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Hong Kong Peak Site Fetches $1.34 Billion, Below Some Estimates

Donald Choi, managing director of Nan Fung Development Ltd.
Donald Choi, managing director of Nan Fung Development Ltd., makes the winning bid. Photographer: Jerome Favre/Bloomberg

Nan Fung Development Ltd. and Wharf (Holdings) Ltd. bid HK$10.4 billion ($1.34 billion) for a site in Hong Kong, falling short of some surveyors’ estimates and sending property stocks to the biggest drop in almost two weeks.

The price at a government auction yesterday for the Mt. Nicholson Road site in the Peak district was lower than the HK$10.5 billion median estimate of seven analysts in a Bloomberg News survey. Their forecasts ranged from HK$8.9 billion to HK$11.5 billion, or HK$27,000 to HK$35,000 per square foot of gross floor area.

The government has been trying to curb a 38 percent surge in home prices since the beginning of 2009 amid concerns housing is out of reach of ordinary residents. The Hang Seng Property Index turned lower after the auction result, ending down 1 percent at the 4 p.m. close in Hong Kong.

“The market is worried we’re going to have a bubble burst again like after 1997,” when the market peaked, said Trevor Cheung, an analyst at BNP Paribas in Hong Kong.

Hong Kong’s luxury home prices have been fueled by record- low mortgage costs and buying by mainland Chinese. The city’s home prices have gained 9.6 percent this year and last week rose to the highest since 1997, according to Centaline in a July 23 report.

Luxury Prices

Luxury home prices may rise another 10 percent in the second half if interest rates stay at two-decade lows and the local economy keeps growing, property consultant Jones Lang LaSalle Inc. said this month.

Nan Fung, a privately held developer, and Wharf will develop the site in one of the city’s most exclusive residential areas in a 50-50 venture, said Donald Choi, managing director at Nan Fung, after the auction. Wharf owns two of Hong Kong’s largest shopping centers.

The site at 103 Mt. Nicholson Road, formerly used for government staff quarters, has a total gross floor area of 324,861 square feet (30,180 square meters). The auction was initiated by the government, which has pledged to increase land supply as part of its measures to keep home prices in check.

About 30 percent of the gross floor area at the plot will be used to build townhouses, while the rest will be used for apartments, Choi said. At HK$10.4 billion, the developers paid HK$32,014 per square foot for the gross floor area.

‘Rare Location’

It is a “unique site in a very rare location” and there are not that many sites at the Peak, Choi said. He said the price was “reasonable.”

Martin Lee, the youngest son of Henderson Land billionaire chairman Lee Shau-kee, in May paid HK$1.82 billion, or a record HK$68,200 per square foot, for a site on Barker Road in the Peak district at an auction held by Jones Lang. Lee said afterward he would use the site to build houses for his family.

“Hong Kong land prices are already so expensive,” Hang Lung Properties Ltd. Chairman Ronnie Chan said at the company’s full-year earnings briefing yesterday as the auction elsewhere in the city got underway. “With that kind of price we can develop three or even four Hang Lung plazas in Shenyang” in northeastern China, he said, referring to estimates of about HK$10 billion for the Peak site.

Most government land sales in recent years have been triggered by developers who promised to pay minimum amounts for sites on a list of available plots under the so-called land application system. Regular government land auctions were halted in 2004 to support falling home prices.

Four Bidders

The auction attracted four bidders, with only two vying for the site from HK$9 billion.

“The atmosphere was not as good as we expected; there was no aggressive bidding at all,” said Alnwick Chan, executive director at property consultant Knight Frank LLP. “The demand is there but the market is relatively small. There’s speculation that because there are three other sites coming up to auction catering to the middle to upper income groups, they’re saving their resources for that.”

The government will sell two sites in the Kowloon area at auction on Aug. 17 and a residential plot in Kowloon Tong district on Aug. 31.

Demand for luxury properties is being supported by a lack of new supply and an influx of mainland Chinese buyers, who account for about 20 percent of local residential transactions this year, Ricky Poon, managing director for residential sales at Colliers International Ltd., said before the auction.

Luxury Demand

“This is a normal price; for a luxury site, demand is always there because developers are not taking a lot of risks,” said James Cheung, a director at the surveyor unit of Centaline Properties Ltd., one of the city’s biggest real estate agencies. “There will continue to be a healthy growth in Hong Kong’s property market.”

Nan Fung paid HK$3.42 billion in May for a site in the city’s Tung Chung area in the government’s first land auction in the fiscal year that started April 1. The price was a third less than surveyors’ estimates.

Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, last month bought a site in the Ho Man Tin district for HK$10.9 billion. At HK$12,540 per square foot, it was the highest price paid in a government auction in urban Hong Kong since the market peaked in 1997. The gross floor area for the site is 869,000 square feet.

Luxury homes in Hong Kong are those at least 1,000 square feet or costing at least HK$10 million.

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