Author: Chen Yikan

　　The decline in the land market this year has clearly exceeded expectations in many places.

　　Recently, many grassroots governments have adjusted their budgets in accordance with the law, aiming to achieve a balance of budgetary revenue and expenditure throughout the year. Most of them have lowered their budgetary revenue expectations for government-managed funds at the beginning of the year, and this revenue mainly comes from the transfer of state-owned land use rights (hereinafter referred to as " Income from land transfer"), the rate of reduction varies from place to place, and in some places the rate of reduction in land transfer income can even be as high as 97%.

　　The main reason for the sharp decline in land transfer income is that the downturn in the property market and the difficulties of real estate companies have led to low willingness to acquire land.

According to the data from the Ministry of Finance, in the first 10 months of this year, among the revenues of local government funds, land transfer revenues were 4,402.7 billion yuan, a decrease of 25.9% from the same period of the previous year.

The last time land transfer income fell by more than 20% was in 2015.

　　Land transfer income is an important source of local fiscal revenue. Over the past 20 years, land transfer income has increased from more than 50 billion yuan to over 8.7 trillion yuan. With the downward pressure on the economy, the dependence on land finance is increasing.

Land transfer income has fallen sharply this year, where is the land finance going?

　　Reduce land transfer income

　　Among the fiscal revenues of local governments, in addition to general public budget revenues dominated by taxes, another major source of financial resources comes from government-managed funds, of which land transfer revenues account for more than 90%.

Due to the sluggish land market this year, land transfer income is significantly lower than the budget at the beginning of the year. In order to achieve a balanced budget for the whole year, in the budget adjustment reports that have been disclosed intensively since October, most places have lowered the government fund budget revenue. The main reason is to lower the annual land transfer income expectation.

　　From a national perspective, according to this year's central and local budget draft reports, local government fund budget revenue at this level for the whole year is expected to be about 9.4 trillion yuan, a year-on-year increase of 0.4%.

However, from the perspective of actual implementation, data from the Ministry of Finance show that in the first 10 months of this year, local government fund budget revenue at this level was about 4.9 trillion yuan, a year-on-year decrease of 24.3%.

　　Since land transfer income accounts for 90% of government fund budget income at this level, this can also be roughly regarded as compared with the expected flat income from land transfer at the beginning of the year, this year's land transfer income has dropped by more than 20%, and this can be regarded as An average of local reductions across the country.

　　However, due to the wide variety of economic and social development levels and land supply and demand conditions in different regions, the actual situation of land transfer income also varies greatly.

A reporter from China Business News reviewed nearly 100 local budget adjustment reports and found that most land transfer revenues have dropped significantly compared with expectations at the beginning of the year, but a few places have maintained strong growth.

　　According to the 2022 district-level budget adjustment report of Mentougou District, Beijing, the estimated annual land transfer income at the beginning of the year was 11.975 billion yuan. In this budget adjustment, the district-level land transfer income was reduced by 8.585 billion yuan (a decrease of about 72%), which is mainly due to the multiple project plots that are expected to be listed at the beginning of this year and generate income, but none of them have entered the market for transaction so far.

　　According to the report on this year’s budget adjustment plan in Jingzhou City, Hubei Province, the local-level revenue in the municipal government fund budget was adjusted from 5.083 billion yuan to 1.52 billion yuan, a decrease of 3.563 billion yuan.

The main reason is that the income from land transfer is short-lived, and the income is calculated according to the transfer plan provided by the resource planning department and combined with the financial system adjustment plan.

　　In the recent budget adjustment report, there are still many places that have lowered land transfer income, including Tongren City in Guizhou Province, Yongkang City in Zhejiang Province, Li County in Hunan Province, Ankang City in Shaanxi Province, Jingmen City in Hubei Province, Honghe Prefecture in Yunnan Province, Yangjiang City in Guangdong Province, and Mianzhu City in Sichuan Province , Fuchuan County, Guangxi, etc.

If it is specific to the township level government, the income from land transfer will fluctuate even more.

　　For example, Qiaotou Township, Dongguan City, Guangdong Province published a report on this year’s budget adjustment plan, which showed that the estimated local land transfer income at the beginning of this year was 1.812 billion yuan. Failed to launch on the market as scheduled, and did not realize revenue.

　　Luo Zhiheng, chief economist of Yuekai Securities, told China Business News that since the beginning of this year, the downward pressure on real estate has increased. Affected by factors such as repeated epidemics and unfinished real estate in some cities, the ability and willingness to buy houses at the residential end have declined. Real estate companies are facing problems such as market financing difficulties and negative sales returns. The overall expectations of real estate companies are weak and their willingness to acquire land has declined, resulting in a rapid decline in the growth rate of government-managed funds.

　　The sharp decline in local land transfer income has directly led to the reduction of local financial resources and the reduction of corresponding expenditure items.

　　For example, Qiaotou Town reduced its project expenditure by 1.78 billion yuan from the income from the transfer of state-owned land use rights and special bond arrangements.

Including rail transit accrual funds, reclamation index fees, land overall planning fees, mountain and landfill relocation and renovation and follow-up management projects, water ecology PPP projects, some road renovation projects, etc.

