China’s real estate market has faced a long-standing ultimate challenge – how to renew land use rights after they expire? Shanghai has finally provided clear guidance on this issue. However, the new regulations currently only apply to non-residential land. Among them, the renewal fee must not be less than 70% of the current land benchmark price. The recently disclosed fee schedule has drawn attention, with some netizens describing the cost as “equivalent to buying another house at current prices.”
Shanghai officially issued the “Guiding Opinions on the Renewal of Land Use Rights for Industrial and Commercial Projects in Shanghai (Trial)” on July 31. The document indicates that the land use rights renewal only applies to non-residential land used for industrial, commercial, office, cultural, sports, and other purposes, excluding residential land for residents.
China’s urban land follows a system of state ownership, with the Communist authorities gradually establishing the current land use rights transfer system in the 1990s. Different types of land have different maximum term limits for land use rights, such as 40 years for commercial land, 50 years for industrial and office land, and 70 years for residential land.
According to the guidance, companies can choose to renew when the remaining land use term is less than 3 years, or to apply for early renewal when the remaining term is less than half of the legal maximum term. For example, for commercial land with a maximum term of 40 years, an application can be made when the remaining term is less than 20 years.
The document emphasizes a “renew as much as possible” approach, establishing the principle of “renewal as the norm, non-renewal as the exception.” After a company applies for renewal, the government would generally approve it; only in cases where the land needs to be reclaimed for public interest purposes, such as building subways or schools, or if the project’s performance is poor and classified as category C or D, would renewal be denied.
In terms of the renewal period, the shortest single renewal period is 5 years, with the total period not exceeding the maximum set for different uses, e.g., 40 years for commercial land, 50 years for industrial and office land. Different owners of the same building can also apply for different renewal periods based on their individual circumstances.
If owners do not apply for renewal, the government may reclaim the land use rights and the above-ground structures without compensation. If the buildings are severely damaged and unusable, owners may even have to bear the costs of demolition and land restoration themselves.
The highly anticipated renewal price is not calculated based on the prices at which land use rights were obtained in the 1990s but on the current land assessment benchmark prices, with renewal prices generally not lower than 70% of the benchmark price, and the related fees must be paid within one year.
According to data cited, the renewal cost for Pinduoduo’s previously acquired Shanghai Jing’an Star Plaza, with a building area of around 45,000 square meters, could amount to approximately 790 million RMB if renewed for 50 years based on the minimum 70% standard.
On social media platforms, a mainland Chinese blogger suggested that the commercial land renewal policy could serve as a reference for future residential land renewals. As the 40-year term for commercial land is approaching expiration, one of the key points of this policy is providing specific reference standards for renewal fees for the first time.
The blogger also noted that the new regulations use current land prices as the basis for calculating fees, which may result in renewal costs much higher than the prices paid in the 1990s for land use rights. This has led owners to feel like “buying another house at current prices” and raised questions about the ownership of properties without land ownership.
According to China’s Civil Code, residential construction land use rights automatically renew upon expiration, but the law does not clearly stipulate whether renewals are free of charge, and specific methods for payment or fee waivers still need further regulations from future laws and administrative rules.
Furthermore, data from the People’s Bank of China show that housing assets account for 69.3% of urban household assets in China. This signifies that for many families, real estate remains the primary wealth carrier, so how residential land use rights are renewed in the future, whether fees will be charged, and how fee standards are set could directly impact long-term property expectations for families.
Over the long term, land transfer revenue has been an important source of income for some local governments. With the continued stagnation of the real estate market and declining land transfer revenue, many local governments face significant fiscal and debt pressures. On social media platforms, some netizens have commented that land use rights renewal fees could become a “new source of revenue” for local governments.
Therefore, how much non-residential land in China may soon face renewal? According to estimates from Chen Jiahui, the director of Valuation and Advisory Services for Greater China at a well-known real estate consultancy firm, there are currently approximately 1 trillion RMB worth of non-residential properties in China with remaining land use rights of less than 20 years, which is half of the statutory term or longer.
Earlier this year, Guangzhou had already introduced similar measures for land use rights renewal. With Shanghai issuing more specific guidance on renewals, whether this approach will become a model for other cities and if it will eventually extend to residential land, are questions currently under market scrutiny.