For China’s real estate developers, Hong Kong is becoming the backyard of Shenzhen

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© Reuters. FILE PHOTO: Two systems co-exist in Hong Kong’s quiet border areas

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From Clare Jim

Chinese real estate developers have turned to Hong Kong’s border districts as mainland residents from neighboring boom town Shenzhen see parts of the former British colony as a cheaper long-term housing prospect.

The development plans are viewed by some as a turning point as buyers from Hong Kong’s formerly cheaper industrial backcountry increasingly view the global financial hub as the “backyard” of Shenzhen.

While the real estate market in Hong Kong remains hot, the city’s international economic prestige has come under pressure after protracted protests for democracy in 2019 and the introduction of new national security laws last year.

In contrast, Shenzhen’s stature continues to grow. During a visit last October, President Xi Jinping touted it as a “model city” and announced plans to increase foreign investment. (Whole story)

In just a few decades, the sleepy backwater on the southern border of China has developed into a technology center of around 13 million people, towering over the fish ponds and farmland in the less developed north of Hong Kong. Hundreds of thousands move there every year.

In Shenzhen’s main districts, such as Nanshan, where tech giant Tencent 0700.HK is based, some property prices have already exceeded those in northern Hong Kong, which is an hour or more from the expensive central business district.

“Our long-term perspective is that Shenzhen will be the center and Hong Kong the periphery,” said a senior executive at a Chinese developer who was buying land in the once less attractive north, asking not to be named because he was not authorized to speaking to the media.

“People who work in Shenzhen may commute from Hong Kong, where property prices are cheaper.”

Hong Kong Land Department records show that of the six northern residential lots auctioned since 2019, three were purchased by Chinese developers.

In a separate private deal last year, China Evergrande Group 3333.HK bought 250,000 square feet in the Yuen Long border town of Hong Kong’s Henderson Land (OTC 🙂 0012.HK for $ 600 million.

Real estate agents told Reuters that the major Chinese developer is planning around 200 units in the area and expects most of the buyers to be mainland residents. The company bought for HK $ 10,000 per square foot and intends to sell for HK $ 20,000, which will hopefully attract mainland residents from Shenzhen, an agent liaison with Evergrande said.

In the part of Shenzhen immediately across the border, prices are closer to HK $ 30,000 per square foot.

Evergrande is also selling 2,000 homes in the Tuen Mun neighborhood – a 15-minute drive from Nanshan and near a beach – after completing a project on property Henderson Land bought for $ 833 million in 2018.

Shenzhen-based Kaisa Group 1638.HK won a $ 451 million package there last year, while major developer China Vanke 2202.HK has already built over 1,100 units.

Kaisa said the location near the Hong Kong-Zhuhai-Macau bridge could benefit from closer integration of cities in the Greater Bay Area. Vanke’s Hong Kong unit said it was convenient for traveling to Shenzhen and Macau, but north Hong Kong was not the only focus.

Evergrande declined to comment.

“ABNORMAL” PRICES

According to broker Midland, mainland Chinese bought 40% more residential property in Hong Kong in the first two months of 2021 than a year ago, fueled by optimism that the border will reopen in the wake of the COVID-19 crisis.

The percentage of new home buyers in Hong Kong on the mainland bottomed at 8.7% of the transaction volume in the second quarter of last year and rose to 11% in the first quarter of this year.

More than 80% of their purchases in 2021 were worth over HK $ 50 million ($ 6.4 million), Midland said.

“Chinese developers are optimistic about the Hong Kong property market,” said Sammy Po, CEO of Midland HK. “Northern counties are one of the areas that Chinese investors are buying into.”

There were numerous demonstrations against the government and against China in Tuen Mun and Yuen Long in 2019. Protests are unlikely to resume, but tensions remain as some longtime residents feel that the wealthy newcomers are disrupting their lifestyles.

“Tuen Mun has higher consumer goods prices than the city center, which is unusual,” said 50-year-old Wong, who only gave her last name due to her sensitivity.

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