Hong Kong Land Sale Misses Record
October 13, 2011 - Mid Levels Central
The Hong Kong government auctioned off real estate in a luxury residential area Thursday for less than the market had expected, reflecting caution among some developers toward a market that has seen record prices but which could slow as authorities implement measures to keep prices in check.
Still, the amount paid was the second-highest for a site in a Hong Kong land auction, as a limited supply of prime real estate keeps demand buoyant.
Hong Kong Financial Secretary John Tsang again warned property buyers Thursday of the risks in the market, citing rising mortgage interest rates, and said for the first time that the government will consider proposals to restrict foreign ownership of Hong Kong property.
Blue-chip developer Cheung Kong (Holdings) Ltd., the property flagship of businessman Li Ka-shing, won the site on Borrett Road in the Mid-Levels district, saying the price of 11.65 billion Hong Kong dollars (US$1.5 billion) was within its budget and that it was a rare opportunity to acquire such a prime site.
At HK$26,763 per square foot, the land is among the city's most expensive, though the purchase price was below the forecast range of HK$12 billion to HK$15.2 billion from five analysts polled by Dow Jones Newswires.
"This is a superluxury location," said Cheung Kong Deputy Chairman Victor Li, eldest son of the Hong Kong tycoon, after the auction. "We won't sell these apartments so easily, so we may consider leasing them out first."
Cheung Kong at the same auction also bought a much smaller site in the New Territories for HK$300 million, more than double the opening bid of HK$132 million, and within the analysts' forecast range of HK$200 million to HK$330 million.
Hong Kong's average home prices rose around 24% in 2010, following a 30% jump in 2009, as abundant liquidity and record-low interest rates helped boost demand.
A flood of mainland Chinese buyers has also driven the market boom, prompting many local residents unable to afford private housing to demand official intervention to rein in prices.
For its part, the government has imposed taxes to discourage property speculation, and has pledged to increase land supply in the current financial year by selling dozens of residential sites.
Results have so far been mixed, as property transaction figures have remained relatively robust in recent months, though analysts said higher interest rates could trigger a drop in the market.
Major local lenders, including the Asian unit of HSBC Holdings PLC and BOC Hong Kong (Holdings) Ltd., have raised their rates several times in the past few months, driven by strong demand from local residents and wealthy mainland investors.
"There's higher risk for the property market in Hong Kong due to local banks continuously increasing mortgage interest rates," Mr. Tsang, the financial secretary, said at a legislative council meeting Thursday.
The city's interest rates have been near zero since late 2008. Its monetary policy moves in lockstep with that of the U.S. because of the local dollar's currency peg to the U.S. dollar.
Alvin Lam, director of Midland Surveyors Ltd., said the lower-than-expected price for the Borrett Road site could be related to the large scale of investment required, thus making such a project riskier for developers.
"There aren't many eligible developers that can participate in this race, thus reducing the intensity of the auction," he said. "Still, the price has already hit the highest in the same district, and the completed project could hit HK$40,000 per square foot."
The purchase price surpassed the HK$10.9 billion that Sun Hung Kai Properties Ltd. paid for a site at Ho Man Tin in June last year. Hong Kong's record land price remains the HK$11.82 billion paid by Sino Land Co. for a site at Siu Sai Wan on Hong Kong Island in 1997.
Charles Chan, managing director at property consultancy Savills Valuation and Professional Services, said the results from Thursday's auction reflect cautious optimism for developers on the outlook for the property market.
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