Local governments across China are facing increasing financial strain as reforms to the property sector disrupt a key source of their revenue: land sales. A recent example surfaced in early September when Beijing authorities planned to auction a land parcel valued at over US$1 billion, expecting competitive bids from multiple developers. However, on the scheduled day, only one developer participated, prompting the auction’s cancellation with no clear timeline for resumption.

This aborted sale highlights the mounting challenges for local governments that have traditionally depended on land transfers to fund their budgets. Land disposals had been declining for several years but have come under intensified pressure following policy changes announced in late August. These new rules dismantle a decades-old system allowing developers to collect funds from homebuyers before completing construction. By restricting access to these pre-sale revenues until projects are finished, the reforms are squeezing developers’ capital flows.

Zhang Kai, a land market analyst at China Index Holdings, noted a marked cooling in developers’ eagerness to acquire land in Beijing after the policy introduction. Data from Proptech Innovation shows land sales across 70 major cities dropped by 36 percent in area during the week immediately following the housing sector overhaul.

Investment bank Goldman Sachs projects that revenue from land sales could fall by 30 percent in 2026, a sharper decline than the 17 percent annualized drop recorded over the preceding four years. The firm further forecasts that this downturn could persist through 2027 or beyond, potentially resulting in a 90 percent reduction in land sale income compared with the peak levels seen in 2021.

The trend reflects an ongoing slump: during the first seven months of 2026, local governments nationwide recorded a 72 percent decline in land sale revenues from the same period five years earlier, according to independent calculations. To offset this gap, municipal authorities are stepping up efforts to increase tax collection—including closer scrutiny of offshore income—and have turned to issuing special bonds to finance infrastructure and property-related projects.

In the longer term, local governments may need to pursue more sustainable revenue streams such as expanding taxes on emerging industries and personal incomes, or by securitizing state-owned assets. The tightening of local budgets amplifies pressure on China’s central government to implement stimulus initiatives amid signs of economic slowdown. Some economists suggest that July’s growth figures fell below official targets, prompting Premier Li Qingdan to advocate increased policy support.

For property developers, the restrictions on presale proceeds represent a significant disruption to their traditional funding model, which has historically relied heavily on upfront payments from homebuyers. Official data indicates that, at the height of the market, presale funds accounted for more than half of builders’ cash inflows; as of early 2026, this share remained around 45 percent. Financial institutions such as JPMorgan Chase and Citigroup warn that the reform will delay developers’ cash receipts after land purchases, reducing their willingness to acquire costly land parcels.

The impact was evident in Shanghai, where only China Overseas Land & Investment, a state-owned firm, participated in a bidding process for a large urban plot valued at roughly US$2.2 billion—the sole bidder on the first business day following the policy shift. Earlier in the year, over 20 developers had expressed interest at a local government marketing event for the same site.

Following Beijing’s decision to halt its recent land sale, city officials have indicated plans to “optimize” the offering, possibly by lowering the starting price. Such adjustments may encourage renewed developer participation, but the broader property reforms continue to weigh on local government finances and the real estate market’s dynamics nationwide.