Hong Kong's Sale of Kowloon Tong Site Raises Less Than Forecast

Hong Kong sold a building site for about 20 percent less than surveyors estimated ahead of rules that restrict sellable areas in apartments as the government tries to stem a surge in home prices.

Chinachem Group paid HK$2.17 billion ($280 million) for the site in Kowloon Tong, the same district where the developer bought a plot of land in October to set a record price for the Kowloon Peninsula. Today’s price was below the HK$2.7 billion median estimate of seven surveyors Bloomberg News surveyed.

The auction was the first after Chief Executive Donald Tsang said Oct. 13 the government will restrict buildings’ common feature areas, tighten regulation of sales tactics and study asking builders to list saleable floor areas instead of building areas when calculating prices. Home prices in the city have surged about 50 percent since the beginning of last year to their highest since 1997.

“The price is reasonable,” Shun-Mo Ng, Chinachem’s sales director, told reporters after the auction. “Bidders were conservative because of the new rules. It doesn’t show they are not optimistic about the outlook for the property market.”

The government plans to restrict common features, including clubhouses, developers claim as part of apartments to 10 percent of gross floor area from next April, Tsang said in the Oct. 13 policy address. The government also will consider requiring builders to list saleable floor areas instead of building area when calculating per-square-foot prices, he said.

‘More Conservative’

“In the upcoming land auctions, we are likely to see developers becoming more conservative in bidding as their cost has increased because of the new rule that limits the common areas in apartments,” said Hong Kong-based Yu Kam-hung, senior managing director of valuation and advisory services for Greater China at CB Richard Ellis Group Inc. Yu said he estimates sellable areas can currently be inflated by about 30 percent.

Hong Kong has accelerated land auctions since August as home prices surged on record-low mortgage rates and an influx of wealthy mainland Chinese buyers.

Chinachem paid the equivalent of HK$9,537 per square foot today for the Inverness Road site which has a maximum buildable area of 21,138 square meters (227,529 square feet). The auction was triggered in September after an unidentified developer promised to pay a minimum of HK$1.716 billion for the land, according to a statement on the government’s website.

Closely held Chinachem will build four 10-story blocks with a total of 160 units on the site, Ng said. The construction cost, including the land cost, will be about HK$3 billion, he said.

It’s unlikely Chinachem would be able to submit the building plans for approval before the deadline for the new rules, he said.

Land Auctions

A day before the policy address, Chinachem bought a plot on Ede Road in Kowloon Tong for HK$1.63 billion. The HK$17,976 per- square-foot price broke a record for the Kowloon Peninsula set by an adjacent site bought in August by Kerry Properties Ltd.

Hong Kong has also raised down-payment ratios and stopped offering residency to foreigners who buy property in the city to discourage speculation.

Home prices surged 49 percent since the beginning of 2009, according to an index compiled by Centaline Property Agency Ltd., to the highest since 1997, when the city slid into its first recession in more than a decade after the 1997-1998 Asian financial crisis, sending property values more than 50 percent lower until they started recovering in 2003.

An index of private home prices compiled by the Rating and Valuation Department in Hong Kong shows real-estate values almost quadrupled from 1990 to the peak in 1997.

Land Auctions

Most government land sales in recent years have been triggered by the so-called application system whereby developers promise to pay minimum amounts for sites on a list of available lots, leading to a public auction.

Land auctions where the government offers plots for sale without going through the application system have been partially resumed this year after they were halted in 2004 to support falling home prices.

Hong Kong Monetary Authority Chief Executive Officer Norman Chan told lawmakers in Hong Kong Nov. 1 that the home market is overheating, and cautioned that buyers should consider affordability because interest rates can’t fall further. Hong Kong rates tend to follow those in the U.S., which are close to zero, because the local currency is pegged to the U.S. dollar.

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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