Hong Kong Land Sales Plan Is Aimed at Curbing Prices, Credit Suisse Says

Hong Kong’s planned sale of nine residential sites in the second quarter signals the government will use more regular land auctions to help curb a two-year surge in housing prices, Credit Suisse Group AG said.

The government will sell a site on April 27, its first auction since November, and another three on May 12, according to a Lands Department statement yesterday. It’s also considering announcing its land sale schedule at the beginning of each quarter, Financial Secretary John Tsang told lawmakers at the Legislative Council yesterday.

Housing prices in the city, ranked the world’s most expensive place to buy a home by Savills Plc (SVS), have gained more than 65 percent in the past two years on record-low mortgage rates and an influx of buyers from China. The government in November increased property transaction taxes and pledged to boost land supply amid public protest that housing prices are becoming un-affordable and as the central bank warned about the risk of a “credit-fueled property bubble.”

“The government has effectively resumed regular auction to regain control over the pace of land supply,” Credit Suisse analysts Cusson Leung and Joyce Kwock wrote in a note yesterday. “The determination to increase land supply is shown.”

The nine sites being sold this quarter will generate 2,650 new units, Tsang said.

Most government land sales in recent years have been done through the so-called application system where developers’ proposals to buy the sites trigger the auction. That system was put in place in 2002 to support falling home prices triggered by the Asian financial crisis that started in 1997. Government- initiated land auctions were partially resumed last year.

Slow Down Prices

Hong Kong may auction as many as 52 plots of land this year, Tsang said in his Feb. 23 budget speech. The land could yield 16,000 units, almost 80 percent more than from land sold last year.

“What they are doing is trying to slow down price growth,” said Wong Leung-sing, research director at Centaline Property Agency Ltd., the city’s biggest closely-held realtor. “There’s still a long way to go before prices will start falling and I’m not sure that is something the government wants to see.”

Hong Kong’s housing prices have surged more than 65 percent since the beginning of 2009 to the highest since 1997, according to an index compiled by Centaline. The city’s government, which doesn’t have an independent interest-rate policy because of a currency pegged to the U.S. dollar, has kept its base rate at the record-low of 0.5 percent since December 2008.

Photographer: Jerome Favre/Bloomberg

The former Ko Shan Road Customs & Excise Service Married Quarters, a government plot of land scheduled for auction, stands in the Kowloon area of Hong Kong. Close

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The former Ko Shan Road Customs & Excise Service Married Quarters, a government plot of land scheduled for auction, stands in the Kowloon area of Hong Kong.

London

Hong Kong is 55 percent more expensive than London to buy a home, Savills said in a report in January.

The Hang Seng Property Index, which tracks the city’s seven biggest developers, rose 0.6 percent yesterday. Tsang announced the land sale plan before the market closed. The measure dropped 0.7 percent as of 10:05 a.m. in Hong Kong, paring the gain this year to 2.3 percent, compared with the 4.8 percent advance in the benchmark Hang Seng Index.

The three sites up on sale in May are located on Stubbs Road on Hong Kong Island, Begonia Road in the Kowloon Tong area and Ngau Tam Mei in the Yuen Long district, according to the government statement.

It will also begin tender for two sites in Hung Hom on April 29 and another one in the Tung Chung district in June, when it will auction two more sites, with one each on Hong Kong Island and in Yuen Long.

‘Spark Keen Interest’

The sites on Hong Kong Island and Kowloon Tong “should spark keen interest from developers as the future land supply for these location is expected to be limited,” the Credit Suisse analysts said. “These sites’ auction is likely to drive a short wave of positive sentiment in the market.”

Photographer: Jerome Favre/Bloomberg

Traffic passes in front of the former Lingnan College site, a government plot of land scheduled for auction, in Hong Kong. Close

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Traffic passes in front of the former Lingnan College site, a government plot of land scheduled for auction, in Hong Kong.

Of the 2,650 new units from the land sale this quarter, 70 percent are earmarked for smaller and medium-sized apartments, Tsang said.

A group of Hong Kong activists went on a three-day protest from April 8 to 10 outside the headquarters of Cheung Kong Holdings Ltd. (1), the builder controlled by billionaire Li Ka- shing, to protest against the government’s land policy and the practice of developers, Apple Daily reported.

The city will also sell three other sites for commercial use through tender during this quarter, Tsang said yesterday. The government later announced tenders for a site earmarked for businesses in the Kwun Tong district and another designated for a hotel on Queen’s Road East on Hong Kong Island.

To contact the reporter responsible for 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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