Oct. 28 (Bloomberg) -- Hong Kong’s biggest developers called on the government to revamp the way it sells land after tight supply led home prices to surge 28 percent this year.

At a closed-door meeting yesterday, Financial Secretary John Tsang told builders that the government won’t rule out intervening in the property market should it become “unfair” and “unhealthy,” a person familiar with the matter said. Among those present were executives from Sun Hung Kai Properties Ltd., the world’s biggest developer by value, and billionaire Li Ka- shing’sCheung Kong (Holdings) Ltd.

Rising home prices have led Hong Kong developers to ask the government to increase land sales. To cool the property market, Hong Kong tightened downpayment requirements for luxury homes and suspended mortgage insurance for rental properties. On Oct. 14, Hong Kong Chief Executive Donald Tsang expressed concern about a possible property bubble.

“The government has to release some land, otherwise the developers will keep their prices at high levels because they won’t be able to replenish their land bank,” Steven Leung, director of institutional sales at UOB-Kay Hian Ltd., said by phone today.

Yesterday’s meeting between Tsang and the developers took about an hour. Tsang didn’t specify what measures the government would take should it choose to intervene in the property market, the person familiar with the matter said.

Share-Price Declines

Sun Hung Kai dropped 1.9 percent to close at HK$116 in Hong Kong, after posting the biggest decline since August yesterday. Today’s drop trims this year’s gains to 80 percent. Cheung Kong, controlled by Li Ka-shing, Asia’s second-richest man, fell 2.7 percent to HK$99.50.

“The developers are requesting the government put the prices closer to the market level,” Stewart Leung, an executive director at New World Development Ltd., told reporters in Hong Kong yesterday after the meeting with Tsang. “We also hope that the government will increase the opportunities for selling land via applications.”

The government has adjusted supply to deal with changes in the property market. In November 2002, it suspended scheduled land sales as home prices continued to fall following the 1997- 98 Asian financial crisis, the 2000 bursting of the dot-com bubble and the Sept. 11, 2001, terrorist attacks.

The government resumed land sales in January 2004, introducing a system of selling land through auctions only after developers promise to pay a minimum amount, part of an undisclosed reserve price.

Executives Meet Tsang

Executives from some of the city’s largest developers, including Thomas Kwok, vice chairman of Sun Hung Kai; Cheung Kong Deputy Chairman and Li Ka-shing’s son Victor Li; Robert Ng, chairman of Sino Land Co.; and Hang Lung Properties Ltd. Chairman Ronnie Chan met Tsang at government headquarters yesterday.

On May 5, the government sold a residential building site for a higher-than-estimated HK$61 million ($7.9 million), the first of the fiscal year that started April 1. It was the first public sale of a building site at least partially designated for housing since May 2008, according to the Lands Department.

Builders completed 5,500 private homes in the first nine months of the year, the Transport and Housing Bureau said Oct. 23, without giving figures for the same period in 2008. For all of last year, 8,800 homes were built, the fewest since at least 1997, the bureau’s figures showed.

World Record

Henderson Land Development Co. earlier this month said it sold a flat for what it called a world-record HK$88,000 a square foot. That announcement came hours after Donald Tsang said the government may release more land for developers to stem price increases.

Dozens marched in the Central business district to the government office demanding Donald Tsang to address the issue of property prices, Radio Television Hong Kong reported Oct. 25.

The index that tracks six of the city’s biggest developers fell 2.2 percent, adding to a 3.6 percent drop yesterday, after the Hong Kong Monetary Authority raised deposit levels for luxury apartments on Oct. 23. The city’s de facto central bank made the change, the first since 1991, after record-low interest rates fueled a surge in home prices this year.

The mortgage measures gave investors a reason to sell property stocks to profit from this year’s gains, Patrick Chow, a Hong Kong-based analyst at Everbright Securities Co., said yesterday. He downgraded Sun Hung Kai to “accumulate.”

Sino Land, Henderson

Sino Land, this year’s best performer on the Hang Seng Property Index, fell 4.6 percent to HK$14.80 today. Henderson, controlled by billionaire Lee Shau-kee, fell 0.4 percent to HK$52.70.

The mortgage measures “may reduce volumes in primary and secondary markets, which could indirectly slow or stop price appreciation for the rest of the year,” David Ng, head of regional property research at Royal Bank of Scotland Plc, said in a report e- mailed yesterday.

Still, home prices may not drop significantly, as a decline of up to 10 percent is likely to lure “real buyers” instead of speculators, UOB-Kay Hian’s Leung said.

Banks in the city of 7 million people have cut mortgage rates to the lowest since records began. Hong Kong home prices have risen 28 percent this year as of the week ended Oct. 18, according to the Centa-City Leading Index compiled by Centaline Property Agency Ltd. and the City University of Hong Kong.

The Hong Kong Mortgage Corp., a government-backed home-loan insurer, said Oct. 23 it will limit coverage on loans of more than 70 percent of a residence’s value to borrowings of HK$12 million or less, down from a maximum of HK$20 million.

To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net

Last Updated: October 28, 2009 05:21 EDT