Fears in China's "Silicon Valley" that property boom will hurt tech boom

Hopefluent group

13/06/2016 10:18

* Young professionals consider city too expensive 
    * Tech firms acknowledge costs, offer staff support 
    * Companies worried costs mean city is losing 
competitiveness 
    * House prices up 63 percent in April from year earlier 
    * Housing costs higher than Beijing, Shanghai 
 
    By Clare Jim and James Pomfret 
    SHENZHEN, China, June 13 (Reuters) - A housing boom in 
China's wannabe "Silicon Valley" of Shenzhen risks undermining 
the city's tech boom as young professionals consider moving out 
to avoid the highest residential prices in the country. 
    In the space of four decades, Shenzhen has transformed 
itself from a fishing village into a manufacturing centre and 
now a tech hub - attracting top firms and young talent in 
sectors including technology, advertising and design. 
    But a property frenzy, which has driven prices up by 580 
percent in the past 10 years, is beginning to weigh on the 
city's competitiveness, tech firms, professionals, industry 
groups and officials say, just as it strives to develop new 
economic drivers and pull away from old-economy manufacturing. 
    The tech hub has drawn some of China's top names including 
internet giant Tencent and telecoms firm Huawei, plus emerging 
new leaders such as DJI, the world's biggest commercial drone 
maker, and gene mapping company BGI. 
    If these firms and those that are part of the tech-hub's 
ecosystem of startups struggle to attract talent because of high 
housing costs, they could start to doubt if Shenzhen is the 
right location for their operations. 
    That could stunt the development of a high-tech sector that 
Chinese media reports showcase as a shining example of China's 
move up the value chain. 
    "For people of my age group, Shenzhen's high property prices 
are causing a lot of pressure," said Chen Zhitao, a 25-year-old 
marketing officer for Chinese online retail giant JD.com 
 JD.OQ . To save on rent, he shares a tiny flat with two others 
where one has to sleep on a couch each night. 
    "Now my friends are discussing more and more whether to 
leave, and to consider what other cities we might go to," he 
said. 
    The Shenzhen city government, which has tightened housing 
regulations to take the heat out of the price rally, and its 
Science and Technology Innovation Commission did not respond 
immediately to requests for comment. 
     
    CHINA'S MOST EXPENSIVE CITY 
    While commercial rents are stable, residential prices have 
soared as available building land within the city shrank. 
    In the year to April, prices rose almost 63 percent - the 
biggest rise in China - data shows. Average residential property 
prices in Shenzhen in May were 40 percent higher than Beijing 
and 30 percent above Shanghai, according to data provider China 
Real Estate Index System (CREIS). 
    A 90-square metre apartment (970 sq ft) near the city 
centre, or in the tech district of Nanshan, costs around 6 
million yuan ($915,000). 
    The prices rises have been matched by a sharp increase in 
borrowing. Outstanding mortgages rose 40 percent to 742 billion 
yuan in 2015 and new mortgages jumped more than 200 percent to 
340 billion yuan. 
    Blue-chip firms headquartered in Shenzhen acknowledge the 
boom is a concern. 
    Internet giant Tencent  0700.HK  expanded its housing 
subsidy programme in May to include rent relief of up to 15,000 
yuan a year, a source at the firm said. It also provides 
interest free loans of up to 500,000 yuan ($76,214.86). 
    "The company has been very proactive with their (housing) 
policies. It's very obvious," said a Tencent employee who only 
gave his surname Chen. 
    "They can't not offer these if they want to retain and 
attract employees ... high property prices are a big concern for 
them." 
    Other major firms such as ZTE Corp  0763.HK   000063.SZ , 
Huawei Technologies  HWT.UL , DJI Holdings  DJI.L  and the 
Qianhai Free Trade Zone authority told Reuters they own 
apartments and dormitories that they rent to staff at 
below-market rates. 
    Ren Zhengfei, founder and head of Shenzhen-based Huawei, 
expressed concern in an interview with China's state-run Xinhua 
news agency about the impact of rising property prices on 
business development on the mainland. 
    Housing and production costs are too high, he said. Huawei 
declined to comment further. 
     
    HOUSING "DILEMMA" 
    Many other high-tech firms can not afford subsidies. 
    Fiona Zhang, a 26-year-old who helped found an online 
marketing startup, said she was forced to move out of her studio 
apartment last year when her rent jumped 42 percent. 
    She now shares a four-bedroom flat with three others. She 
said many of her friends had quit Shenzhen to move to a cheaper 
city. 
    "Starting my own business has been my dream," she said. 
    These cost pressures suggest the Shenzhen government needed 
to change policy, Chen Geping, the head of the Shenzhen Housing 
Research Association, was quoted as saying. 
    "Shenzhen's current property dilemma ... is no longer to 
protect families in need, but how to find housing for its 
(professional) talent," Chen said in the Southern Weekly 
newspaper. 
    Other business groups, such as the Federation of Shenzhen 
Industries, said they were concerned about the impact of 
property prices on Shenzhen's competitiveness. 
    An employee at the Shenzhen Promotion Association for Small 
& Medium Enterprises, who gave his surname as Huang, had a 
different take on the impact of the housing rally. 
    Huang said startups required less labour than larger firms 
so higher apartment prices might "eliminate mediocre labour 
while keeping talent in Shenzhen." 
 ($1=6.56 yuan) 
 
 (Additional reporting by Yimou Lee, Tris Pan and Teenie Ho; 
Editing by Neil Fullick) 
 ((clare.jim@thomsonreuters.com; +852 2912 6653; Reuters 
Messaging: clare.jim.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA PROPERTY/SHENZHEN TECH