Hong Kong Government Withdraws Site at Auction After No Bidding

Hong Kong sold a parcel of land near the China border for a more-than-estimated HK$459 million ($59 million), while developers shunned a more centrally located property with views of a cemetery at an auction yesterday.

Sun Hung Kai Properties Ltd., the city’s biggest developer, bought the Fan Ling district site in the New Territories for more than the HK$370 million median estimate of five analysts in a Bloomberg News survey. The Chai Wan district site on Hong Kong Island was unsold at a starting price of HK$530 million.

The location of Fan Ling, half an hour by train from the Chinese city of Shenzhen, lured developers banking on Chinese nationals to keep propping up property prices that have surged 46 percent in the past year to be on par with the previous peak in 1997. The government has increased sales of land and lifted down payments on some properties to curb escalating home values.

“It’ll be very difficult for developers to turn this into a high-profit-margin luxury project,” Buggle Lau, chief analyst at Midland Holdings Ltd., Hong Kong’s biggest publicly traded property agency, said about the Chai Wan site. “I don’t think this is an indication that the government has set the starting bid too high or that developers are pessimistic, otherwise they wouldn’t have paid the higher-than-estimated price for the Fan Ling site.”

Photographer: Jerome Favre/Bloomberg

Hong Kong Financial Secretary John Tsang, seen here, has increased sales of government land in a bid to curb home prices that have surged 46 percent in the past year and are on a par with the previous peak in 1997. Close

Hong Kong Financial Secretary John Tsang, seen here, has increased sales of government... Read More

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Photographer: Jerome Favre/Bloomberg

Hong Kong Financial Secretary John Tsang, seen here, has increased sales of government land in a bid to curb home prices that have surged 46 percent in the past year and are on a par with the previous peak in 1997.

It was the seventh government land auction of the current financial year. The two sites were among three the government said it would sell as part of measures announced Aug. 13 to rein in home prices, including increasing land supply.

Financial Secretary John Tsang said today the government will continue to increase the supply of land through public auctions.

‘Too Small’

The Fan Ling site fetched HK$2,917 per square foot, based upon the auction price and the buildable area of 157,345 square feet. The two sites may be developed into mass residential units, James Cheung, a director at the surveyor arm of Centaline Property Agency Ltd., said before the auction.

Hong Kong’s government defines luxury apartments as those with an area of more than 1,000 square feet or valued at HK$10 million or more.

The Chai Wan site, with 155,346 square feet of buildable area, was estimated to sell for a median HK$700 million.

“The plot size is too small,” Chu Ip Pui, an executive director at Kerry Property Management Services Ltd., a unit of Kerry Properties Ltd., said after the auction. The withdrawal “doesn’t give much indication of the direction of the market” and “doesn’t mean developers are pessimistic.”

Kerry, controlled by the family of Malaysian tycoon Robert Kuok, on Aug. 31 paid HK$1.29 billion for a 77,469-square-foot plot in the Kowloon Tong district. The per-square-foot price of HK$16,587 is a record for the Kowloon Peninsula.

Feng Shui

According to the Chinese geomantic practice of feng shui, a cemetery may bring bad fortune to those living nearby. Sites are chosen and buildings are configured in harmony with spiritual energy under feng shui, which means “wind-water.”

“It’s taboo for the Chinese, especially for those from mainland China,” said Yu Kam-hung, senior managing director at CB Richard Ellis Group Inc., the world’s largest publicly traded commercial property broker. “They will not buy those apartments even though you sell at a huge discount. As there is no demand, the developers are not interested in that plot at all.”

Unusual, Rare

The government last withdrew land at a public auction in 1994 when a site in Yuen Long in the New Territories failed to sell. In 1998, the government canceled a land auction before it started amid speculation developers would boycott it after property prices tumbled by about 50 percent in less than a year.

The withdrawal of the Chai Wan plot is “unusual and rarely occurred,” G.M. Ross, the auctioneer and also deputy director at the Lands Department, told reporters after the auction. The Fan Ling plot sale shows “strong interest” in the market, Ross said.

Most government land sales in recent years, including the last auction, have been triggered by developers who promised to pay minimum amounts for sites on a list of available lots under the so-called land application system. Regular government land auctions have been partially resumed this year after they were halted in 2004 to support falling home prices.

Hong Kong’s government is closely monitoring the property market and may introduce further measures to contain prices if they continue to escalate, a Ming Pao report on Sept. 1 quoted Financial Secretary John Tsang as saying.

Luxury Prices

Hong Kong home prices -- especially of luxury properties -- have been pushed up by record low mortgage rates and an influx of mainland Chinese. An estimated 20 percent of buyers of new apartments in Hong Kong are from mainland China, according to Centaline, the city’s biggest privately held real estate agent.

Hong Kong property stocks have advanced 11 percent since the government announced the efforts to curb prices Aug. 13.

Cheung Kong (Holdings) Ltd., Hong Kong’s second-biggest developer controlled by the city’s richest man, Li Ka-shing, paid more than estimated for two building sites on the Kowloon Peninsula, four days after the government lifted down payments on some properties Aug. 13.

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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