Shenzhen, one of the most expensive cities in China, is poised to borrow a page from the playbook of Singapore for providing more subsidised homes, ditching the Hong Kong model the Chinese city has followed for more than two decades since private home ownership reforms were rolled out.
Shenzhen, known as China's Silicon Valley, will offer 1 million government-subsidised homes at as low as half of the prevailing market rate, according to a consulting paper issued by the Housing and Construction Bureau of Shenzhen on April 29.
"Shenzhen would like to be a pioneer seeking a scheme more like Singapore, separating more affordable homes to average individuals seeking a place to live," said Li Yujia, senior economist with the Real Estate Assessment and development research centre, Shenzhen - a research arm of the Shenzhen government.
"Currently we are still using a Hong Kong model, where most homes are built and sold as commercial products in the private market and only a small portion of cheap rental flats are designed for the poorest."
The subsidised homes will be equally split into three parts, including public rental flats leasing for 30 per cent of market rent, affordable homes at half of the market rate and other homes at 60 per cent of the market rate.
The measures are regarded as Shenzhen's dedication to carrying out what it vowed to do June last year - offering 1.7 million homes by 2035, of which 60 per cent will be government subsidised.
In 2018, government-funded homes in Shenzhen made up less than 20 per cent of housing stock, according to Li, compared with 45 per cent in Hong Kong and more than 80 per cent in Singapore.
The ambitious plan is dubbed as "the second housing reform" among market observers. The first reform was adopted in 1987 when the central government started experimenting in some pioneer cities, ending the practise of handing out homes by state-owned factories and farms.
In 1987 Shenzhen hosted the first land auction in China - ushering in an era where the housing market was controlled by the market.
"Shenzhen's home price has soared too high as more are using homes as a tool for asset gains, and the current average price now is far beyond average affordability" said Fion He, chief analyst with property brokerage Midland Holdings China.
Shenzhen, home to some of the country's biggest technology companies Huawei, ZTE and Tencent, ranks as the fifth most expensive city globally, with an average home price of US$726 (S$989) per square foot, according to a survey of 35 cities around the world by real estate consultant CBRE.
The high cost of living has cast a heavy burden and on young people in the city.
"The pay is good here, but life is not. My husband and I have saved four years for the down payment, but if home prices continue to increase like the past couple years, we are with no hope of getting one and we may just move to other cities like Guangzhou or just go back home," said Erica Yang, a thirty-something native from Hubei province who currently works for an online gaming company in Shenzhen.
The loss of a skilled labour pool would no doubt be bad news for companies headquartered in ShenzhenA general view of Shenzhen Bay Bridge from the Hong Kong side. Photo: South China Morning Post
"This is a big problem for cities like Shenzhen. Losing skilled workers means losing hold of the engine of economic growth," said Joe Zhou, executive director of China capital advisor with CBRE.
Shenzhen's embrace of the Singapore model echoes President Xi Jinping's pledge to build homes "for living in, not for speculation."
Under the Singapore scheme a family with a combined income of no more than S$12,000 (HK$69,000) is eligible to apply for public housing.
In February, a three-room flat between 60 to 65 square metres in Kallang, a 15-minute drive from the central district, was marketed at S$374,000 (HK$2.1 million).
Singapore has one of the world's highest rates of home ownership at 90 per cent. Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor has praised Singapore's subsidised housing measures, saying they provided inspiration for her own administration's policy on how to solve the housing crisis.
Experts believe that Shenzhen, with economic output surpassing Hong Kong, is wealthy enough to pioneer a new direction on social housing.
"Unlike most Chinese cities, Shenzhen's government does not rely on revenue from land sales. That is why the government has the guts to make change," said Gan Li, a professor at Southwestern University of Finance and Economics in Chengdu.
In 2018, Shenzhen collected less than 45 billion yuan (US$6.68 billion) from selling land, about a fifth of what Shanghai derived from land sales and a fourth of that of Beijing.
Unlike Hong Kong and other major mainland cities, Shenzhen does not have a very large land bank. "The government needs to develop some new parcels of land otherwise it will have to pour in cash to redevelop existing estates," Li said.
This article was first published in South China Morning Post.