Feb. 22 (Bloomberg) -- Sino Land Co. paid a greater-than- expected HK$1.82 billion ($233 million) in Hong Kong's first auction of a commercial site in more than three years as an economic boom bolsters the property market.

A Bloomberg News poll of four surveyors forecast bids ranging from HK$850 million to HK$1.1 billion. Sino Land today edged out developers such as Kerry Properties Ltd., which has a four tower-office project in the area, home to the headquarters of subway operator MTR Corp. and retailer Esprit Holdings Ltd.

``The future implication is that property developers may be more aggressive,'' said Louis Wong, who helps manage the equivalent of $25 million at Phillip Asset Management (HK) Ltd. ``This land auction result may be more reflective for optimism for demand in commercial property.''

Land auctions are closely watched by investors in Hong Kong, where a quarter of the 33 companies in the benchmark Hang Seng Index have major real estate investments. The sale was the fourth since the government revived auctions last May after an 18-month suspension to prop up the property market.

Hong Kong last auctioned a commercially zoned site on Oct. 16, 2001, fetching HK$655 million for a parking lot twice the size. Sino Land Chairman Robert Ng said in a phone interview today that he has no specific plans for the Kowloon Bay site yet. Total costs, including construction and other fees, may reach HK$3 billion, he said.

Overpaid?

Sino Land has a history of overpaying for land, Phillip Asset's Wong said. Shares of Sino Land, which fell 2.8 percent to HK$6.90 today, are down 9.8 percent this year, compared with a 1 percent decline by the benchmark Hang Seng Index and a 5 percent drop by the property sub-index.

``It's the track record of wrongly timing the market that has made investors edgy,'' Wong said. ``They (Sino) paid rocketing prices back in 1997 to acquire land. They've made a lot of provisions for their mistakes in 1997,'' the height of Hong Kong's previous property boom.

Profit at Sino Land, which owns mostly residential and office properties in the suburban New Territories and Kowloon, fell for four straight years before recovering in the fiscal year ended June 2004.

In the Kowloon Bay area, office prices are up about 70 percent in the past 13 months. Alvin Lam, associate director at Midland Surveyors Ltd., forecast office prices may climb as much as 30 percent more this year.

``Developers are very interested in office development due to limited supply, especially in non-core areas,'' Lam said. ``The price is acceptable. Office prices will improve further.''

Outlook

Lam said a building on the new site may eventually sell for more than HK$5,000 a square foot, compared with HK$4,000 now for Kerry's project.

Fewer new office spaces and rising demand are allowing developers to raise prices and landlords to increase rents. New supply of office space in Hong Kong is projected to drop four- fifths to 360,000 square feet this year and to 288,000 square feet next year, consultant Colliers International (Hong Kong) Ltd. said. The supply compares with estimated demand of 1.25 million square feet this year.

Land sales are the biggest source of income for the government, which has had five budget deficits in the past seven fiscal years. Hong Kong's economy grew 7.5 percent last year, the fastest in four years, fueled by trade with China and a tourism rebound.

Budget

Hong Kong will probably balance the budget in the financial year ending March 2007, two years earlier than the government forecast, as surging economic growth bolsters tax receipts and revenue from land sales, an International Monetary Fund report said today.

Sales of commercial property in Hong Kong more than tripled to HK$18.9 billion in 2004 from a year earlier, according to Midland Surveyors, a unit of one of the two biggest realtors in the city. Transactions climbed 89 percent, it said.

The six-member Hang Seng Property sub-index has climbed a fifth since the government resumed land auctions last May, in line with an increase by the Hang Seng Index.

Property stocks began surging last year, when the government resumed land sales amid expectations the market would continue to rebound from a six-year slump that cut prices by more than two- thirds from their 1997 peak.

To contact the reporter for this story: Clare Cheung in Hong Kong at scheung4@bloomberg.net

Last Updated: February 22, 2005 04:11 EST