Hong Kong-Shenzhen housing price gap to persist over next decade

HONG KONG, 6 August 2024 – The integration of the Greater Bay Area (GBA) has resulted in a distinct divergence in the consumer markets of Hong Kong and Shenzhen. However, the overall home price disparity across the border is expected to persist over the next decade, according to JLL's latest Residential Market Monitor released today. However, the home prices in the northern New Territories are projected to be more profoundly impacted by mainland Chinese property prices compared to those in Hong Kong Island and Kowloon. This suggests a greater likelihood of successful sales for developers building smaller-sized units in the Northern Metropolis.

Currently, a significant home price difference persists across the border. According to JLL Research, even when compared to the most expensive districts in Shenzhen, the average primary transaction prices in Yuen Long and Tuen Mun (averaging HKD 13,900 and 14,538 per sq ft, respectively) during the first half of 2024 still at least surpass those in Nan Shan and Fu Tian (averaging HKD 11,931 and 12,463 per sq ft, respectively) by more than 10%.

Cathie Chung, Senior Director of Research at JLL in Hong Kong, said: "Improved transport links and a narrowing GDP per capita gap between Hong Kong and mainland China may eventually reduce housing price variances amongst the GBA cities. The development of the 'One-Hour Living Circle' in the northern part of the city could drive increased home-buying demand from Hong Kong residents to mainland cities, given the lower living costs and improved connectivity. This is particularly relevant for residents whose primary workplaces are in the northern part of the city and retirees in search of more affordable living options. Nevertheless, we do not expect a significant increase in the number of people opting to live in Shenzhen while working in Hong Kong, given Hong Kong's higher per capita income, superior education institutions, and higher rental yields, and the fact that the commute from Shenzhen to other major business districts in Hong Kong (excluding MTR Kowloon station) takes more than an hour. As such, we expect the housing price gap to persist over the next decade."

Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said: "Given the travel time and costs, cross-border commuting is unlikely to become a widespread trend in the near future. Kowloon and Hong Kong Island are more insulated from the northbound homebuying trend and may even benefit from GBA integration. The inflow of southbound capital could provide additional support to the declining price levels. The depreciation of the renminbi, interest rate cuts, an influx of talent could potentially bolster the Hong Kong property market. Based on our observations of recent buyer profiles and previous applications for stamp duty suspension, newly arrived non-local talents constitute a small proportion of the current transaction volume from mainland Chinese buyers."

However, Lee added, "Should property prices in other GBA cities decline further, home prices in the northern New Territories could also decrease as demand is diverted away. Therefore, beyond fundamental factors such as interest rates and economic performance, future price trends in the northern New Territories will be influenced by property prices in Shenzhen's border districts and the economic development of the Northern Metropolis. Over the coming two years, the majority of residential supply in Tuen Mun and Yuen Long in the northern New Territories is expected to be units of less than 753 sq ft, smaller than the typical flats in Nan Shan and Fu Tian. Hong Kong developers looking to enter the Northern Metropolis in the future would be better off developing similar relatively smaller-sized units to reduce competition from Shenzhen and provide greater sales certainty."