Cheung Kong (Holdings) Ltd., the developer controlled by billionaire Li Ka-shing, paid more than a third above estimates for its first land acquisition this year, flagging the developer’s confidence demand will stay strong even as the government is set to boost supply.
The HK$9.63 billion ($1.2 billion) paid by Hong Kong’s second-largest builder beat five bids for the site atop Tsuen Wan West railway station in the northwest. With 2.24 million square feet of buildable residential and commercial space, the project was expected to fetch HK$7 billion, according to the median estimate of five analysts surveyed by Bloomberg News.
Property prices in Hong Kong have risen 10 percent this year, defying a slowdown in the city’s economic growth. Chief Executive Leung Chun-ying pledged to boost supply to bridge a widening wealth gap and rein in home prices that have become increasingly unaffordable for the general public.
“It shows that, at least for Cheung Kong, there isn’t any worry about a major downturn in home prices in the near term,” said Vincent Cheung, director of valuation and advisory for greater China at Cushman & Wakefield Inc.
At the price paid by Cheung Kong, the average cost for the project will be around HK$9,100 a square foot, meaning the developer will have to sell apartments at HK$10,000 a square foot to make a “reasonable profit,” said Cheung. The average price of new apartments in Tsuen Wan is currently about HK$8,000 a square foot, he said.
Cheung Kong will spend HK$20 billion to develop the site, including the land cost, Victor Li, the company’s vice chairman, told reporters yesterday.
Sun Hung Kai Properties Ltd., the city’s biggest builder, last month bought a Hong Kong Island building site sold by the government for a less-than-estimated HK$6.91 billion, while a plot in Tsuen Wan was bought for HK$2.74 billion in February, almost 20 percent lower than estimated.
“The signal has been conflicting and it just reflects how developers’ sentiments respond to changes in the market,” Cushman & Wakefield’s Cheung said.
The Hong Kong government cut its estimate for full-year growth to 1 percent to 2 percent from a previous 1 percent to 3 percent yesterday after saying the economy contracted 0.1 percent in the second quarter from the first three months.
Cheung Kong shares fell 1.9 percent to close at HK$109 in Hong Kong. They have gained 18 percent this year, compared with a 9.2 percent increase in the benchmark Hang Seng Index.
In January, the government, one of the city’s biggest suppliers of unoccupied land for housing, had to withdraw the same Tsuen Wan site sold yesterday after none of the tenders submitted met its requirement.
“The market has recovered quite a bit lately,” Alvin Lam, a surveyor at Midland Holdings Ltd., the city’s biggest publicly traded realtor, said before the tender result was announced. “It also helps that there won’t be another large-scale project coming up in the near future.”
Hong Kong developers are seeking to replenish precious land reserves as the government resumed regular sales last year after a seven-year hiatus. Sales had been sporadic since 2004, when the government stopped regular auctions after home prices plunged 70 percent from their 1997 peak amid the Asian financial crisis and the SARS epidemic.
Chief Executive Leung pledged to put more land on the market in a bid to rein in home prices that have jumped more than 80 percent since the start of 2009 and are now the world’s highest.
Prices have been underpinned by low interest rates and 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.
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.