Auction price of HK site falls below expectations

A RESIDENTIAL site along Hong Kong’s harbour has been auctioned for HK$5.56 billion (S$1.1 billion) in a sluggish sale that is unlikely to provide much of a boost to the flagging mass property market.

The auction was tipped by analysts to fetch up to HK$7 billion for government coffers and hopes were high that the sale would inflate prices and trigger buying activity in the mass residential sector, which has treaded water for the first half of 2007.

Developer Sun Hung Kai Properties bid successfully for the 122,200 sq ft site, which enjoys views of the city’s skyline. The minimum asking price for the plot of land was HK$4.2 billion.

It is Hong Kong’s third land auction this year, and one that had been eyed as a catalyst to bigger price movements in the mass market. Many sellers in the secondary market had been holding off in the hope of gleaning a better price after the auction.

‘Everybody was expecting more than HK$6 billion,’ explained Ricky Poon, director of residential sales at Colliers International. ‘I think it’s below expectation, but better than what was submitted in the land application.’

‘I don’t think people will be too optimistic though - there’s a lot who were waiting to see how the land auction went today, they decided to wait before taking the next step.’

In the last land auction in May, two sites in the Tuen Mun area were sold for HK$1.74 billion, also below the top end of expectations.

The city, however, boasts as one of its most lucrative auctions the December sale of a Peak residential site to Sun Hung Kai Properties for HK$1.8 billion. This put the accommodation value at HK$42,196 psf - potentially one of the most expensive land sites in the world.

Luxury residential sales are expected to post double-digit growth this year as limited supply and an influx of capital to the city pushes up prices.

However, the mass residential sector is still lagging in terms of growth, although sales have picked up slightly in the first half of the year. While luxury sales are at 1997 levels or above, the mass sector is still about 20 per cent short, according to Mr Poon.

He explained that residential property on Hong Kong island is 20-25 per cent below 1997 prices, while those out in Kowloon and the New Territories could be as much as 40 per cent below.

‘There’s still a big gap,’ he stressed. ‘For the last two to three years, there’s a lot of remaining stock in the mass market, we still have quite a lot,’ he said. There was speculation that legal action by a resident seeking to limit development of high rises in the area may also have dampened enthusiasm for the auction.

An application for a judicial review was filed on the eve of the auction seeking to stop the Town Planning Board and the government from building a skyscraper in the district.

The resident claimed the government did not follow guidelines when giving approval to the development of high-rise buildings, in particular, ignoring parts of the Town Planning Ordinance which should promote health and general welfare of residents.

In Hong Kong, the issue of the ‘wall effect’ has become a thorny topic for the government, as the city suffers sweltering temperatures and restricted air flow because of high rise construction.

Although the government said the judicial review application would not affect the auction, it would be wary of ignoring the significance - it was just a few years ago that an elderly resident filed legal proceedings against the city’s first Reit.

The tenant had protested over the selling off of public assets - housing estate shopping centres and car parks - as contrary to residents’ best interests.

The deal had to be delayed - causing much embarrassment to the government - as a result, as the court considered the legal issues, although the listing eventually went ahead.

Source : Business Times - 13 Jun 2007