Henderson Subsidiary Buys H.K. Land Below Estimates

Hong Kong land auction
Auctioneer Graham Martin Ross holds his gavel during a government land auction in Hong Kong on May 11, 2010. Photographer: Jerome Favre/Bloomberg

A Henderson Land Development Co. subsidiary bought a Hong Kong building site for HK$1.33 billion ($170 million) in the second auction this year to miss surveyors’ estimates as the government moves to ease concern about a property bubble.

The government was forecast to raise HK$1.32 billion to HK$1.45 billion, with HK$1.37 billion the median price, for the 8,900-square-meter (95,800 square feet) plot in the Fanling area of the New Territories, according to four surveyor estimates compiled by Bloomberg.

“After the government said it will release more land, developers see more opportunities to acquire and don’t need to bid up prices,” Raymond Ngai, a Hong Kong-based analyst at JPMorgan Chase & Co., said after the auction.

Hong Kong’s home prices have jumped 41 percent since the end of 2008. The government pledged May 12 to keep boosting land supply as it tries to ease concerns a real estate bubble is forming, a day after its first auction of the fiscal year fetched almost a third less than estimates.

Today’s sale to Henderson’s Hong Kong Ferry (Holdings) Co. subsidiary comes a week after Martin Lee, the youngest son of Henderson Chairman Lee Shau-kee, paid $233 million for land in the city’s most expensive residential area at a private auction. Martin Lee said he would develop the site for family use.

“The price is within our budget and range,” David Ho, group general manager of Hong Kong Ferry, said after winning today’s auction. “I think the price is reasonable.”

‘Reasonable’ Price

Shares of Hong Kong Ferry, 31.4 percent owned by Henderson, rose 2.5 percent to close at HK$6.64 today. They have gained 3.6 percent this year, compared with a 10 percent decline in the benchmark Hang Seng Index.

The Fanling site fetched HK$2,361 per square foot, the government said. Developers must build at least gross floor area of 34,290 square meters.

Hong Kong Ferry plans to build about 700 flats of about 600 square feet each and estimates total investment to be about HK$2.3 billion, said Ho.

Fanling doesn’t offer sea views and is near an industrial estate, unlike the previous auction in Tung Chung district, said James Cheung, director of Centaline Surveyors, a unit of one of the city’s biggest property agencies. He estimated Fanling would sell for HK$1.32 billion, 16 percent lower than his original estimate of HK$1.57 billion prior to the Tung Chung sale.

Prices of homes in Fanling are selling at an average of HK$3,500 a square foot, said Alvin Lam, executive director of Midland Surveyors Ltd.

Agricultural Land

Developers may have also avoided bidding high prices for Fanling as the government could then use the value as a benchmark when negotiating premiums for builders to convert farmland holdings for residential purposes, Ngai said.

Henderson and Sun Hung Kai Properties Ltd. are some of the developers with agricultural land in the New Territories district, he added. Builders have to pay the government a premium to convert the land for non-agricultural uses.

The first auction of this fiscal year, conducted May 11, fetched HK$3.42 billion, a third less than the median HK$4.75 billion estimate of three surveyors. Nan Fung Development Ltd., a privately held developer controlled by billionaire Chen Din Hwa, outbid only two other builders in the auction that analyst Adrian Ngan of CCB International Securities Ltd. described as “a slam” on the property market.

Developers can build a maximum of 131,000 square meters of private residences on the site in Tung Chung on Lantau Island.

Ho Man Tin

Today’s auction was triggered after the government received a minimum guaranteed bid of HK$1.05 billion, it said April 16. The Hong Kong government sells land through auctions only after developers promise to pay a minimum amount, part of an undisclosed reserve price.

Hong Kong is auctioning a site in Ho Man Tin in Kowloon on June 8 and Mount Nicholson on the Peak on July 28. MTR Corp., the government-owned subway operator, will tomorrow finish taking bids for a separate site in Kowloon.

Martin Lee paid HK$1.82 billion for the 53,350 square foot plot of land in the auction of non-government land on the Peak on May 18. On a per-square-foot price of HK$68,200, the land was the city’s most expensive in an auction, auctioneer Jones Lang LaSalle Inc. said.

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