Thursday, July 29, 2010

HK site fetches HK$10.4b, close to estimates

Auction atmosphere not as good as expected, with no aggressive bidding

(HONG KONG) Nan Fung Development Ltd and Wharf (Holdings) Ltd bid HK$10.4 billion (S$1.85 billion) for a building site in Hong Kong's Peak district yesterday at an auction that was close to surveyors' estimates.

The price for the Mt Nicholson Road site in one of the city's most exclusive residential areas was lower than the HK$10.5 billion median estimate of seven analysts in a Bloomberg News survey.

Their forecasts ranged from HK$8.9 billion to HK$11.5 billion, or HK$27,000 to HK$35,000 per square foot of gross floor area.

The government has been trying to curb a 38 per cent surge in home prices since the beginning of 2009 amid concerns housing is out of reach of ordinary residents. The Hang Seng Property Index turned lower after the auction result, ending down one per cent at the 4 pm close in Hong Kong.

'The market is worried we're going to have a bubble burst again like after 1997,' when the market peaked, said Trevor Cheung, an analyst at BNP Paribas in Hong Kong.

Hong Kong's luxury home prices have been fuelled by record-low mortgage costs, near-zero interest rates on saving deposits and buying by mainland Chinese. The city's home prices have gained 9.6 per cent this year and last week rose to the highest since 1997, according to Centaline in a July 23 report.

Luxury home prices may rise another 10 per cent in the second half if interest rates stay at two-decade lows and the local economy keeps growing, property consultant Jones Lang LaSalle said this month.

Nan Fung, a privately held developer, and Wharf will develop the site in a 50-50 venture, said Donald Choi, managing director at Nan Fung, after the auction. Wharf owns two of Hong Kong's largest shopping centres and the city's cable TV operator.

The site at 103 Mt Nicholson Road, formerly used for government staff quarters, has a total gross floor area of 324,861 square feet (30,180 square metres). The auction was initiated by the government, which has pledged to increase land supply as part of its measures to keep home prices in check.

About 30 per cent of the gross floor area at the plot will be used to build townhouses, while the rest will be used for apartments, Mr Choi said. At HK$10.5 billion, the developers paid HK$32,014 per square foot for gross floor area.

It is a 'unique site in a very rare location' and there are not that many sites at the Peak, Mr Choi said. He said the price was 'reasonable.' Martin Lee, the youngest son of Henderson Land billionaire chairman Lee Shau-kee, in May paid HK$1.82 billion, or a record HK$68,200 per square foot, for a site on Barker Road in the Peak district at an auction held by Jones Lang. Mr Lee said afterwards he would use the site to build houses for his family.

'Hong Kong land prices are already so expensive,' Hang Lung Properties Ltd chairman Ronnie Chan said at the company's full-year earnings briefing as the auction elsewhere in the city got underway. 'With that kind of price we can develop three or even four Hang Lung plazas in Shenyang' in north-eastern China, he said, referring to estimates of about HK$10 billion for the Peak site.

Most government land sales in recent years have been triggered by developers who promised to pay minimum amounts for sites on a list of available plots under the so-called land application system. Regular government land auctions were halted in 2004 to support falling home prices.

Yesterday's auction attracted four bidders, with only two vying for the site from HK$9 billion.

'The atmosphere was not as good as we expected; there was no aggressive bidding at all,' said Alnwick Chan, executive director at property consultant Knight Frank LLP.

'The demand is there but the market is relatively small. There's speculation that because there are three other sites coming up to auction catering to the middle to upper income groups, they're saving their resources for that.'

The government will sell two sites in the Kowloon area at auction on Aug 17 and a residential plot in Kowloon Tong district on Aug 31.

Demand for luxury properties is being supported by a lack of new supply and an influx of mainland Chinese buyers, who account for about 20 per cent of local residential transactions this year, Ricky Poon, managing director for residential sales at Colliers International Ltd, said before the auction.

'This is a normal price; for a luxury site, demand is always there because developers are not taking a lot of risks,' said James Cheung, a director at the surveyor unit of Centaline Properties Ltd, one of the city's biggest real estate agencies.

'There will continue to be a healthy growth in Hong Kong's property market.' Nan Fung paid HK$3.42 billion in May for a site in the city's Tung Chung area in the government's first land auction in the fiscal year that started April 1. The price was a third less than surveyors' estimates.

Sun Hung Kai Properties Ltd, the world's biggest developer by market value, last month bought a site in the Ho Man Tin district for HK$10.9 billion. At HK$12,540 per square foot, it was the highest price paid in a government auction in urban Hong Kong since the market peaked in 1997. The gross floor area for the site is 869,000 square feet.

Luxury homes in Hong Kong are those at least 1,000 square feet or costing at least HK$10 million. -- Bloomberg

Source: Business Times, 29 Jul 2010

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