Bloomberg News

Hong Kong Land Sale Misses Estimates as Europe Roils Stocks

September 06, 2011

Sept. 7 (Bloomberg) -- A Hong Kong government land auction yesterday raised less than analysts estimated for the third time in succession as slumping global stocks and the city’s property curbs weigh on the world’s most expensive real estate market.

Sun Hung Kai Properties Ltd., the city’s biggest developer, paid HK$3.12 billion ($400 million) for the residential plot in the Tseung Kwan O district, said spokeswoman Brenda Wong. That was below the lowest estimate of five analysts surveyed by Bloomberg, which ranged from HK$3.3 billion to $4.4 billion.

Hong Kong’s government, which is boosting the supply of land to try and curb a more than 70 percent surge in home prices since early 2009, also sold two sites in August that missed estimates as home price gains have stalled on concern the economy is sliding into recession. The city’s benchmark Hang Seng Index has fallen 21 percent since its November peak.

“Property prices will start to decline soon and we are likely to see that in the rest of the year,” said Yu Kam-hung, a Hong Kong-based senior managing director for valuation and advisory services in Greater China at CB Richard Ellis Group Inc. “Prices will trend down by about 10 percent in the next two years and I don’t rule out the chance that they may fall as much as 20 percent in the worst case scenario.”

The price for the Tseung Kwan site was equivalent to HK$3,934 a square foot, according to calculations by Centaline Property Agency Ltd. The median estimate in the survey was for the property to fetch HK$3.7 billion.

Less Capital Needed

Tseung Kwan O was the largest plot auctioned yesterday. A site at Yuen Long sold for HK$361 million, while a property in the Sai Kung district fetched HK$121.5 million, higher than the combined HK$360 million analysts were expecting for the two pieces of land in the New Territories. The Yuen Long site was bought by a 50-50 venture between Paliburg Holdings Ltd. and Regal Hotels International Holdings Ltd., said Donald Fan, chief operating officer at Paliburg.

“There were more bids for the Yuen Long site as it’s smaller and the capital required is less,” said Simon Lo, an executive director for research and advisory at Colliers International (Hong Kong) Ltd. “That’s why more small to medium-sized developers can participate in the bidding.”

Including yesterday’s auction, the government sold 19 sites through tender or auction in the current fiscal year that began April 1 after pledging to provide more land for apartments to counter rising home values. It sold 17 sites in the previous financial year.

“Property developers have already snapped up quite a number of sites since the government began rolling out more sites for land auction last year,” said Lo. “Some of the demand for land has already been satisfied. Property prices have peaked.”

Sitting on Fence

August home transactions had the biggest drop since February 2009, according to Land Registry figures. An index tracking home prices compiled by Centaline fell in June and July, the first consecutive monthly drop since December 2008.

“The last few weeks, the property market has come down a little and transactions have virtually stopped,” Vincent Lo, chairman of Shui On Land Ltd., said in an interview yesterday. Because of the volatility in global stock markets and because property prices in the city have risen sharply, buyers plan “to sit on the fence,” Lo said.

Hong Kong is the world’s most expensive place to buy a home, 55 percent pricier than London, Savills Plc said in January.

The Hang Seng Property Index, a measure of the city’s seven-biggest developers, fell 25 percent from its November peak.

Global shares have been declining on concerns Europe’s debt crisis is worsening and that the U.S. economic recovery is losing momentum. The MSCI World Index has fallen about 10 percent this year.

Cashed-Up

Demand for new homes in Hong Kong may be hurt as the wealth of buyers from other parts of China has been affected by a deteriorating global economic outlook and tighter credit conditions in the country, Lee Wee Liat, a Hong Kong-based analyst at Samsung Securities Ltd., wrote in a Sept. 5 report.

Sun Hung Kai has the third-highest cash holdings among Hong Kong developers at HK$5 billion. Hang Lung Properties Ltd. topped the list with about HK$27 billion, according to figures tallied by Samsung Securities, followed by billionaire Li Ka- shing’s Cheung Kong (Holdings) Ltd., which has HK$9.1 billion.

Cheung Kong paid HK$6.27 billion in a tender for a site in the city’s North Point district, the government said Aug. 25. The price was below the low end of estimates which ranged from HK$6.47 billion and HK$9.07 billion in a survey by the English- language newspaper the South China Morning Post.

A site in the Sha Tin district sold at an Aug. 9 government auction for 33 percent below estimates after global stock markets were roiled by the U.S. debt downgrade and concerns about European debt. A group including Sino Land Co. and Kerry Properties Ltd. bought the site with the only bid at the auction.

--With assistance from Robyn Meredith in Hong Kong. Editors: Linus Chua, Andreea Papuc

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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