Sun HUng Kai Buys Hong Kong Site for Less Than Estimate

Sun Hung Kai Buys H.K. Site for Below-Estimate $891 Million
Sun Hung Kai Properties Ltd. is Hong Kong's biggest developer by market value. Photographer: Jerome Favre/Bloomberg

Sun Hung Kai Properties Ltd., Hong Kong’s biggest developer by value, bought a building site for less than analysts’ estimates, underscoring concerns that rising supply and slowing global growth may crimp home prices.

The company said yesterday it agreed to pay HK$6.91 billion ($891 million) for the land in the North Point district on the east end of Hong Kong Island. The site was expected to fetch HK$8.2 billion, according to the median estimate of five analysts surveyed by Bloomberg News. The government said yesterday it received seven bids for the plot.

“This shows that developers are very cautious,” James Cheung, a surveyor at Centaline Property Agency Ltd., said after the sale result was announced. “There’re a lot of uncertainties as to how home prices will perform in the next year or two.”

Property prices in Hong Kong may fall as much as 20 percent in the next 12 months, according to a report last month by Deutsche Bank AG. Leung Chun-ying, who took over as chief executive of Hong Kong this month, has pledged to bridge a widening wealth gap and rein in home prices that have become increasingly unaffordable for the general public.

Sun Hung Kai will invest about HK$15 billion, including land, construction and interest costs, to develop the North Point site, Executive Director Victor Lui said. The land is designated 578,000 square feet of residential floor area and more than 300,000 square feet of commercial space.

While the price was “not low,” it was “reasonable,” Lui said in a phone interview yesterday. “It’s a premium site, with adequate size, and good transport accessibility.” The developer must build public infrastructure as part of the project, which will increase costs, he said.

Share Price

Sun Hung Kai gained 3.6 percent to HK$96.15 in Hong Kong trading yesterday, before the purchase announcement. The company’s American depositary receipts gained 3.2 percent to $12.25 at 3 p.m. in New York in over-the-counter trading. Each ADR represents one underlying common share.

Billionaire Li Ka-shing’s Cheung Kong Holdings Ltd. was also among developers that submitted tenders for the site, Apple Daily reported July 7.

Hong Kong home prices have risen about 8 percent this year after a slowdown in the second half of last year. Housing sales fell to the lowest in four months in June, according to the Land Registry.

MTR Corp., Hong Kong’s rail operator, this week said it failed to find a partner to develop a property project atop a station after rejecting all bids filed by developers as too low.

Official Warnings

Financial Secretary John Tsang and Norman Chan, head of the Hong Kong Monetary Authority, have both warned the public about potential risks when buying property. The government may take further action including accelerating new land supply and tightening mortgage lending if home prices continue surging, the officials have said.

North Point is two subway stops away from Taikoo Shing, the biggest private residential community on Hong Kong Island, developed by Swire Properties Ltd.

Average home prices on the eastern side of Hong Kong Island were about HK$9,119 per square foot at the end of May, up 6.4 percent from a year earlier, according to statistics compiled by Midland Holdings Ltd., the city’s biggest publicly-traded realtor.

Hong Kong’s home prices have gained more than 80 percent since early 2009 on record low mortgage rates and an under-supply of new units.

Prices also have been underpinned by an influx of mainland Chinese buyers, who made up 36.8 percent of all new home sales by value in the first quarter, down from 37.9 percent in the previous three months, according to Midland Holdings Ltd. The number reached 53.9 percent in the third quarter last year, the realtor said.

Leung, the city’s chief executive, said in April he doesn’t see signs of overheating in the property market, reassuring investors who were concerned that he may introduce polices hurting developers.

Savills Plc said Hong Kong is the world’s costliest place to buy an apartment, with prices about 85 percent higher than in London, where the property broker is based.

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