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Sun Hung Kai $2 Billion Farm Bet May Ease Hong Kong Housing Woes

A Hong Kong developer struck a deal with the government to convert farmland for a residential development, signaling some progress in tackling the city’s runaway housing market.

Sun Hung Kai Properties Ltd. said it agreed to pay a lump sum for the right to convert the land in Sai Kung. Local media reported that it was paying a record HK$15.9 billion ($2 billion), a figure the company wouldn’t confirm.

Skyrocketing prices at government land auctions have contributed to making Hong Kong the world’s least affordable city, as developers pass on the extra costs to home-buyers. Converted farmland can provide a cheaper alternative, according to Raymond Cheng, director of Hong Kong and China property research at CIMB Securities Ltd.

The price reportedly paid by Sun Hung Kai is about HK$3,000 per square foot, compared with HK$13,000 per square foot when HNA Group Co. bought government land at the former Kai Tak airport this year, Cheng said. Four developers -- Henderson Land Development Co., Sun Hung Kai, New World Development Co. and CK Asset Holdings Ltd. -- are sitting on enough agricultural land for 170,000 homes, but conversion approvals have been sclerotic, he said.

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