Land grab?

Hong Kong tycoons abstain from Qianhai bids


Hong Kong’s contribution to the development of Shenzhen is well-known. In its early years, at least 80% of the foreign investment going into the city came from its neighbour across the border. Two years ago, money channelled through Hong Kong still accounted for an impressive two-thirds of Shenzhen’s FDI, according to China’s Ministry of Commerce. So Qianhai, a new zone neighbouring Hong Kong’s border, will no doubt have hoped to receive similar support.

If so, Qianhai’s bosses might be a bit disappointed, with Hong Kong’s property tycoons notably absent in a recent land auction in the 15-square kilometre zone on the outskirts of Shenzhen. Instead it saw a prime plot sold to a mainland property developer instead.

China Resources Land paid Rmb10.9 billion ($1.8 billion) to acquire the commercial site on offer in Qianhai – an area whose lure is a pilot programme that promises to abolish currency controls.

The failure of Hong Kong developers to bid was surprising because the auction was limited to companies listed in Hong Kong with revenues of Rmb20 billion ($3.26 billion) or more, making it the perfect opportunity for a punt on Qianhai. But the level of interest was low. The only other company to bid was China-based Shimao Property, which made an offer about 20% below the the winning bid.

“There were Hong Kong developers who were very interested and have been in contact with us, but they dropped out in the end and we don’t quite understand the situation,” Lin Hong, vice president at the body charged with developing the zone, told Reuters.

Perhaps the limited interest was because news of proposals to open a free trade zone in Shanghai may have stolen Qianhai’s thunder (see WiC202). The speculation is that currency reforms similar to those suggested in Qianhai could be part of the plan.

Still, the Qianhai authorities won’t be too unhappy with the results of the auction, with the South China Morning Post describing the price paid as “jaw dropping”. The plot is now Shenzhen’s most expensive, although an expert from Cushman & Wakefield, a real estate consultancy, told the newspaper that state-owned China Resources Land may have paid more than the expected price to show support for the project in Qianhai.

Certainly, some thought it was prudent for Hong Kong investors to stay away from the auction. One netizen wrote on weibo that the fate of Qianhai was so uncertain that the “level-headed Hong Kong property developers” were right to be cautious. “This gives adventurous mainland developers the opportunity to take the risk, using the banks’ money to meet the government’s development needs,” the contributor continued.

The other land auction be held in Qianhai was won by another Chinese developer, Excellence Real Estate Group, which picked up two commercial sites for Rmb12.4 billion in late July, reports Bloomberg.

Earlier this year, the government gave Chinese banks and their international counterparts in Hong Kong the right to offer cross-border loans to finance development in the zone.

This has sparked interest in other areas of the financial services community. For example, leading investor Mark Mobius, executive chairman at the Templeton Emerging Markets Group, told the South China Morning Post recently that the firm was considering a presence in Qianhai to sell Hong Kong-domiciled funds across mainland China. But Mobius added that interest would wane if yet-to-be determined rules meant that Templeton could only sell funds to residents of Qianhai itself.

Indeed, at this stage, investors in general are awaiting details about how capital will be allowed to move in and out of the zone, as well as whether restrictions will apply on how funds can then be used in the rest of China. Without more information it is difficult to know whether Qianhai will become a radical experiment in opening the capital account or something of rather less interest. But given the size and importance of its potential new rival in Shanghai, the danger is that Qianhai is eclipsed before it can get established. If so, property values there will look vulnerable – possibly explaining the view taken by the Hong Kong property tycoons.

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