Property offered for development on basis of demand-driven market prices, says
The Government has come out in defence of its land sale policy following strong criticism from the property industry.
In response to claims the policy is the reason for skyrocketing property prices, the Government has said it is not to blame.
'Do you believe that developers will sell their developments at a low price if the Government cuts the land value?' Principal Government Land Agent Mo Chan-ming asked.
Mr Mo said there was no sound argument to accuse the Government of imposing a high land cost policy. He said the Government sold land on the basis of market prices, the movements of which were driven by demand.
His statement came shortly after Secretary for Housing Dominic Wong Shing-wah's defence of the land sale policy in the Legislative Council.
The land sale policy has been criticised for years, with critics saying the Government indirectly helps fuel property prices with the imposition of a high land cost policy.
Developers such as Cheung Kong (Holdings) chairman Li Ka-shing have also complained that 'flour is more expensive than bread', referring to surging land costs, which in turn have pushed developers to sell properties at higher prices.
Last month's sale of the Siu Sai Wan residential Crown site at government auction is an example. Sino Land Co and the family of its chairman Robert Ng Chee Siong bought the site for $11.82 billion, or an accommodation value of about $4,400 per square foot, assuming a total gross floor area of 2.7 million sq ft.
Analysts said total development costs would be more than $6,000 per sq ft.
Assuming developers will take a reasonable profit of between 20 to 30 per cent, the selling price of finished units is predicted to be not less than $8,000 per sq ft - about 60 per cent higher than the present market price.
Analysts said the estimated transacted price could not be reached if market sentiment was negative when the project was ready for sale in about two years.
Mr Mo argued that the land cost was not an indicator of selling prices of completed flats.
He said developers would not sell their properties at a low price if their profits had not been maximised.
Take Cheung Kong's joint-venture development Laguna Verde in Hunghom as an example. The Government charged the developer a land premium of $929 per sq ft about two years ago for the project, when the property market was sluggish.
Analysts said the total development cost of Laguna Verde would be about $2,600 per sq ft all inclusive.
When the project was first launched last month, the price tag averaged $8,500 per sq ft, with some units selling for more than $10,000 per sq ft. Analysts said the low land value seemed to help developers reap larger profits.
Mr Mo said the selling price for land was based on market response. The Government would cut selling prices if the response was weak.
However, Centaline Property Agency managing director Shih Wing-ching criticised the Government for trying to pass on its share of the blame for an unhealthy property boom.
'The Government is the biggest landlord in the territory. It has the power to regulate the market through land releases.' Mr Shih said the Government had no intention of releasing a huge supply of land because limited supply could sustain high land value - a significant source of government revenue.
Last year, the Government raised more than $62 billion from land sales and land-related transactions, which represented 32 per cent of total government revenue.
Mr Shih said speculators would stay out of the market if they realised there would be a huge amount of land in the market.
Developers would not ask for a high selling price if the supply of flats exceeded demand, he said.
To speed up the land supply, Mr Shih urged the Government to release the land sites even though the infrastructure works had not been completed.
He also suggested the Government change the existing housing strategy. Instead of providing government-subsidised housing, Mr Shih suggested the Government rezone the land for private housing development to increase the supply of private-sector flats.
But he admitted there could be a short-term housing problem and it should be supported with other housing policies such as increasing the supply of public housing to accommodate people who could not afford private flats.
Other suggestions were on the bidding system. Some surveyors said developers could not make a fair judgment on the land price under the auction system because they were influenced by the atmosphere in the auction hall.
They urged the Government to sell land sites through tender.
However, they all agreed an increase in land supply was the only way to regulate the housing problem.
In response to the industry's request, the Government announced in its long-term housing strategy review that for the period April 1995 to March 2001, it had allocated sufficient land to meet its production target of about 85,200 flats a year for both public and private housing.
Secretary for Planning, Environment and Lands Bowen Leung Po-wing previously said the Government would make available 260 hectares of land for private housing over the next five years - an increase of about 80 per cent on the past five years.
Analysts said such a series of high-profile messages indicated the Government's intention to regulate the property market but it was too early to predict effectiveness of the measures.
How to regulate the property market without dampening the Government's revenue will be a major challenge for the Special Administrative Region government, according to analysts.