China’s economic miracle over the last three decades mainly stems from Deng Xiaoping’s opening-up and reform strategy.
Among the major reforms, the one on housing, which ended the government’s welfare-housing distribution and made housing a private property, is one of the most important. The establishment of Shenzhen as a special economic zone is another.
Over the past few decades, China’s economy has continued expanding to become the world’s second largest.
Rapid economic growth led to many problems, including surging home prices and rampant speculative activities.
To rectify the situation, President Xi Jinping demanded changes to make sure that “houses are built to be inhabited, not for speculation”.
Against such a backdrop, the Shenzhen municipal government announced last week its plan to build 1.7 million housing units by 2035, with government housing accounting for up to 60 percent of the new supply.
Currently, the average secondary housing price in Shenzhen stands at 48,000 yuan (US$7,510) per square meter, compared with 58,000 yuan in Beijing and 50,000 yuan in Shanghai. The city’s home price has surged 150 percent since 2013, far above 45 percent in Beijing and 67 percent in Shanghai. It also beat the 55 percent home price rally in Hong Kong during the period.
Shenzhen’s housing boom is largely driven by the booming internet and hi-tech industry. The city is dubbed China’s tech hub. It is home to many of the nation’s hi-tech giants, such as Tencent, Huawei, BYD, and DJI.
These tech firms have posted staggering growth in their earnings and share prices. That being the case, many of them are quite generous in granting pay raises, bonuses and stock options for their employees.
Tencent’s development team of the top-grossing mobile game King of Glory has been awarded tens of millions of yuan in bonuses, according to reports.
And as to be expected, many of them invested the windfall in property, the favorite investment asset among Chinese.
However, the skyrocketing home prices may become a hurdle as the city tries to lure talent.
Shenzhen has always been a city of migrants. Its fast development depends largely on the influx of talent from all over the country.
As such, surging property prices may discourage young talents from settling down in Shenzhen, and prompt them to move to other cities where the cost of housing is not too prohibitive.
Under the new plan, 100,000 new homes will be built each year on average, doubling the current level. That’s a sensible target for a city with a population exceeding 12.5 million.
Of the 1.7 million new supply promised by Shenzhen government, 60 percent or at least 1 million new homes will be affordable units, including public rental homes, government-subsidized flats, and special apartments for high-caliber talents.
Currently, more than 80 percent of homes in big Chinese cities are privately owned, while public housing represents only 10 percent. Thus, Shenzhen’s move to ramp up the ratio of public housing to 60 percent represents a major policy U-turn.
Shenzhen is one of the very few cities in China that are given such a leeway for reforms. The city is one of the world’s busiest ports, and its thriving hi-tech sector also helps support the economy and reduce the government’s reliance on land sales proceeds for public finance, giving it more elbow room to experiment with a new housing policy.
Shenzhen’s new approach resembles the Singapore model. The city state’s public housing, known as Housing and Development Board (HDB) flats, accounts for 80 percent of total supply.
The majority of Singaporeans live in these HDB flats and are little affected by private housing price moves.
By contrast, private housing still dominates the market in Hong Kong.
This article appeared in the Hong Kong Economic Journal on June 14
Translation by Julie Zhu
[Chinese version 中文版]
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