Land Tenure Renewal: Implications for Real Estate Pricing and Investment

Commercial real estate investors in China have long been concerned about the lack of a clear regulatory framework governing the expiration and renewal of land use terms. This issue urgently needs to be resolved as the tenure of many commercial land sites first leased or granted in the 1990s has fallen below 20 years. CBRE data show that in China’s 18 major cities, the total volume of office and retail space under single ownership and with a remaining land tenure of less than 20 years will increase to approximately 30 million sq. m. by 2030. With the Government Work Report delivered at the fourth session of the 13th National People’s Congress in March 2021 highlighting urban renewal for the first time, and the issue also included as a key objective for the 14th Five Year Plan period (2021-2025), the upcoming renovation and redevelopment of a large quantity of aged properties is set to create significant value-added opportunities for investors in China’s commercial real estate market.

This report by CBRE provides a reference for investors seeking to analyse and measure the impacts of land tenure on transaction prices. CBRE retains an optimistic outlook for the renewal of land use terms due to the following factors:
 

• Existing regulations, occasional renewal cases and investors’ assumptions in their investment analyses demonstrates that commercial land tenure is renewable by paying a premium upon expiry. 
• Both sellers and buyers accept land tenure as a key variable influencing asset pricing in commercial real estate transactions. Generally, the shorter the remaining land tenure, the greater the diminishing impact on value;
• Existing renewal cases and local pilot regulations illustrate that local flexibility will be built into a future regulatory framework, rather than a one-size-fits-all approach.