　　However, since the issuance of special bonds by local governments hit a record high this year, and the new special bonds raised more than 4 trillion yuan, and this huge amount of debt income was included in the books of local government funds, so despite the sharp decline in land transfer revenue in some places However, due to the sharp increase in the income of special bonds, the total income of some local government funds still maintained growth, making government fund expenditures still maintain a relatively rapid growth in order to stabilize the economy.

　　According to data from the Ministry of Finance, in the first 10 months of this year, although the national local government fund budget revenue (about 4.9 trillion yuan) fell by 24.3% year-on-year, expenditure (about 8.2 trillion yuan) increased by 7.7% year-on-year.

　　Of course, there are some places that have increased the expected income from land transfers, which is also an important measure to alleviate the contradiction between local fiscal revenue and expenditure.

　　For example, the report on this year's budget adjustment in Hangzhou City, Zhejiang Province shows that the government fund revenue of Hangzhou City will be adjusted from about 97 billion yuan at the beginning of the year to 155.389 billion yuan, an increase of 58.388 billion yuan.

And this is mainly because the land transfer income budget increased by 56.436 billion yuan compared with the beginning of the year.

According to the budget adjustment plan of Xianning City, Hubei Province, the development of the Zishan Lake area will be accelerated this year, and the income from land transfer will increase by 1.228 billion yuan.

　　Land finance may be difficult to achieve high growth

　　Land transfer income fluctuates greatly, which is not only closely related to the real estate and land markets, but also closely related to the fiscal revenue and expenditure situation of the year.

Generally speaking, when the growth of general public budget revenue is sluggish, in order to alleviate the contradiction between revenue and expenditure, the local government speeds up land sales, and the land transfer revenue grows rapidly.

　　According to official data, in 1998, local land transfer revenue was 50.7 billion yuan, and in 2021 this revenue scale has reached 8.7 trillion yuan, an increase of about 172 times.

Although land transfer income has fluctuated significantly, especially in 2012 and 2015, it has declined, but overall, land transfer income has maintained a growth momentum, especially since 2015, and has grown steadily since 2020. In 2020, land transfer income accounted for GDP The proportion increased to 8.3%.

　　There is no suspense that the income from land transfers has dropped sharply this year, so what will happen to the income from land transfers next year?

　　According to Luo Zhiheng's analysis, the recent policy of stabilizing the property market has continued to make efforts to avoid the negative impact on the economy caused by the rapid decline of real estate.

On the supply side, the policy has gradually shifted from guaranteeing the delivery of buildings and projects to bailing out the main body of enterprises to ease the pressure on the cash flow of real estate companies. For example, the central bank and the China Banking and Insurance Regulatory Commission have launched the "Sixteen Financial Measures", and the China Securities Regulatory Commission has launched 5 measures to adjust and optimize equity financing To maintain stable and orderly real estate financing; on the demand side, reduce the cost of housing purchases for residents, support rigid and improved housing demand, enhance residents’ confidence in housing purchases, and avoid dragging down the economy due to the decline in real estate sales, investment and land transfer income.

　　"It is expected that next year's land market will gradually pick up under the support of policies. However, under the background of economic downward pressure, it will still take some time for the policy to be transmitted to the entity. The income from the transfer of use rights is still negative growth. If the land market returns to the average level of 2018-2019 before the epidemic, it is expected that the growth rate of the income from the transfer of state-owned land use rights will be around -2%.” Luo Zhiheng said.

　　Gao Ruidong, chief macro-economist of Everbright Securities, said that generally speaking, all localities require real estate companies to pay 50% of the transaction price within one month after signing the land transfer contract, and pay it within six months, no later than one year.

Therefore, we can use land transactions as a leading indicator to estimate land transfer revenue in 2023.

We use the total land transaction price of Baicheng and estimate according to the leading law. It is estimated that the growth rate of land transfer income in 2023 will be about -6%.

　　This year and next two years, the income from land transfers has declined. Some people think that land finance has become a thing of the past?

　　A local financial source told China Business News that it is still too early to say that land finance has become a thing of the past. After all, no matter whether it is the east or the west, there is still no way to get rid of the dependence on land in the short term.

However, at present and in the future, the overall macroeconomic situation and consumption expectations are weakening, which will inevitably affect land income. If excessive dependence is placed on it, local finance will be unsustainable.

　　Wang Zhenyu, dean of the Local Finance Research Institute of Liaoning University, told China Business News that land finance will not withdraw from the stage of history in the short term, but its marginal income effect is diminishing, and there are great differences in different regions, which means that the general significance of land finance is gradually increasing. Weakened, special attributes will always exist.

In the future, real estate finance must replace land finance.

　　Luo Zhiheng believes that the direction of land finance in the future should be comprehensively judged in combination with future national strategies, economic and industrial structural transformation, and fiscal and taxation reform trends.

In the medium term, with the end of the era of high leverage and high turnover in the real estate industry and the healthy and stable development of the real estate market, land transfer income will also return to normal and low growth.

　　"In the long run, land finance, as a product of the times, will also undergo corresponding changes with the changes of the times. Common prosperity and high-quality development require that the era of real estate prosperity turn to the era of technology and manufacturing powerhouses, and the corresponding fiscal revenue and expenditure structures will change. changes." Luo Zhiheng said.

　　He said that the transformation of land finance in the future should focus on the four dimensions of reform of the fiscal and taxation system, transformation of industrial structure, reshaping of tax base and fiscal structure, optimization of debt and expenditure structure, and policy coordination.