Why are there more and more Hong Kong residents taking up residential flats in Guangdong Province?

With cheaper land, the properties, of course, are much cheaper than Hong Kong. Still, non-price competitions are involved. In order to attract more buyers from Hong Kong, everyday in Mongkok (one of the busiest places in Hong Kong) many people can get advertisements promoting various residential flats in Guangdong province. They usually emphasis on cheap price but good quality houses, provided with adequate facilities. Some interesting strategy is to sponsor the Miss Hong Kong to have a trip there, and thus they will promote the residential flats. Less and less time in transportation is also stressed to attract urban dwellers. Seems, there is no reason for Hong Kong people to reject purchasing flats in Mainland.

Some samples of the advertisements are enclosed in Appendix.

Section 3: Why is the demand for residential flats in Guangdong province increasing?

• The substitution effect states consumers are presumed to be rational and will spend their income on purchases of goods and services so as to gain the highest total satisfaction. In this case, therefore, if consumers can gain more benefits by living in mainland, they will leave Hong Kong and stay there.

(The price differentiation)The price of Ming Shi Ge in Shenzhen and Dawning Views in Fanling (northern Hong Kong) are compared. They are geographically near, and have similar size in order to have a fair comparison.

With the similar area, the price of Dawning Views in Fanling is three times than that of Ming Shi Ge in Shenzhen. That is why people will prefer cheaper housing in Guangdong to Hong Kong. Even if the rental price of Hong Kong is keeping on falling these days, still, there is a big gap between. Despite the fact that the property price of Guangdong has a tendency to increase, it will still cost just half of those flats in southwestern Hong Kong at most. A survey conducted by the government show that 62% of Hong Kong people that are intended to move to Mainland are attracted by the lower cost of living and the lower price of residential flats.

(Cost of living) Even though the price and rent of the houses in Guangdong Province are cheaper, the cost of living is also concerned by the consumers. How much do they need to spend for a meal? How much does an “Oral B Toothbrush” cost?

From the July 2002 Finfacts Global Cost of living survey, Hong Kong comes the first among all cities, where Guangzhou and Shenzhen are on the rank11th and 13th. Obviously, the cost of living in Hong Kong is much higher than those in Mainland. From my personal experience, plastic made bags with similar qualities sell $50 in Hong Kong, but just $10 in mainland. With a lower cost of living, people can enjoy a better standard of living in Mainland by using the same amount of money in Hong Kong.

Finfacts Worldwide 2002 Cost of Living Survey

City Ranking Tables11

(Better environment?) “Our estate includes spa, three club houses which each of them is more than 30000 square fleet, and a golf course which you can spend a day there…” These advertisements are only possible if the estate is situated in mainland, where many open spaces are available for development. The survey conducted by the Hong Kong Government shows that 19% of people who owned a flat in Mainland is attracted by the pollution free air and the fantastic views. As a matter of fact, the flats in Guangdong areas provided with a larger living spaces and recreational facilities. Most of the advertisements emphasis the fantastic surroundings. The pictures below give you an idea about the pleasant living environment in Mainland.

 (Increasing housing supply in Guangdong) With larger area, the potential for development on mainland is greater than that in Hong Kong. In 2001, 24 billions are used for construction in Guangdong province, which is 4% more than last year. 55900 residential units are constructed, which was increased by 39.9% compare to 2000.  In average, 2.06 million square meters of housing were provided each year. 

With lower property price, lower cost of living, better environment and large market supply in Guangdong province, it is no doubt that Hong Kong residences switch and live there.

Diagrams showing the substitutional relation between the Hong Kong and Shenzhen’s properties

• The income effect states that with the change of income, the demand of a good will change. During these years, the real wages of the Hong Kong residences increase smoothly. Therefore, the richer people will have extra money to spend and invest, thus they may then consider to purchase or rent a flat in Mainland. For normal worker, with the increase salary, they may be able to buy a flat in Shenzhen or areas near to the border, which increase the demand of the residential flats in Guangdong province.

Diagrams showing the income of Hong Kong Residences

Moreover, in 1998 the Census and Statistics Department has published a figure concerning local households worked in Mainland during the last twelve months. Within 190000 people, 35.5 % were working as a managerial and administrative level, while 42.7 % were taking a job as professional employees. Their average income per month was HK$18,000, compare to HK$10,000 received by the overall Hong Kong residents per month. Higher wages enabled them to purchase properties in Guangdong province, and thus demand of the residential units increased.

• Required by work

Although these are many pull factors from Shenzhen, the push factors of Hong Kong cannot be neglected. The unemployment rate from August to October 2002 is 7.2 %. Many people lose their work, therefore, they try to search job in mainland where there are more and more job opportunities available with the opening of China and the entry of World Trade Organization. With the pollution, crowding plus stressful environment in Hong Kong, living in mainland is an alternative choice for all Hong Kong residents.

Again, from the survey that was done in the second quarter of 2001, show that 78% of the people moving to Mainland is by reason of work. With cheaper rent, many companies and factories have moved to Mainland, for example the Cathay Pacific moved its accounting department from Hong Kong to Guangzhou in Spring 1993. Thousand of banks and companies have invested in China as well. The graph below shows the increasing number of Hong Kong people working in Mainland.

