Hong Kong Land Auction Misses Surveyor Estimates Amid Speculation Curbs

Hong Kong’s government sold a site at a land auction today to Nan Fung Development Ltd. for almost a third less than surveyors’ estimates as government measures to curb property speculation cool demand.

Nan Fung made the winning bid of HK$3.42 billion ($440 million) for the site in the city’s Tung Chung area, Managing Director Donald Choi said. Developers had been projected to pay HK$4.75 billion for the site, according to the median of three surveyors’ estimates compiled by Bloomberg News.

Hong Kong developers are the worst-performing group on the benchmark stock index this year as the government issued new rules to increase transparency in sales, said it may raise sales taxes and accelerate land auctions in a bid to assuage concern that gains in home prices have made housing unaffordable. Nan Fung outbid developers including New World Development Co. during a sale in which the auctioneer repeatedly said the property would be withdrawn unless higher bids were placed.

The auction was “not bullish” for the property market, said Cusson Leung, a Hong Kong-based analyst with Credit Suisse Group AG. The results, together with the retreat in stocks, will increase pressure on home prices and developers’ shares, he said. “There isn’t any positive news.”

The Hang Seng Property index that tracks the seven biggest developers fell 1.8 percent, the most since April 27, at the close of trading. It has lost 12 percent this year.

‘Reasonable Price’

Nan Fung is developing the site on its own and the price is “reasonable,” Choi told reporters after the auction. “It’s rare to find a plot of land in Hong Kong where we can build a floor area of 1.41 million square feet,” he said, adding that Nan Fung is positive on the city’s property market given its economic recovery.

The Tung Chung site could yield a maximum of 131,000 square meters (1.41 million square feet) of private residences, the Lands Department said in a March 26 statement. The auction was Hong Kong’s first in the fiscal year beginning April 1.

Nan Fung may price apartments built on the site at HK$4,500 a square foot, after adding a profit margin of about 20 percent, construction, financing costs and inflation ratio on top of the auction price of HK$2,426 a square foot, Credit Suisse’s Leung said. Existing apartments in Tung Chung sell at an average of HK$4,200 a square foot, he said.

Bidding

Only three developers, including Nan Fung and New World Development, bid during the auction. Auctioneer Graham Martin Ross, also the deputy director of the Lands Administration Office, cut the amount of increments on Choi’s suggestion. Developers were not identified and were allotted numbers to put up bids.

The Hong Kong government sells land through auctions only after developers promise to pay a minimum amount, part of an undisclosed reserve price.

“It was clear that the developers were trying to get to the reserve price,” Leung said.

Hong Kong home prices have risen 10 percent in 2010 as of April 21, to the highest since January 1998, Centaline said in a May 7 report. This is on top of last year’s 29 percent gain -- fueled by record-low mortgage rates, an economic recovery, and buying from rich mainland Chinese -- triggering concern the market is in a bubble.

Hong Kong’s measures show “the government has the determination to deal with the property market, and this is having a knock-on effect on transactions,” Alnwick Chan, executive director at property consultant Knight Frank, said yesterday.

More Auctions

Centaline Property Agency Ltd. and Knight Frank LLP had both cut their forecasts before the auction for the land on Lantau island, where Hong Kong’s airport is situated.

The auction was triggered after a developer gave a minimum guaranteed bid of HK$2.88 billion, the government said March 26. Since then, the government has put up three other sites for auction, and MTR Corp., Hong Kong’s government-owned subway operator, is taking bids for a separate site in Kowloon.

Nan Fung will consider taking part in the other three government auctions, Choi said.

Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, won the last land auction in Hong Kong held Feb. 22. It paid HK$3.37 billion for the site in the eastern Tseung Kwan O district, a price that exceeded most analysts’ estimates.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.