Bubble sends home buyers to Hong Kong

Lam Yuet-fung expected 1000 people a day to visit his booth at a five-day convention in Shenzhen in October to inquire about buying homes in neighbouring Hong Kong. By day four, more than 10,000 had stopped by.

"The reaction has never been as good," said Lam, who credits the interest to the Shenzhen Government's decision to restrict home purchases by most local residents to two units.

Lam, the regional project associate director at Hong Kong-based Centaline Property Agency, said almost half of the visitors made appointments to look at properties in Hong Kong, or left contact details.

China's effort to prevent a housing bubble in cities such as Shenzhen, the country's first special economic zone, is hampering Hong Kong's own battle to curb a 50 per cent surge in home prices since early last year.

Chinese buyers accounted for a third of new luxury home purchases in the first half, up from about 20 per cent in the previous six months, said Centaline, the city's biggest closely held real-estate agency.

"More curbs in the mainland will trigger more funds to move across the border," said Eddie Hui, a professor in the real estate and construction department at the Hong Kong Polytechnic University. "All that money needs a way out. There's a strong belief among mainland Chinese that investing in property is the best way to preserve capital value."

The Hang Seng Property Index, which tracks the performance of seven developers in Hong Kong, is up 18 per cent this year.

China raised borrowing costs unexpectedly last month, for the first time since 2007. Consumer prices jumped 3.6 per cent in September from a year earlier, while home prices in 70 cities rose 9.1 per cent in September from a year earlier, even after officials extended curbs on property purchases.

The country may start levying a property tax on a trial basis before March, the China Securities Journal reported, citing Nie Meisheng, president of the China Real Estate Chamber of Commerce. The Government said last month it would speed up the introduction of a trial property tax in some cities and then expand the levy to the whole country.

Hong Kong, a former British colony and special administrative region returned to Chinese rule in 1997, is a trade and financial hub for the mainland with its own legal and currency systems. Its population of 7.1 million is dwarfed by China's 1.3 billion people.

Hong Kong developers are increasing efforts to lure mainland buyers. Sun Hung Kai Properties, 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 30 minutes drive from the Shenzhen border, since sales began early October, the company said.

The company, which has set up in Shenzhen a showroom with agents, models and artists' impressions of the project, estimates as many as 60 per cent of the buyers were from the mainland or Hong Kong businessmen who base their businesses across the border, said Andy Chan, a senior sales and marketing manager at Sun Hung Kai.

Henderson Land Development, the Hong Kong developer controlled by billionaire Lee Shau-kee, has also held regular roadshows in "multiple locations", including Shenzhen, to promote its Hong Kong projects, said spokeswoman Bonnie Ngan.

"If you can identify where those Chinese investment dollars are going next, you'll make a fortune," said Michael Klibaner, head of China research at Jones Lang Lasalle in Hong Kong. "You're talking about a tremendous amount of money. Wherever it goes, asset appreciation would follow."

The number of millionaires in China climbed 6.1 per cent from a year earlier to 875,000, the Shanghai-based Hurun Report, which lists the country's richest individuals, said in April. China has the second-most billionaires in the world after the United States, according to Forbes magazine.

Hong Kong home prices more than doubled from a trough in 2003 on a recovering economy, low interest rates and an influx of mainland Chinese buyers whose travel restrictions to the city have been gradually relaxed. Prior to 2003, home values went through a slump that began shortly after the Asian financial crisis hit in 1997, the height of the previous bubble.

Concerns that housing may become unaffordable for the majority of Hong Kong's population have forced chief executive Donald Tsang's Government to bring in curbs to rein in prices.

The measures include stopping offers of residency to foreigners who buy property in the city and a plan to build more apartments for first-time property buyers, both of which Tsang unveiled in his October 13 policy address.

Halting the residency eligibility won't do much to cool Hong Kong prices, said Cusson Leung, a Hong Kong-based analyst at Credit Suisse.

"Most mainlanders invest in Hong Kong through their relatives or their business. I don't see how changing that will have any meaningful impact."

The city's residential property prices will likely gain 30 per cent from now until the end of next year because a weaker dollar will boost asset inflation, Leung and Joyce Kwock wrote in a Credit Suisse note to clients.

Last month, China told commercial banks to stop offering loans to buyers of third homes and extended a 30 per cent down-payment requirement to all first-home buyers. Shenzhen families with residency status in the city are now limited to the purchase of two homes and those without a permit are allowed to buy one if they can show they have paid taxes in the city for at least a year.

"The pool of money will always be there and they're always looking for speculative opportunities," said Eric Wong, a Hong Kong-based analyst at UBS. "If you shut down one possible destination then, naturally, they'll have to find somewhere else to move into, and there's a chance more of those funds would flow into Hong Kong."

- Bloomberg