Why Shenzhen property is a big draw for HK buyers, for now

April 28, 2015 15:01
Several factors have resulted in Shenzhen properties being priced at a big discount compared to those in Hong Kong. Photo: HKEJ

The first mainland residential project of MTR Corp. (00066.HK) is almost sold out, thanks to hot demand from Hong Kong citizens.

Over three thousand people lined up for 600 units of Tiara, a residential project above Shenzhen's Longhua metro station, which was launched for sale on Sunday.

A substantial portion of the interested buyers were Hong Kong residents, which is no surprise to me as I believe that many locals have become enchanted with the idea of living around MTR stations.

And one can travel to travel to Hong Kong from Shenzhen and vice versa in no time, given the excellent connectivity between the two cities.

But above all, the key attraction is the price. A buyer is said to have paid just about HK$3.6 million for a three-bedroom apartment that measures nearly 900 square feet.

With the units being offered at HK$4,500 per square feet on average, it makes them about 50 percent cheaper than property in Hong Kong's Yuen Long border district.

With prices in Hong Kong continuing to hit absurd levels, cross-border investment is seen as a good alternative. 

As EJ Insight reported yesterday, a tiny 212-square-foot public housing unit in Tin Shui Wai was sold for HK$2.15 million, or at over HK$10,000 per square feet, setting a new record for the area.

Such news will only make more people feel that they have to look elsewhere for property purchases.

Now, returning to MTR's Shenzhen project, a property agent noted that many buyers were Hong Kong people from the post-80s generation who could not afford flats in their own city.

Staying in small rental apartments in Hong Kong, the people could rent out their new Shenzhen flats and fulfill their dreams for home ownership.

Shenzhen has seen residential prices rebound since last November due to optimism over the Qianhai financial district, Shekou free-trade zone, Guangzhou-Hong Kong high-speed rail link, as well as the widely expected Shenzhen-Hong Kong Stock Connect program.

Residential yields in Shenzhen and Hong Kong are at similar levels, at about three percent. Still, there is a huge difference in property prices between the two cities, with an average Hong Kong flat commanding a premium of two to three times to that of a Shenzhen home.

What explains the price discount across the border? 

Well, among other things, lack of freedom of speech, including the right to communicate via Facebook and Twitter, as well as other internet and political curbs.

Public security is another issue. Although Shenzhen is said to be the safest compared to other Guangdong cities such as Guangzhou and Dongguan, Hong Kong people may easily get into trouble there and may find no way to complain.  

And there is the food safety factor, which can be gauged by the continuing Hong Kong shopping raids by mainlanders for things such as milk powder.

But as years go by, we can assume that the price-gap in property between Hong Kong and Shenzhen will narrow. 

If MTR, which has contributed to the residential price run in Hong Kong, launches more projects in Shenzhen after its maiden 4.1 billion yuan venture, it could play a key role in bridging the price gap.

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EJ Insight writer