations, commercial land use rights last a maximum of 40 years, industrial and office land 50 years, and residential land 70 years. As early land use rights gradually expire, related issues are shifting from long-term risks to actual investment obstacles. Real estate consulting firm CBRE Group Inc. has estimated that by 2030, around 30 million square meters of office and retail space in 18 major Chinese cities will have remaining land use rights of less than 20 years. This estimate only covers properties held by single owners, suggesting the actual scale may be larger.
The lack of clear rules for land use rights renewal in the past has led to asset devaluation, stalled transactions, and investors facing significant risks of asset devaluation. The Chinese government is now revising policies to secure additional funding while preventing the real estate crisis from worsening.
Bloomberg has described the situation as a “time bomb,” with a large number of land use rights in China set to expire soon. When leases expire, owners may be forced to return the land to local governments. However, the lack of clear directives on when and how to extend land use rights has been a longstanding challenge for real estate developers and global investment funds, particularly amidst the downturn in the real estate market.
Developers like Parkview Group Ltd. and New World Development Co. have reportedly found it difficult to sell assets due to the shortening of land use rights.
In some major Chinese cities, real estate prices have fallen by over 40% from their peaks, while the total debt default scale of Chinese real estate developers is estimated to be around 130 billion USD.
Song Hongwei, Director of Research at the China Real Estate Research Institute, stated, “The policy uncertainty surrounding land use rights renewal has led to plummeting valuations in commercial real estate, hampered fundraising, and obstructed transactions.”
With a wave of expiring 40-year commercial land and 50-year industrial land rights from the 1980s and 1990s hitting in 2026, Guangzhou issued the “Guidance on the Renewal of Land Use Rights for Industrial and Commercial Projects” in April, followed by Shanghai on July 31.
Shanghai’s document has sparked broader attention. It stipulates that when the remaining land use period is less than 3 years, renewal can be applied for; when it is less than half of the maximum period, early renewal can be requested. For example, for commercial land with a maximum usage term of 40 years, renewal can be requested when there are less than 20 years remaining.
Regarding the renewal price, it is not calculated based on the land use rights prices from the 1990s but according to the current land assessment benchmark prices. The renewal price should generally not be lower than 70% of the benchmark land price, and the related fees must be paid within one year.
This regulation has raised questions as using current land prices as the basis for calculation may still result in renewal costs far exceeding the land use rights prices from the 1990s, even at the minimum 70% standard.