(April 2): Hong Kong’s ambitious plan to build a technology hub near mainland China is getting a cold shoulder from real estate executives.
The government is ramping up plans to develop the Northern Metropolis, a sprawling area that it wants to house everything from cutting-edge laboratories to promising startups. In February, local officials said they would pull HK$150 billion (US$19 billion or $24.63 billion) from the city’s currency defence fund to support the project — a high-profile show of support.
But real estate executives aren’t so sure. Although the city’s big developers haven’t publicly criticised the project, privately some of them gripe about the risks of oversupply and the difficulty they face assessing investment opportunities.
Their scepticism adds to signs of discord elsewhere. Environmental groups have sounded the alarm about the danger to local wildlife. On a radio show attended by Financial Secretary Paul Chan, a listener complained that the massive investment only benefits Shenzhen, and that more resources should be allocated to Hong Kong residents instead.
These signs of frustration underscore the hurdles confronting the Northern Metropolis, first introduced as a solution to the city’s housing congestion in 2021. The project is set to span roughly a third of Hong Kong’s territory, occupying a long-overlooked region bordering Shenzhen.
The government is clearly committed to the project. By tapping the currency defence fund for the first time in over four decades, Hong Kong officials were betting the city would reap the benefits of job creation and tax revenue eventually generated from the area, said Tommy Wu, a senior economist at Standard Chartered plc.
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“Hong Kong focuses on finance and professional services, but we should try not to put all our eggs in one basket,” said Wu. “So having diversity and a new growth engine is a good thing.”
But the Northern Metropolis may confront some of the issues that have faced similar megacity projects, said Brian Wong, a researcher at local think tank Liber Research Community. He pointed to projects such as Saudi Arabia’s Neom and Indonesia’s Nusantara, which have encountered problems from delays to land-rights conflicts.
“Urban development of this scale around the world follows a pattern,” said Wong. “During the process you’ll find it’s too ambitious — you have to scale back — or you’ll run into debt problems, or the entire project drags on for so long that more issues crop up along the way.”
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Industrial parks
One bugbear for developers is that the Northern Metropolis is largely being developed using the industrial park model, where similar companies are located side by side in sector-specific hubs. That has for years been a successful model in mainland China, but it is less familiar to Hong Kong real estate firms that are more accustomed to developing their own office, mall or residential projects.
The approach means property developers will ultimately take a back seat to the government when it comes to planning the landmark project. Their opportunities may instead come from developing residential high-rises near key sites, and working with big industrial firms to help build factories and offices.
The use of a new operating model for such an ambitious project makes it hard for real estate companies to estimate likely returns, according to multiple executives at the city’s leading developers. They point to the lack of details, the potential risk of oversupply and the sense that the government is developing too many zones at once.
Although the government’s injection of HK$150 billion from the currency defence fund will give confidence to the sector, it still needs to boost economic incentives for property companies, said a senior executive, adding that subsidies may be one solution.
To be sure, the government is taking steps to incentivise investment from the private sector by introducing policies specific to the Northern Metropolis. It proposes to slash upfront capital requirements for developers by allowing phased payments of land premiums and simplifying the land rezoning application process.
Yet past endeavours by the government to bolster innovation cast doubts on the undertaking. Despite ambitious goals to build tech parks to breed homegrown unicorns, areas that house previous flagship developments such as Cyberport and Science Park have had better success filling high-end apartments.
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Local authorities have taken inspiration from China’s so-called smart cities. Officials have been taking high-profile trips to the mainland to learn about the operation of its tech towns and replicate them.
The sites aren’t necessarily a model to aspire to. One is the Xiong’an New Area, designed to serve as an extension of overcrowded Beijing. Despite being a priority project of President Xi Jinping, Xiong’an has been labelled a ghost town. Beijing is now moving state-owned companies to the area to fill up space.
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