''My friend lives in a place called Aldeburgh in England and the people have a very harmonious relationship" is the correct sentence.
In the question, the sentence is incorrect due to using of incorrect tense. In the first sentence, present continuous tense is used which is wrong. Instead of present continuous tense, we have to use present indefinite tense because the sentence shows us the event of present so we have to use the tense of present indefinite instead of present continuous due to the requirement of the sentence so it is concluded that the problem in this sentence is the presence of wrong tense.
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