Hong Kong Bubble Risk Prompts Tsang to Boost Land Sales, Build More Flats

Hong Kong’s government may auction 52 plots of land this year, boosting supply to build more residential flats to head off risks of a property bubble.

The city will make available for auction 18 new sites and 34 sites left over from the previous fiscal year in the year starting April 1, Financial Secretary John Tsang said in his budget speech today. The land will provide for 16,000 flats, an almost 80 percent increase from the 9,000 in the previous year.

The government in November intensified a yearlong battle to curb property prices with additional transaction taxes and a pledge to increase land supply. The city is the world’s most expensive place to buy a home, because of a supply shortage, according to a study released by Savills Plc last month.

“These land supply policies make no big difference; it looks like it’s doing something, but it doesn’t,” said Nicole Wong, a Hong Kong-based property analyst at CLSA Ltd. “The government has too many issues to deal with in this budget plan, so it isn’t doing much to tackle property prices.”

The Hang Seng Property Index, which tracks the city’s seven-biggest builders including Sun Hung Kai Properties Ltd. and Cheung Kong (Holdings) Ltd., fell 0.5 percent at the 4 p.m. close, extending the drop this year to 6.9 percent.

‘Effective Solution’

Home prices have gained more than 60 percent in the past two years on record-low mortgage rates and an influx of buyers from mainland China, according to an index compiled by Centaline Property Agency Ltd., the city’s largest closely held real- estate broker.

Tsang said in his speech that he was “concerned” about property bubbles.

“In the medium to long term, the most effective solution to the problems of the property market lies in the fundamental issue of ensuring steady and adequate land supply,” he said. The government will spend HK$300 million ($38 million) to study ways of increasing land supply, including reclamation off Victoria Harbour and the use of rock caverns.

The government will also sell by tender five residential sites to build about 3,000 “small and medium-sized flats,” and initiate the auction of four sites from the available list during the year, he said.

“The measures give home buyers confidence that there will be more supply of flats and this will ease the rising pressure on flat prices,” said Alvin Lam, an executive director in the surveyor unit of Midland Holdings Ltd., the city’s biggest realtor by market value. “The provision of small and medium- sized flats shows that the government knows what are the flats required in the market.”

Land Auctions

Hong Kong’s property market “rebounded” in January, Tsang said. Home prices gained 2.1 percent in the week ended Feb. 13 from the previous seven days, according to Centaline. They are up 5.7 percent this year, according to Centaline’s index.

The Hong Kong government is one of the city’s biggest landlords and the top land supplier.

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. That system was put in place in 2002 to support falling home prices triggered by the Asian financial crisis of 1998.

Government-initiated auctions were partially resumed last year as part of price-curbing measures. Four of the 10 plots sold this fiscal year were at auctions initiated by the government.

‘Right Direction’

“The government is moving in the right direction” by putting more land for regular auctions, Ronnie Chan, chairman of Hang Lung Properties Ltd., the city’s third-biggest builder by market value, said after the new measures were announced today. “The fundamental reason for the price surge over the past few years was a shortage of land supply. This should be able to help alleviate the problem.”

The application system “would only work if the government set the trigger prices closer to market prices,” Chan said.

The government in November imposed additional stamp duties and increased deposits for mortgages.

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net

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

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