Tuesday, December 29, 2009

Two HK waterfront sites miss targets in auction

Sino Land, K Wah paid HK$10.4b for 20,925 sqm plots

Sino Land Co and K Wah International Holdings Ltd together paid HK$10.4 billion (S$1.9 billion) for two waterfront sites in Hong Kong’s New Territories, falling short of estimates for the land auction.

Shares of Hong Kong property companies, the best-performing group this year on the Hang Seng Index, fell. Three analysts polled by Bloomberg News gave estimates that ranged between HK$11.4 billion and HK$13 billion for the 20,925 sqm (225,000 sq ft) plots in the Tai Po district, the largest properties offered since September 2007, according to Lands Department records.

‘Apart from Sino Land, which owns sites nearby and would benefit from paying a higher premium, other developers weren’t keen on pushing up the price,’ said Conita Hung, head of equity markets at Delta Asia Securities Ltd in Hong Kong.

Shortage of land and buying by overseas speculators has fuelled gains in home prices of as much as 30 per cent this year, sparking a public outcry over housing costs and prompting the central bank to warn of ’sharp corrections’ in asset prices should fund flows reverse.

‘This shows the developers are being more cautious,’ said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong. ‘A lot of this year’s economic recovery comes from short-term capital inflows and the money isn’t likely to be swimming around in the next 3-5 years.’

The Hang Seng Property Index fell after the close of the auction. The gauge, which had gained as much as 1.3 per cent before the sale began at 2.30pm, retreated as much 0.5 per cent. It has advanced 60 per cent this year, outpacing the 50 per cent added by the benchmark Hang Seng Index.

Sino Land, controlled by the family of chairman Robert Ng, added 0.5 per cent. It had gained as much as 2.2 per cent before the auction commenced. K Wah fell 1.7 per cent.

The auction result ’suggests that developers are not pushing too aggressively because of concerns that interest rates will begin to rise’, said Kenny Tang, an analyst at Redford Securities Co in Hong Kong.

Morgan Stanley forecasts yields on US 10-year treasuries will climb about 40 per cent next year, pushing interest rates on 30-year mortgages almost to their highest in a decade. Because Hong Kong’s dollar is pegged to the US currency, official interest rates track those in America.

The peg to the dollar has also meant that speculative money has flown into Hong Kong as a decline in the greenback has made asset prices relatively cheap. More than HK$640 billion flowed into Hong Kong since October last year, Hong Kong Monetary Authority chief executive Norman Chan said this month. Asset bubbles are the ‘No 1 threat’ to financial stability in Asia, he said.

Mr Chan’s comments followed those from Donald Tsang, the city’s chief executive, who said on Nov 13 that he was ’scared’ that money flowing into Asia because of low interest rates in the US could lead to another financial crisis in the region. Hong Kong’s economy has contracted for four straight quarters, year-on-year, even as property prices surged.

In October, the city raised down-payment requirements on mortgages for homes valued at more than HK$20 million to 40 per cent from 30 per cent of the purchase price to curtail speculation.

Developers say the government, one of the largest suppliers of building sites, should offer more land to help hold down prices.

Raymond Kwok, vice chairman of Hong Kong’s biggest developer Sun Hung Kai Properties Ltd, said Dec 3 that property prices in Hong Kong are still ‘reasonable’.

Hang Lung Properties Ltd chairman Ronnie Chan said Dec 4 that Hong Kong’s home market is a ‘good bet’, joining billionaire Lee Shau-kee in forecasting rising prices. Mr Lee is the chairman of Henderson Land Development Co.

Low mortgage costs, near-zero interest rates on savings deposits and buying by mainland Chinese pushed up existing home prices 28 per cent this year as of Dec 20, according to the Centa-City Leading Index, a weekly measure developed by Centaline Property Agency Ltd and the City University of Hong Kong.

Hong Kong home transactions almost tripled in November from a year earlier, figures from the Land Registry show, marking the eighth straight monthly gain.

Transactions of luxury homes, or those costing at least HK$10 million, jumped to 595 in November from 99 in the same month last year, according to the Land Registry.

Henderson Land said in October that it set a global record by selling an apartment for HK$88,000 per sq ft on a net area basis.

The first Tai Po site sold yesterday at HK$7,145 psf, according to Ricacorp Properties Ltd.

‘We’re satisfied with the result,’ said Chris Mills, assistant director of lands for the Hong Kong government. ‘The media has been talking up the value of the sites over the past few weeks to some quite major extent.’

Source: Business Times, 29 Dec 2009

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