Sun Hung Kai Properties Ltd, the world’s biggest developer by market value, won Hong Kong’s first land auction of the year with a bid that exceeded most analysts’ estimates after selling 900 homes over the weekend as demand for property in the city surges.
The shares closed 2 per cent higher after the developer paid HK$3.37 billion (S$611 million) for the site in the eastern Tseung Kwan O district. The company raised HK$4.2 billion in a weekend apartment sale that attracted 120,000 prospective buyers in the city of seven million.
The land auction and the weekend sale fanned speculation a bubble is forming in Hong Kong’s housing market, where home prices surged 29 per cent in 2009 as low interest rates and an increase in buying by mainland Chinese stoked demand. Norman Chan, chief executive of the Hong Kong Monetary Authority, told lawmakers on Feb 1 that the city faces a ‘huge’ potential risk of bubbles forming in its asset markets given high liquidity.
‘The outcome is positive for the Hong Kong property market,’ said Eva Lee, a Hong Kong-based property analyst at Macquarie Securities Ltd. ‘People expect 2010 won’t be an easy market given the strong growth last year, but the auction has reinforced their confidence.’
Sun Hung Kai spokeswoman Brenda Wong confirmed the company made the winning bid yesterday. Price estimates for the auction ranged from HK$2.6 billion to HK$3.4 billion, and the median projection of five analysts Bloomberg News surveyed by phone and e-mail was HK$2.9 billion.
Hong Kong is trying to ease a shortage in land supply and new properties that developer Cheung Kong (Holdings) Ltd said last month may help raise home prices by as much as 20 per cent this year.
Sun Hung Kai paid a ‘reasonable’ price for the site, Victor Lui, executive director of Sun Hung Kai’s real estate broker, said by phone yesterday. The price paid was ‘higher than expected but reasonable’, he said, adding he is ‘positive’ about the outlook for the property market.
Sun Hung Kai plans to invest HK$6.5 billion on the plot of land in a medium-sized residential project, which may take between three and four years to complete, Mr Lui said.
The developer at the weekend sold 900 apartments at the Yoho Midtown apartment complex in northwestern Yuen Long district for an average HK$5,400 per square foot, Amy Teo, Sun Hung Kai project director, said. That compares with an average HK$3,000 per square foot for new homes in the area a year ago, according to Wong Leung-sing, an associate director at Centaline Property Agency Ltd.
‘All the ingredients are in place for a property bubble in Hong Kong, including low interest rates and limited supply, but I don’t think we are in one yet,’ said Buggle Lau, chief property analyst at Midland Holdings Ltd. ‘If more speculators enter the market then it could push prices up too high.’
The city had the world’s fastest-growing major housing market last year, according to a survey compiled by real-estate agents Knight Frank LLP.
Some 120,000 prospective buyers have flocked to the show homes since Feb 19, Ms Teo said, speaking at the display properties set up in a shopping centre near the apartment complex in the city’s New Territories. Sun Hung Kai increased the number of apartments on sale to 900 from 700 because of demand, she said. The building complex has a total of 1,890 homes, according to Ms Teo.
About 40 units were immediately advertised for resale at asking prices of as much as 20 per cent more than the original costs of purchase, the South China Morning Post newspaper reported, citing property agents.
The number of private homes completed in Hong Kong last year fell 18 per cent to 7,200 units, the lowest since 1997, the government said in a report on Jan 22.
The city’s home sales more than doubled in value in January from a year earlier to HK$36.2 billion, according to figures released by the government’s land registry.
Sales gained 4.1 per cent last month from December, the agency added.
The authority, Hong Kong’s de facto central bank, raised deposit levels for luxury apartments in October to try to cool lending. The government also plans to raise stamp duty, or transaction tax, on homes selling for more than HK$20 million to 4.5 per cent from 3.75 per cent in a bid to rein in the property market, the Chinese-language Sing Tao Daily said on Feb 11.
‘Government intervention could lead to higher interest rates, but I can’t see mortgage rates much above 2.5 per cent this year, which is unlikely to deter some buyers,’ said Midland Holdings’ Mr Lau.
Prices may rise as much as 15 per cent in the first quarter, Centaline’s Mr Wong said. Hong Kong’s Chamber of Commerce forecasts the city’s economy may grow between 3 per cent and 4 per cent this year.
‘Given that the US is unlikely to raise interest rates sharply and the yuan is under appreciation pressure, Hong Kong property prices may have substantial growth this year, but there is also a risk of a bubble,’ said Benny Wong, executive director at Hong Kong-based Pan Asian Mortgage Advisory Company Ltd. ‘I expect the Hong Kong government will increase land supply this year in response to the high prices.’
Source: Business Times, 23 Feb 2010