Hong Kong Land Auction Result May Be Dampened by Global Stock Market Rout

Hong Kong’s government, which is boosting housing supply to ease soaring home prices, may sell a site at auction tomorrow at the lower end of forecasts after the city’s stock market had its biggest two-day drop since 2009.

The land in the Sha Tin district may fetch HK$8.25 billion ($1.1 billion), according to the median estimate of five surveyors polled by Bloomberg News whose forecasts ranged from HK$7.24 billion to HK$9.27 billion. Transactions of used apartments at the 10 biggest private projects in Hong Kong fell over the weekend from a week earlier as buyers were deterred by concerns the U.S.’s loss of its top credit rating will extend equity declines, according to Midland Holdings Ltd.

The government has already sold 14 parcels through auctions or tenders during this fiscal year, which began in April, compared with 17 sites in the previous financial year, according to the Lands Department website. Hong Kong home prices have surged more than 70 percent since the beginning of 2009, according to Centaline Property Agency Ltd.

“Developers will be much more careful as there are more uncertainties in the future direction of home prices,” said Alnwick Chan, Hong Kong-based executive director at Knight Frank LLP. “There’ll be impact on the auction, that’s for sure.”

Hong Kong’s Hang Seng Index (HSI) fell 2.2 percent at the 4 p.m. local time close, taking its two-day decline to 6.4 percent, the biggest such slide since November 2009.

Transactions Fall

The threat of more government curbs, coupled with rising mortgage rates, drove the number of home transactions in the city to a 30-month low in July.

Transactions of used apartments at the 10 biggest private projects fell to 24 over the weekend from 31 a week ago, according to Midland, the biggest publicly traded real estate agent in the city. Home prices may drop 5 percent to 7 percent before transactions pick up as buyers are deterred by a collapse of global investor confidence after the U.S. sovereign-rating downgrade and Europe’s debt problems, Buggle Lau, chief analyst at Midland, said in an e-mailed press release yesterday.

At least 970 homes will have to be built on the site, with a total buildable area of 1.03 million square feet, according to the sales document. The government set the minimum apartment requirement in June when it put up the Sha Tin site and two others for auction.

‘Reasonable Profit’

The site that will be auctioned is located on Kau To Shan hill, a luxury residential area in the east of the New Territories that’s within walking distance to the Chinese University of Hong Kong and is close to the Sha Tin Race Course.

At HK$7.24 billion, the average cost would be equivalent to about HK$7,000 a square foot, said Ringo Lam, a director in the valuation department at AG Wilkinson & Associates in Hong Kong, whose estimate is at the low end of the range. Developers would have to sell the homes at about HK$11,500 a square foot to make “a reasonable profit,” Lam said. Prices for new apartments nearby are selling for around HK$10,000 a square foot, he said.

Even at the lowest end of the estimates, the price for the site would still set a record for the New Territories, the area connecting the rest of Hong Kong to the border with the Chinese city of Shenzhen. Henderson Land Development Co. holds the current record with HK$5.6 billion paid for a site in the Tai Po area in 1997.

‘Tricky Situation’

The government on June 10 introduced three sites with minimum unit requirement to be auctioned to developers. Other than the Sha Tin property, the other sites are in Tseung Kwan O and Yuen Long. It also raised down-payment requirements for some home purchases and foreign buyers the same day, the fourth set of restrictions imposed since October 2009 to curb residential prices that have surged over 70 percent in the last 30 months.

“It’s a very tricky situation at the moment,” said Simon Lo, executive director for research and advisory at Colliers International. “Homebuyers are hesitating as they try to figure out where the market’s going and what more the government will do to curb the market. On the other hand, you have a land sale market that is very active.”

Hong Kong is the world’s most expensive place to buy a home, 55 percent pricier than London, Savills Plc said in January.

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

Hong Kong’s mortgage rates have been rising at an accelerated pace since March following decisions by HSBC Holdings Plc (5), the city’s biggest bank by number of customers, and rivals to raise them again in July.

The number of housing transactions plunged 60 percent in July from a year earlier, the seventh straight month of declines, according to Land Registry data. The value of those transactions dropped 39 percent, the lowest since April 2009.

“It’s possible developers may get less aggressive when sentiment is turning worse,” said AG Wilkinson’s Lam. “Having said that, they can change their minds as easily in the hours before the auction if some positive news hit the market.”

To contact the reporter 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

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.