Shenzhen’s past as a fishing village now seems like something from a different galaxy. But another of its titles – as China’s biggest boomtown – still rings true, as does its reputation as a city of migrants. These newcomers have made it into the country’s most creative hub, spawning some of China’s most dynamic firms. But the question is whether Shenzhen’s success is starting to make it harder for new arrivals to work there, as property prices surge to stratospheric levels.
Average home prices increased more than 10 times between 2005 and 2015, and Shenzhen was ranked as the fifth most expensive globally for property in May, according to real estate advisor CBRE, with average home prices of $726 per square foot.
Securities Daily, a local newspaper, calculated a few months later that the ratio of annual household incomes to home prices had risen to 30, meaning that an average couple has to save their combined salaries for nearly 30 years before they can afford a home of their own.
House price inflation has slowed a little since then with the statistics for September showing prices for new homes up 2% year-on-year, compared to more than 8% nationwide. The pace of gains was the lowest of China’s four top-tier cities.
In part that’s because city bosses are taking their cue from senior leaders, who warn that housing is for people to live in, and not an asset to make a speculative profit on. But the bigger imperative is that Shenzhen stays competitive as a tech and manufacturing hub, spearheading the country’s advances into new industries and new technologies.
That’s harder to achieve if people can’t afford to live there, so the local government is taking measures to address supply, pledging to build 1.7 million new homes by 2035. At least 60% are to be public housing of some form, including apartments earmarked for ‘talent’ that works in strategic sectors, as well as affordable homes for grassroots citizens. The homes will be offered at 30-60% of the market rate, according to the city’s Housing and Construction Bureau.
To meet those goals Shenzhen needs an area of about 34 square kilometres and it has started to secure the land it needs, promising to release 42,000 new units into the market by the end of next year. Successful bidders in ongoing land auctions must fulfill requirements to set aside part of their projects for ‘talent’ housing, for instance, and in other cases developers have competed for blocks of land by offering to transfer some of the space for free.
What also helps is that its government isn’t quite as reliant on income from land sales as many of its peers, giving it room for manoeuvre on the housing plan. Less in Shenzhen’s favour is its smaller urban area, which pushes up prices. A new status as an experimental zone is a double-edged sword for property prices as well. The designation means more state support in areas like R&D, education and urban infrastructure, making the city a more attractive place to live and work. But it will also stoke up demand for industrial, commercial and living space – and meeting it won’t be easy.
Highlighting the point was a home sale last week of 192 high-end units that locked up almost Rmb14 billion ($2 billion) in deposits from about 2,700 prospective buyers – the largest haul in Shenzhen’s history.
Critics of the government’s plan say that the focus on public housing is going to limit the supply of commercial stock, pushing up prices even higher for private buyers. But in setting new priorities, Shenzhen seems to be trying to learn lessons from Hong Kong, which has been battling sky-high property for years. It also adopted a long-term housing strategy in 2014 to boost the share of public flats to 60% of new supply, although there have been shortfalls since then in construction. Chief Executive Carrie Lam pledged to boost that split to 70:30 in last year’s policy address and this year she floated more ideas to help homebuyers, including a higher cap in mortgage insurance schemes to make it easier for first-time buyers to get financing. The problem was that sellers soon responded by jacking up asking prices in the secondary market.
One of the ironies is that Hong Kong’s proportion of public housing stock (about 45%) is more than double Shenzhen’s. However, both cities are far behind Singapore, where more than 80% of housing is publicly owned. That has seen local newspapers talk about Shenzhen’s plans as a parting of the ways with its neighbour to the south, and as a clear attempt to emulate the Lion City instead.
In doing so it will be breaking the mould among China’s leading cities, where public housing typically represents no more than 10% of stock, says Shenzhen Daily. And it will also be turning away from its pioneering role of the past: back in 1987 it was Shenzhen that hosted the first land auction in China, launching the era in which home prices were exposed to market forces for the first time.
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