Beijing’s blueprint to develop Shenzhen and showcase it a centrepiece of its economic reform and attract talent could hit a major stumbling block in the form of unaffordable housing prices, say analysts.
As part of a five-year plan to build the city into a “core engine” of reform by 2025, Shenzhen has been granted greater autonomy in using rural land for development purposes. The move, which will ease land supply crunch, is aimed at reining in escalating home prices and making the city more affordable to live. It was speculated that Beijing would give Shenzhen “additional land” by allowing it to absorb some neighbouring towns into its territory, but the central government did not do so.
“Home prices take up a major chunk of the cost of living,” said Hong Lingyun, a senior executive with recruitment services firm Joinlink Consulting. She added that young professionals are increasingly using it as a gauge of a city’s attractiveness to work and live, and could be put off by the cost of buying or even renting property.
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The former fishing village was turned into the first of the country’s 220 special economic zones four decades ago. It was picked to become what the central government calls a “socialist model city” – an experimental urban centre where policies from tax reforms to property ownership and even currency liberalisation can take place.
President Xi Jinping will visit the Greater Bay Area city on Wednesday to mark 40 years since it was set up as a special economic zone.
The city has reaped the benefits of economic success, growing into one of the country’s major cities along side Beijing, Shanghai and Guangzhou with a population of 13 million. However, the shortage of land supply in Shenzhen has resulted in galloping property prices. The average home price in Shenzhen stood at 56,100 yuan (US$8,330) at the end of 2019, nearly triple that from a decade ago, data from consultancy East Money showed.
The land in Shenzhen for residential dwellings accounts for only 22.6 per cent of the total land supply for development, making it one of the most unaffordable cities in mainland China, according to the city’s housing development plan for 2020 published in April.
The central government has set a threshold of 25 per cent of total land for residential development in urban areas. Shenzhen has an area of 1,997 square kilometres, much smaller than Beijing’s 16,400 sq km or Shanghai’s 6,400 sq km. To meet the 25 per cent national standard, Shenzhen will need to add about 50 sq km of land for housing construction.
According to a study jointly conducted by the United Nations and the Chinese Academy of Social Sciences (CASS), lofty home prices in cities threaten urban competitiveness. Normally, a city’s per capita income increases in line with house-price growth, but when the home price-to-income ratio hits a certain point, elevated housing prices turn into a negative force, it added.
Shenzhen’s home prices jumped 11.4 per cent in the first half this year, recording one of the highest price growth in China. Tier-one cities like Shanghai saw a 4.7 per cent gain, while prices in Beijing rose by 2.8 per cent.
However, this did not slow down housing transactions. More than 60,700 new and existing homes changed hands in the city in the first six months of this year, a 25 per cent increase from a year earlier, according to data from Midland Realty. As a result, the Shenzhen government tightened curbs on the residential market in July to cool the price gains.
In 2018, only 11 parcels of residential land were auctioned with six of them sold to a local government-affiliated developer that plans to build homes only for rent. The city did not release any residential plots for sale in 2017.
“Land supply in Shenzhen is definitely limited,” said Huang To, general manager for project development at Centaline China. “Currently, land being offered in government auctions are in rural areas close to the border of neighbouring cities like Huizhou or Dongguan.”
Market observers say for tech workers who want to move into Shenzhen, housing will continue to be a concern. Tech behemoth Huawei Technologies has seen talent flowing out of Shenzhen to cheaper locations, in particular Dongguan, about an hour’s drive north.
Some major residential estates in Bantian subdistrict, where Huawei’s headquarters is located, were particularly sought after by the company’s employees, including Royal Hill, which is a 10-minute walk from the headquarters.
Currently, urban renewals or redevelopment of old villages are the only major sources of land supply in Shenzhen, Raymond Cheng, head of Hong Kong and China research at said CGS-CIMB Securities.
“It (the conversion of farmland for housing) will speed up the land supply, and in turn accelerate urbanisation,” Cheng said. “With potential supply of more residential land from the conversion of farmland, it will help to reduce the heat (on land prices).”
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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.
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