BofA: Will Land Sales Declines Tip Local Governments’ Fiscal Balance?

Bank of America note that “China's property market slowdown has led to a 10.4% Y/Y drop in local governments' land sales revenue in Jul-Oct. We expect another double-digit decline in home sales in 2022, which may result in an 18% contraction in land sales. This could lead to a significant fiscal shortfall of as much as CNY1.5tn (over 6% of the total fiscal revenue). In our view, however, the CNY1.5tn shortfall may not be as worrisome as it looks on the local governments' fiscal condition. The better-than-expected fiscal revenue in 2021 may serve as a buffer for the potentially decreasing revenue, and slower land sales would also reduce the cost of land development. That said, impacts on the local level will likely vary, with some fiscally-vulnerable regions facing worse strains.”