With the opening of a 24/7 Hong Kong-Shenzhen border-crossing in January 2003, cross-border commuting became seriously viable and Hong Kong residents could start to think about becoming owner-occupiers of flats that – in the luxury category at least – could cost the same year-earlier period, according to Hong Kong broker Land Power International. Luxury residential units remained the most popular segment: between January and March 2005, they purchased 6,250 flats in just 18 developments.
Shenzhen has proven a lure mostly for Hong Kong professionals seeking luxury at an affordable price and investors out to fatten their portfolios.
Take Hong Kong-born Venus Chan, a naturalized Canadian who now owns five apartments in Hong Kong and a condominium just north of Shenzhen. She has now fixed her sights on a second cross-border holiday flat in the border city's Carlton Heights luxury development.
"For me it is both a lifestyle investment and a capital investment," she says, still poring over Carlton brochures. "Over there, a dream home with all the facilities is a quarter of the price of a flat in Tai Po [in Hong Kong's ho-hum New Territories], so why not?"
Like other developers, Hong Kong's biggest, Li-Ka-shing-linked Cheung Kong Holdings (along with affiliate Hutchison Whampoa), works both sides of the border, building developments in Shenzhen and points north to cash in on buyer momentum where they can.
Any new market with boom buzz is usually enough to get the adrenalin pumping, of course. But for Hong Kong developers, Shenzhen presents a mixed blessing. Because the SAR always released land in dribs and drabs, everyone was assured of steadily rising prices, at least between crashes. Fix the law of supply, it was reasoned, and the law of exploding demand writes itself.
But the moment Shenzhen is perceived as an extension of Hong Kong, that notion of limited supply risks getting badly diluted, along with Hong Kong flat valuations.
For developers, selling one flat in Hong Kong is still more interesting than having to build four or five to make the same return in the Mainland. But just how long that arithmetic can hold is difficult to know. Shui On Group Chairman Vincent Lo, for one, has already declared Hong Kong's property market unsustainable – because first-time buyers can no longer afford to buy in.
Without a healthy base, what's a pyramid to do?
First timers do have the means to explore cross-border options, however. There has hardly been a mad dash across the border, but Hong Kong property purchases in Shenzhen have been increasing at an average 14% for three years now.
Hong Kong drives luxury segment
That has helped push up prices, but not as high or as fast as one might expect. "Hong Kong cross-border purchases are only one of the factors driving the market in Shenzhen," argues Michael Choi, chairman of Hong Kong-based property broker Land Power International. Shenzhen is hardly about to see a property bubble, he says, party because there was always more land available for development.
At least that was true in March when the government imposed new limits, in an effort to rein in speculators.
"In fact, in relation to the rate of economic growth in the city, the price increases seem comparatively sober," Choi says. (Shenzhen data showed GDP up 17.8% year-on-year in 2004, with projections for 2005 following much the same climb.)
Choi says Hong Kong buyers accounted for just 7% of residential sales overall in 2004, but they made a big dent in the luxury segment. "Hong Kong interest in luxury developments has led to more developers switching to this type of project, raising standards as well as prices."
A spokesperson for Hong Kong's Clifford Real Estate Management adds an interesting point: It is only at the luxury level, he says, where traditional Hong Kong buyers feel less inclined to worry about security, infrastructure and quality issues.
The price is right
Shenzhen flat prices currently start at average at RMB8,000/sq m – about a fifth the Hong Kong price for the equivalent property. Despite prices like this, market watchers say Hong Kong first-time buyers form only a small minority of Shenzhen property buyers. The bulk of cross-border purchases are still made by Hong Kong professionals actually working in Shenzhen, some looking at second homes, but this time in the luxury bracket, some looking at flats merely as punts on the future, and some both.
Agents on both sides of the border talk up the potential for flipping Shenzhen properties for relatively quick healthy returns. Yet Choi, not to mention the Bank of China and other mainland mortgage providers, say Hong Kong still offers richer potential for investors buying in and selling out within a year. A BOC executive, who declined to be named, suggested investors might be looking at a 20-25% return if they held on in Shenzhen for three years.
Shenzhen may have to wait some to match the potential of Shanghai or even Guangzhou. But a further blurring of the line separating the Special Economic Zone from the Special Administrative Region can only add more lift to a steadily advancing market. As more border points open up on a 24-hour basis – and inter-city train services become a reality, the temptation to earn Hong Kong salaries and watch them stretch in Shenzhen, may be hard to resist even for determinedly stay-at-home Hong Kongers.