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08/06/2011

Hong Kong’s government may set a record tomorrow when it auctions a residential piece of land in one of the most luxurious neighborhoods even as gains in home prices and transactions slow with rising mortgage rates.
The site on Borrett Road, about a 10-minute drive from the Central business district, may fetch HK$13 billion ($1.7 billion), or HK$30,000 a square foot, according to the median estimate of five surveyors and analysts polled by Bloomberg News. 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.
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. Developers may bid for the site as they expect demand to remain high for luxury homes, of which about a third were purchased by buyers from other Chinese cities last year.
“There is plenty of demand for luxury housing out there,” said Joseph Tsang, Hong Kong-based managing director at Jones Lang LaSalle Inc. “The impact of the interest rate increases is more on buyers with tighter budgets and they are also likely to be temporary.”
Sun Hung Kai Properties Ltd. (16), the city’s biggest builder, paid HK$4.49 billion for a site on Stubbs Road near Borret 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.
Few Players
The Borret Road site, with a buildable area of 435,000 square feet, may fetch a higher per-square-foot price than the Stubbs Road location because it’s closer to Central, according to James Cheung, a surveyor at Centaline Property Agency Ltd., the city’s biggest privately held realtor. Cheung said he expects a bid of HK$15.2 billion, the survey’s highest.
The price and size of the site in the Mid-Levels district may limit bidding to “a few mega-size players” including Sun Hung Kai and Cheung Kong (Holdings) Ltd., the developer controlled by Li Ka-shing, Hong Kong’s richest man, said Ringo Lam, a director in the valuation department at AG Wilkinson & Associates in Hong Kong.
“There are probably very few developers with the resources to invest in a project of this scale,” said Lam, who estimates the site to fetch HK$11 billion, the bottom of the range. “We may see some middle players forming a consortium.”
At this week’s auction, the third in the current fiscal year, the government will also sell a 65,400-square-foot plot in the city’s northern Yuen Long district. That site is expected to sell for HK$200 million, according to the Bloomberg News survey, with estimates ranging from HK$130 million to HK$220 million.
Falling Home Prices
Home prices may fall as much as 30 percent between 2012 and 2013 on rising mortgage rates, Barclays Capital analyst Andrew Lawrence said in an April 4 report.
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, Hong Kong Monetary Authority head Norman Chan said on April 28.
The number of units that changed hands last month declined 12 percent from a year earlier to 9,681, according to Land Registry figures.
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

SOURCE: BLOOMBERG



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