Hong Kong Residence Working in Mainland from year 1988 to 1998

• Union with family

The survey conducted by the Hong Kong Government in the second quarter of 2001 indicates us that one of the main reasons for taking up a residence in Guangdong is t reunion with spouse and children (19%). In a survey conducted in 1999, there are about 286300 children whose both or one of the parents are Hong Kong residents. In order to live with parents and children, many Hong Kong people thus purchase a flat in Guangdong province.

• Government’s Intervention 

The decision of the government will also affect the demand of Hong Kong people to Guangdong Province. With more and more communication and exchange between China and Hong Kong, a Hong Kong/Guangdong Cooperation Joint Conference is held to improve the communication between, and therefore some laws are passed. It is agreed that the opening hours of Huanggang Border will be extended to twenty four hours during New Year and “spring festival”. Public transport services will be strengthened as well for extended border hours.  Hong Kong will also fully support the “three direct links” between China, Hong Kong and Taiwan, so that people and goods can transport in a more convenient way. The Guangdong and Shenzhen border are also going to invest a large sum of money to open more tunnels to let people and cars to pass through. The computer system is also improved to increase the speed and efficiency of the process to pass border. They also decided to open more ferry lines between Guangdong and Hong Kong. All these measures will raise the demand of the flats in Mainland.

Another new policy – land departure tax is also going to impose to increase the income of the government. It will be imposed in the year 2003 to 2004. HK$18 is collected if you cross the border. Although children and elderly may be able to excluded, the desire for Hong Kong people to shop and live in Mainland will decrease. This policy thus decreases the demand of people moving to Guangdong.

All factors drive the demand curve for residential flats in Guangdong to the right, which is shown in the following,

except the impose of land departure tax will decrease the demand.

Graph show the decrease of demand with the impose of land departure tax

Section 4: The future of the residential properties markets 

Due to the above factors, seems more and more people are settling in China, then will the property market of Hong Kong collapse? Although the trend show that more and more people and job opportunities are moving northward, we can’t predict the future situation as there are many factors then should also be considered as well.

In long term, the outlook is still positive to Hong Kong because it has its unique features and advantages with its solid foundation.

First of all, the population of Hong Kong will reach a population of 6,800,000 in the beginning of 2003. An average increase of 40,000 people per year generates high potential demand. The population of Hong Kong is predicted to be 9,121,500 in mid 2030. With the influx of 150 mainland immigrants holding one way permit per day and the increasing local population, the overall demand of the residential flats in Hong Kong is still high.

Secondly, the economic transformation of Hong Kong had not yet made any satisfactory progress, but it is still optimistic. Compared to adjacent regions, Hong Kong still maintains advantages in location, capital, labour, economic and legal system etc. After exploration in recent years, Hong Kong's future development strategy has become clear. Hong Kong is to accelerate its economic integration with the Pearl River Delta (Hong Kong's direct investment in the Guangdong province amounted to US$50billion at end-2000), strengthen the foundation of traditional sectors, transform to a knowledge-based economy, develop as the region's primary financial, trading, tourist, information, modern logistics, information technology application centre, as well as the primary location for regional headquarters of primary multinational companies and one of the main operating base for Mainland enterprises. Hong Kong is further deciding whether bio-tech industry, genetic engineering industry or software industry are possible areas of development. It would maintain Hong Kong residents' high level of income and further improvement of quality of life, others advantages include improving Hong Kong competitiveness and faster economic growth and so on. In the 2002 Global Investment Report published by the United Nation Trade and Development Congress, Hong Kong gets the second place, showing that overseas companies are still interested at investing here. With more high qualities job opportunities available, the flats in Hong Kong will become more attractive.  

Moreover, the residential flats of Guangdong actually have high elasticity of demand. Local residents still want to purchase flat in Hong Kong because with the presence of its business facilities, the living standard is still better compare to mainland China. Therefore if the property price of Guangdong province increases, it is an indispensable fact that the people will move back. It is predicted that within five to ten years, the properties in Shenzhen will cost half of those flats in Northwestern New Territories. 

Until October 2002, Hong Kong residents spent about 8 billions to take up residences in mainland, which is 16% more than last year. But compare to the 200 billions that Hong Kong people invested each year in the Hong Kong property market, the percentage is not really big. It is believed that this will not bring negative effects to the local property market. In addition, deposits in the banks of Hong Kong have about 1000 billions, illustrating that Hong Kong does not lack capital for investment36. Besides, in the 80s, Hong Kong residents also moved northward to work or live, but then they returned and invested in Hong Kong. History told us that in long term, Hong Kong will not lose its money and capital36.

Section 5: Conclusion 

The research question: “Why is there more and more Hong Kong residences taking up residential flats in Guangdong Province?” is deeply discussed in the above and the trend is examined. To conclude, due to the lower price of flats, lower cost of living, better environment, required by work and family tie, more and more Hong Kong people are moving to mainland. This is predictable and can be expected to continue. However, we must notice that the substitutional effect will decrease when the differences between the properties of mainland and Hong Kong narrow down. The 2001 GDP growth of Shenzhen and Guangdong was 13.3 % and 9.3%; compare to the 1.5% in Hong Kong, other parts of China are going to catch up Hong Kong in the future. As Guangdong becomes more similar to Hong Kong in terms of prices, public services, environment and the like, with the border controls released, it is probable that the properties prices of these two places will turn out to be similar after twenty years. The substitutional effect will be eliminated. Plus the economics transformation completed in Hong Kong, people will therefore stop moving to mainland and settle down in Hong Kong.

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Appendix:

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