Steeper discounts and an array of tax incentives being offered by developers have drawn mainland buyers back to Hong Kong’s western New Territories, as the price premium of Hong Kong over Shenzhen continues to narrow. Flooded with new supply, new home prices in Yuen Long fell as much as 6 per cent in the past two weeks, which in turn negatively affected the secondary residential market. Hit by developers’ low-price strategy, secondary transaction prices dropped faster than the primary market with Yoho Town, a major housing estate adjacent to West Rail Yuen Long Station, tumbling 16.5 per cent from the peak in October. Jackson Ho, a director at Ricacrop Properties Yuen Long district, said several new projects in Yuen Long have attracted mainland buyers as the district is very convenient to Shenzhen. “Most of these potential home seekers are travelling from Futian, Shenzhen. Their interest is mainly looking at homes worth about HK$4 to HK$5 million,” he said. These potential buyers have become cautious in the sizzling Shenzhen property market, as they worry the central government could introduce further cooling measures to rein in runaway home prices, he said. “They have bought homes either for their holiday use or for investment,” said Ho. Mainland buyers have sharply declined since the Hong Kong government introduced a 15 per cent buyer’s stamp duty on non-residents in 2012. But they have slowly returned to the city after Shenzhen home prices saw a year-on-year 72 per cent increase in February versus Hong Kong’s 10 per cent correction from the overall market peak in September. Purchasing interest in Hong Kong has also been fuelled by special incentives extended by developers as a way to entice buyers. For instance, Cheung Kong Property and Sun Hung Kai Properties provide an 80 per cent subsidy to offset taxes for buyers of Yuccie Square and Twin Regency in Yuen Long. With such tax incentives, Ho said buyers, who are not permanent residents including mainlanders, could save HK$600,000 buyer’s stamp duty for a flat worth HK$5 million. According to Centaline Properties, mainland purchasers of small and medium-sized flats accounted for 10 per cent of the city’s total transactions in the fourth quarter last year. Mainland buyers, including those who live in Hong Kong, made up 11.5 per cent of total value in the same period of time, Centaline said. “It is a new high in the past 18 months. Increasing demand by mainland buyers in Hong Kong is mainly because of falling home prices,” Centaline said. In Hong Kong’s secondary residential market, mainland buyers account for 6 per cent of the total transactions and 6.6 per cent of total value. Average home prices in Yuen Long have dropped to HK$10,534 per square foot, according to Centaline data, compared to Shenzhen’s 47,248 yuan (HK$56,431) per square metre, or HK$5,242 per square foot, according to the China Real Estate Index System (CREIS), run by the country’s largest real estate website Soufun. In 2001, home prices in the Futian and Lowu districts of Shenzhen were 70 per cent less than Sheung Shui, Fanling and Yuen Long, but now the price gap has narrowed to 50 per cent. David Hong, head of research at China Real Estate Information’s Hong Kong office, said soaring home prices in Shenzhen could spur buying demand for overseas properties. “Hong Kong’s proximity to Shenzhen will become their first priority. They see having a property in Hong Kong is symbol of wealth and social status,” he said.