With a GDP of USD 2 trillion in 2023, the Greater Bay Area (GBA) has seen continuing integration, marked by new policies like travel permits for non-mainland Chinese residents and new infrastructure such as the Shenzhen-Zhongshan Link. Recently, China’s Third Plenum reaffirmed the commitment to deepening collaboration within the GBA, indicating further opening-up. Integrating Hong Kong’s financial infrastructure with other GBA cities offers unprecedented synergies and growth opportunities. Meanwhile, enhanced connectivity will cut travel time, stimulating economic interaction and facilitating investment opportunities.

What does a more interconnected GBA mean for Hong Kong’s residential market? On the one hand, increased connectivity and productivity convergence may reduce the price disparity across cities in the GBA, potentially driving long-term property price convergence. However, the overall price gap between Hong Kong and Shenzhen is expected to persist over the next decade. This projection is based on Hong Kong’s higher per capita income, superior education institutions, as well as higher rental yields.

The integration could also have varying impacts on different areas within Hong Kong. For the northern region bordering mainland China, the development of the “One-Hour Living Circle” could divert home-buying demand of Hong Kong residents to nearby mainland cities. This is due to lower living costs and improved connectivity, as exemplified by the northbound consumption trend. This is particularly relevant for retirees seeking lower-cost living and residents whose primary workplaces are in northern Hong Kong.

Currently, a significant home price difference persists across the border. Even compared to the priciest districts in Shenzhen, the average primary transaction prices in H1 2024 in Yuen Long and Tuen Mun (HKD 13,900 and 14,538 per sq ft) are still at least 10% higher than those in Nan Shan and Fu Tian (HKD 11,931 and 12,463 per sq ft).

It is noteworthy that property prices in northern Hong Kong could be affected if prices decline further within GBA. On the positive side, economic growth within the GBA will create high-quality jobs south of the border and helps sustain residential demand in Tuen Mun and Yuen Long. Also, the smaller unit sizes in these areas translate to lower lump-sum purchase costs, making these units more attractive to buyers looking for affordable housing.

Meanwhile, Kowloon and Hong Kong Island are still largely insulated from the northbound home-buying trend and may even benefit from the integration. Considering travel time and costs, cross-border commuting has yet to become a widespread trend. Conversely, the influx of southbound capital could provide relief to the falling price levels. The removal of cooling measures has significantly attracted numerous mainland Chinese buyers to the Hong Kong residential market. The majority of these early movers are HNWIs, purchasing properties for asset allocation. With rate cuts on the horizon, Hong Kong residential assets are expected to become increasingly attractive compared to other asset classes. Additionally, there is a significant potential demand growth driven by an influx of talent. Based on our observations of recent buyer profiles and applications for stamp duty suspension, we believe non-local owner-occupiers still only account for a small proportion of the current record-high transaction volume from mainland Chinese buyers. As this own-use housing demand materialises, sustained demand growth is expected in Kowloon and Hong Kong.

The deepening GBA integration will undoubtedly reshape the Hong Kong residential market in multifaceted ways. The transformative effect of GBA integration on productivity and population distribution should not be underestimated by market participants. Although the trend is still in its early stages, the potential for significant economic and real estate market shifts is substantial.

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