There’s a big land-buying frenzy happening in Asia right now.
But you won’t hear about it in the news.
It’s the same kind of buying spree that took place in Beijing in 2003, shortly after the city won its bid to host the 2008 Olympics. That set off a bull market in Beijing that sent property prices up 400 percent between 2002 and 2010.
This time around, it’s quietly happening in the Greater Bay Area (GBA) Initiative – a special economic region comprised of nine municipalities in China’s Guangdong province, as well as Hong Kong and Macau. The region has 69 million people and an economy as large as that of Russia – the world’s 12th largest economy.
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The point of the GBA Initiative is to create a single, giant economic hub, and to make Shenzhen – China’s technology centre – like the Silicon Valley in the San Francisco Bay Area. Only the GBA Initiative is three times the size of the San Francisco Bay Area.
It’s a huge market filled with high-income, high-spending consumers. And they’ll be connected by a complex web of road, air and railway infrastructure, as well as an ultra-fast mobile communications network, speeding up the pace of doing business.
So far, most of the development in the Greater Bay Area has been centered around four key regions: Hong Kong, Macau, Guangzhou and Shenzhen.
According to investment bank DBS, real estate prices in Guangzhou have nearly quadrupled since 2006. Prices in Shenzhen have risen more than fivefold, while prices in Hong Kong have gained nearly 300 percent.
The buying frenzy is spreading to smaller cities
Over the past year, China’s biggest property developers have spent US$16.2 billion buying 15 million square metres of real estate in the nine municipalities that are part of the GBA. These are the smaller cities that have been largely left out of the property boom.
That works out to about US$1,080 per square metre for an area that’s four times as large as Central Park in Manhattan.
About one-third of all the land bought by these developers is in Foshan, a city that’s 175 kilometres northeast of Hong Kong, with a GDP just one-third that of Guangzhou or Shenzhen.
Just six months ago, traveling from Hong Kong to Foshan involved a three-hour bus ride (plus a lengthy wait to get through border immigration).
But in September, the Guangzhou-Shenzhen-Hong Kong Express Rail Link opened. This bullet-train service travels at speeds averaging 200 kilometres per hour, and cuts the travel time between Hong Kong and Guangzhou from three hours to just 50 minutes.
From there, travelers can take a second line to Foshan that will take an additional 20 minutes.
This has helped turned Foshan, a once-sleepy manufacturing hub for air conditioners and refrigerators, into a bustling and modern city filled with skyscrapers, shopping malls and apartment buildings. It’s now an alternative home for millions of people who can no longer afford to live in Shenzhen and Guangzhou.
In 2017, approximately 150,000 people moved into Foshan. That created demand for 50,000 new homes – equivalent to 125 forty-story buildings.
The same is happening in smaller GBA cities like Zhaoqing and Jiangmen, where real estate is in greater supply and they’re now easier to get to because of better roads and railway infrastructure.
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Soaring property prices but no bubble, yet
The cost of property in cities like Foshan, Zhaoqing and Jiangmen is a fraction of the prices in Shenzhen, Guangzhou and Hong Kong.
In Foshan, for instance, the average price per square metre for an apartment is 13,000 yuan (about US$1,900). Guangzhou prices range between US$4,030 and US$7,900 per square metre, while Shenzhen prices range between US$7,100 and US$13,300.
But thanks to the GBA Initiative, prices in these smaller cities are catching up – fast.
Foshan property prices, for instance, climbed 35 percent from July 2017 to December 2018.
Zhaoqing and Jiangmen property prices were up 24 percent and 20 percent, respectively, over the same period.
But because prices in these cities are still relatively cheap, there’s plenty of room for further increases, as the population in these cities swell. That’s why we’re seeing such a frenzy of buying GBA real estate.
Does this mean that China’s property market is becoming a bubble again?
As I’ve written previously, Beijing has been imposing measures to slow down the real estate market, especially in cities where prices have become prohibitively expensive.
These measures include selling price limits, higher down-payment requirements, as well as restrictions on how real estate developers can raise and use money.
Those measures are still in effect in most major cities in China. So don’t expect the overall property market to turn red-hot again anytime soon.
According to Reuters, China’s average residential property prices are forecast to rise 2 percent in the first half of 2019 from a year earlier, and just 0.5 percent for the full year.
But there will be opportunities to invest in what’s becoming the biggest land-buying frenzy of the century.
This includes real estate developers with significant exposure to the Greater Bay Area market, as well as construction companies and mass transit system and toll road operators.
It also includes companies able to serve up demand for everything from banking to food services.
Remember, there are still 600 million Chinese living in the countryside, or nearly half of the population. That’s nearly double the size of the U.S. population.
Many of them will want to move to the Greater Bay Area in the same way that Americans want to live in New York and San Francisco, and Japanese want to live in Tokyo.
While there are no specific exchange-traded funds (ETFs) dedicated to finding opportunities in the Greater Bay Area Initiative, investing in a fund of China’s biggest corporations – which are likely to have substantial stakes in this new economic region – can be a proxy for the GBA.
These include the iShares China Large-Cap ETF (Exchange: New York; ticker: FXI) and the SPDR S&P China ETF (Exchange: New York; ticker: GXC).
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