Bloomberg News

Hong Kong Developers Signal Slowing Price Gains in Land Bids

June 10, 2011

(Updates with closing share price in fifth paragraph.)

June 10 (Bloomberg) -- Hong Kong’s developers yesterday signaled gains in home prices may slow further amid rising interest rates in China and the city, when they held back bids that exceeded surveyors’ estimates at a land auction.

Cheung Kong (Holdings) Ltd., controlled by billionaire Li Ka-shing, paid HK$11.65 billion ($1.5 billion), 10 percent less than the HK$13 billion median of five estimates in a Bloomberg News survey, for the site on Borrett Road, about a 10-minute drive from the Central business district. The price was equivalent to HK$26,763 per square foot, said Centaline Property Agency Ltd., the city’s biggest closely held realtor.

Property transactions fell for a fifth straight month in May while overall home price growth is slowing after lenders accelerated mortgage rate increases in April as liquidity dried up. Prices may drop 10 percent to 20 percent in 2012 and a further 10 percent in 2013 on rising rates, Andrew Lawrence, a Hong Kong-based analyst at Barclays Capital, said this week.

“Property developers may not want to pay excessive prices at a level where there won’t be a lot of local user demand,” said Tim Leung, who helps manage about $1.98 billion at IG Investment Ltd. in Hong Kong. “Developers are a bit more cautious and conservative in what they project in terms of potential selling price. If investors are looking for continuing appreciation of land prices and housing market in Hong Kong, this is not a piece of good news.”

Shares Fall

Cheung Kong’s shares fell 1.5 percent to HK$115.20 at the 4 p.m. close in Hong Kong, after advancing 1 percent yesterday. The seven-member Hang Seng Property Index declined 1.3 percent, while the city’s benchmark Hang Seng Index lost 0.8 percent. The property gauge has fallen 7.9 percent this year, while the benchmark measure is down 2.7 percent.

The Hong Kong Monetary Authority is actively studying further tightening of mortgage lending, Financial Secretary John Tsang said in a statement today on the government’s website.

The city will also increase land supply and strengthen risk management in the banking system to ensure the “healthy development” of the property market, he said. Sites to be sold in auctions in the next quarter will provide more apartments than those sold between April and June, he said. Norman Chan, chief executive of the monetary authority, will meet reporters at 4:30 p.m. today, the government said in an e-mail.

Higher Borrowing Costs

Billionaire Lee Shau-kee, founder of Henderson Land Development Co., said yesterday home price growth and property demand in the city will slow as borrowing costs climb in China. China’s government has raised interest rates four times since September and ordered banks to set aside more cash as reserves to curb inflation. Buyers from other Chinese cities were responsible for a third of luxury property purchases in Hong Kong last year, Centaline estimates.

Cheung Kong also bought a second site sold at yesterday’s auction. The 65,400-square-foot plot in the northern Yuen Long district fetched HK$300 million, beating the top estimate in a range of HK$130 million to HK$220 million.

The Borrett Road site has a buildable area of 435,000 square feet. The estimated selling price for the developed site is HK$30,763 per square foot, Centaline said.

“The Borrett Road site is a traditional luxury residential site,” Victor Li, deputy chairman of Cheung Kong, told reporters after the auction. “I personally like it because it’s below the fog line -- buyers don’t like it above the fog line at the Peak -- and yet it’s high enough to get a panoramic view of Central, so we are quite happy to get this site.”

The Peak

The Peak, Hong Kong’s most expensive residential area, stretches just below the 1,811-foot-high Victoria Peak, the tallest point on Hong Kong Island.

The prices paid for both sites were “within our expectations,” said Li, who is Li Ka-shing’s son. Li Ka-shing is Hong Kong’s richest man, according to Forbes magazine.

“We have a lot of developments in the neighborhood, which means we know the customers’ expectations,” said Li about the Yuen Long site. “It’s easily tailored to fit our customers’ expectations. Therefore we especially like this one.”

Sun Hung Kai Properties Ltd., the city’s biggest builder, paid HK$4.49 billion for a site on Stubbs Road near Borrett Road in the last government auction on May 12. That price was equivalent to HK$24,829 per square foot and was in-line with the HK$4.4 billion estimate compiled by Bloomberg News.

Government Curbs

Sino Land Co. paid HK$11.8 billion for a site in eastern Hong Kong Island near the peak of the 1997 bubble, the highest price at a government land auction.

The government in November increased property transaction taxes and pledged to boost land supply amid public protests that housing prices, which have surged about 70 percent since early 2009, are becoming unaffordable. The central bank also warned about the risk of a “credit-fueled property bubble.”

Hong Kong’s bank borrowing rates will rise on loan demand and capital outflows when the U.S. increases borrowing costs, HKMA head Norman Chan said on April 28.

“You can see that lots of people are holding back,” said David Ji, head of Greater China research at DTZ Holdings Plc in Hong Kong. “Banks are raising interest rates and there are some effects from the government policies. It will only be clearer in a few months whether this is a wait-and-see situation or something long-term.”

--With assistance from Billy Chan in Hong Kong and Linus Chua in Singapore. Editors: Andreea Papuc, Malcolm Scott.

To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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