Hong Kong developers in delta blues
Dubbed a mini-Hong Kong, Qianhai is struggling to woo capital from city that is a priority target of planners, and high land prices aren't helping
The authorities in Shenzhen's Qianhai special economic zone are exploring alternative land disposal methods to attract Hong Kong property players and quicken economic integration with Hong Kong.
Despite being dubbed a "mini-Hong Kong" hub for financial and yuan liberalisation, a series of land auctions held in the 15 square kilometre economic zone in western Shenzhen since last year has yet to draw any interest from Hong Kong developers.
Five sites were bought by mainland-backed developers when they were auctioned last year, and in this year's first land sale, in January, the site was sold to a joint venture formed by US-based Silverstein Properties and mainland partner Shenzhen Qianhai International Energy Financial Centre. The price tag of 28,113 yuan (HK$35,376) per square metre was 74 per cent higher than the sale price of the first Qianhai site, sold in July last year to Excellence Group.
"We've noticed the situation. Rising land price is a reason why Hong Kong developers hesitate," a Qianhai official said. "Despite the fact that we set stringent requirements on bidders that implied it was reserved for Hong Kong developers only, the sites were bought by Hong Kong-listed mainland developers who paid higher land prices.
"This year, we are thinking about new ways, aimed particularly at drawing interest from Hong Kong developers."
He did not elaborate on what those methods might be.
In January, Zhang Bei, the zone's director general, told mainland media it would introduce innovative methods to dispose of land sites and planned to launch six sites, totalling 100,000 square metres, designated for Hong Kong corporations.
Hong Kong capital would lead the development of the sites, Zhang was quoted as saying.
There is about 10 million square metres of land available for development in Qianhai - two-thirds of the zone's area.
The mainland's 12th five-year development plan designated Qianhai, Hengqin in Zhuhai and Nansha in Guangzhou as key strategic development areas in the Pearl River Delta. But only Qianhai is so closely intertwined with Hong Kong.
A high-speed railway line will be built between Shenzhen and Hong Kong, with Qianhai as its central hub.
It is expected to take seven minutes to travel by rail from Qianhai to Shenzhen and 15 minutes from the zone to Hong Kong's international airport.
After the State Council approved Qianhai as a pilot zone for Shenzhen-Hong Kong collaboration in developing modern service industries in August 2010, it was hoped the zone would be a magnet for Hong Kong businesses looking to invest in telecommunications, hospitals and schools in Shenzhen, and for Hong Kong lawyers and accountants seeking to establish practices there.
Companies established in Qianhai in government-approved sectors, including financial and legal firms, will be given a preferential 15 per cent corporate income tax rate to encourage their development, the National Development and Reform Commission said.
The State Council has announced 22 pilot policies for the zone since June 2012.
"Apart from rising land prices, Hong Kong developers also raised concerns over the abundant supply of office space," said Alva To, the managing director and head of consulting, North Asia, for property brokerage DTZ.
A total of 3.7 million square metres of office space is likely to be built in the zone by 2020, according to property consultant JLL. That is equivalent to 20 Two International Finance Centre buildings in Central.
Meanwhile, To said, there had been a lack of specific details on incentives being offered to companies. As the policies were vague, developers could not assess the development potential and risks, he said.
Craig Shute, senior managing director at CBRE Hong Kong, Macau and Taiwan, agreed.
He said Hong Kong developers and companies were looking at how the free-trade zone would work, such as what tax incentives would be given and how laws would work in the zone.
Once the details had been clarified, Shute said he expected to see more participation from Hong Kong.
"I do think [the special economic zone] will be successful," he said. "The government will ensure it works."
In the longer term, Shute said he was confident closer integration between Hong Kong and the Pearl River Delta could be brought about through the development of the Qianhai zone.
"Qianhai can benefit Hong Kong by providing a new market for corporations," he said.
He said companies in Hong Kong had difficulties finding office space and office rents in the city were too high.
The development of Qianhai could allow Hong Kong firms to shift some of their back offices across the border and free up space in the city, he said.
Alvin Lau, CBRE's managing director for southern China, said there were many sites, capable of accommodating more than 100 office towers, coming on to the market in Qianhai, and Hong Kong developers still had time to bid for some.
Hong Kong developers will invest in the area when it became more mature, he said.