The Chinese mainland's efforts to prevent housing bubbles in cities such as Shenzhen, the country's first special economic zone, have prompted more mainlanders to buy apartments in neighboring Hong Kong, while hampering the special administrative region's own battle to curb a 50-percent surge in home prices since early 2009, Bloomberg New reports.
Mainland buyers accounted for a third of new luxury home purchases in Hong Kong in the first half of the year, up from about 20 percent in the previous six months, according to Centaline Property Agency Ltd., Hong Kong's largest closely held real estate agency.
Eddie Hui, a professor in the real estate and construction department at Hong Kong Polytechnic University, said more curbs in the mainland would trigger more funds to move across the border, especially with a strong belief on the mainland that investing in property is the best way to preserve capital value.
In September, the Chinese government told commercial banks to stop offering loans to buyers of third homes and extended a 30-percent down payment requirement to all first-home buyers.
In Shenzhen, families with residency status are now limited to two home purchases, while those without a permit can buy one unit if they can prove that they have paid taxes in Shenzhen for at least a year.
Home purchases have continued despite China unexpectedly raising borrowing costs last month for the first time since 2007. Home prices in 70 cities rose 9.1 percent in September from a year earlier, even after officials extended curbs on property purchases.
Another factor that has not deterred homebuyers is China's plan to possibly start charging a property tax on a trial basis before March. The government said in September that it would speed up the introduction of a trial property tax in some cities and later expand the levy throughout the whole country.
In the meantime, Hong Kong developers have stepped up their efforts to attract mainland homebuyers. Sun Hung Kai Properties, Ltd., Hong Kong's biggest developer and the world's largest by market value, has sold about 300 houses in a luxury project in Sheung Shui, a district about a 30-minute drive from the Shenzhen border, since sales began in early October. The company, which has set up a project showroom in Shenzhen, estimates that up to 60 percent of the buyers were from the mainland or Hong Kong businessmen who base their business across the border.
Henderson Land Development Co., a Hong Kong developer controlled by billionaire Lee Shau-kee, also has held regular roadshows in multiple locations, including Shenzhen, to promote its Hong Kong projects.
Hong Kong home prices more than doubled from a trough in 2003 on a recovering economy, low interest rates, and an influx of mainland buyers whose travel restrictions to the city have gradually been relaxed.
But concerns that housing may become unaffordable for the majority of Hong Kong's population have forced Chief Executive Donald Tang's government to initiate curbs to rein in the process. The measures include no longer offering residency to foreigners who buy property in the city and a plan to build more apartments for first-time property buyers.
Some say ending the residency eligibility will not do much to cool prices, as most mainlanders invest in Hong Kong through relatives or their businesses.
Credit Suisse Group AG forecasts the city's residential property prices will rise 30 percent from now until the end of 2011, because a weaker dollar will boost asset inflation.
