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Hong Kong Pledges More Land as Curbs Crimp Auction

Bid by Nan Fung Development at land auction
Nan Fung Development Managing Director Donald Choi makes a bid during a government land auction in Hong Kong. Photographer: Jerome Favre/Bloomberg

Hong Kong’s government pledged to continue to boost land supply as it tries to cool the property market, a day after its first auction of the fiscal year fetched almost a third less than surveyors’ estimates.

“We hope the property market will be stable,” Financial Secretary John Tsang said today in televised comments. “There will be land auctions in June and July,” he said, referring to those already announced by the Lands Department.

Hong Kong has imposed limits on corporate purchases of apartments and said it may raise the stamp duty on some properties after home prices rose as much as 10 percent in the first four months of the year. The city’s developers are this year’s worst-performing group on the benchmark stock index.

“Yesterday’s auction was really a slam on the market,” Adrian Ngan, a Hong Kong-based analyst at CCB International Securities Ltd., said by phone today. “If land prices are cooling off, more people are selling homes than buying, then the government will have an easier job and will not be so tough on new measures.”

Nan Fung Development Ltd., a privately held developer controlled by billionaire Chen Din Hwa, was one of only three real estate companies that took part in yesterday’s auction, dubbed a “lackluster sale” by the city’s South China Morning Post newspaper.

Less Aggressive

The company’s winning bid of HK$3.42 billion ($440 million) for the Lantau Island site came after the auctioneer repeatedly warned the property may be passed in if higher bids weren’t forthcoming. Surveyors had projected HK$4.75 billion for Hong Kong’s first land auction in the fiscal year beginning April 1, according to the median of three estimates compiled by Bloomberg.

Hong Kong developers are less aggressive “due to abundant new land supply in the near future,” and less positive on the outlook, Citigroup Inc. analysts Oscar Choi and Marco Sze said in a report today.

“It may also imply that developers are less positive on the Hong Kong property outlook given the government recently announced a series of new measures on new home sales,” the Hong Kong-based analysts said.

The Hang Seng Property index that tracks the seven biggest developers fell 1.2 percent at the 12:30 p.m. local time break. It has lost 13 percent this year.

‘Reasonable’ Price

The developers are turning defensive and will be very selective at land auctions “in order not to be trapped by future policies” which could be more severe, Ngan said.

Hong Kong home prices have risen 10 percent in 2010 as of April 21, to the highest since January 1998, Centaline Property Agency Ltd. said in a May 7 report. Last year’s 29 percent gain -- fueled by record-low mortgage rates, an economic recovery, and buying from rich Chinese from the mainland -- triggered concern the market is in a bubble.

Nan Fung is developing the site on its own and the price is “reasonable,” Managing Director Donald Choi told reporters yesterday after the auction. Nan Fung is positive on the city’s property market given its economic recovery, he said.

The Hong Kong government sells land through auctions only after developers promise to pay a minimum amount, part of an undisclosed reserve price.

Yesterday’s auction was triggered after a developer gave a minimum guaranteed bid of HK$2.88 billion, the government said March 26. Since then, the government has put up three other sites for auction, and MTR Corp., Hong Kong’s government-owned subway operator, is taking bids for a separate site in Kowloon.

Forecasts Cut

Surveyors have cut their estimates for how much the next Hong Kong land auction will fetch after yesterday’s sale, Apple Daily reported today.

Knight Frank LLP estimates a site in Fanling, to be auctioned May 24, may be sold for as little as HK$1.4 billion, down 30 percent from its earlier forecast of HK$2 billion, the Chinese-language paper said. Other surveyors forecast the land, located in the New Territories, may be auctioned for between HK$1.32 billion and HK$1.4 billion, or as much as 16 percent lower than their previous projections.

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