The two other sites to go under the hammer - both low-density residential sites on Lamma Island and Sha Tin - fetched $64 million and $56 million respectively.

Red chip Cosco International, one of the two listed flagships of the Cosco (Hong Kong) Group, bought the Sha Tin site and private company King Wong Development bought the Lamma site.

The auction results sparked an immediate reaction on the stock market, where the Hang Seng Index swung 249 points around from its low point of the day, to close 13.27 points lower at 15,533.95. Chinachem executive director Joseph Leung Wing-kwong said the price for the Repulse Bay site was reasonable because it was 'a unique property with a very beautiful view'.

'I think if we had passed up this opportunity, it might never have come again to acquire such a property,' Mr Leung said.

Bidding for the Repulse Bay site began slowly, with Sino Land submitting the first bid of $3 billion.

It then intensified when Chinachem entered at $3.85 billion to fight with Nan Fung Development.

Paliburg Holdings then joined in but later withdrew at $5.1 billion.

Chinachem re-entered the bidding and won the site after fierce bidding with Li Ka-shing's flagship Cheung Kong.

DBS Securities property analyst Winnie Chiu said the strong buying interest showed developers were still keen to acquire quality sites.

SBC Warburg property analyst Franklin Lam said the auction was attended by almost all of Hong Kong's top developers but most of them did not bid aggressively.

'The land sale will not have any significant impact on property stocks and the physical real estate sector,' he said.

SocGen-Crosby Securities associate director Alan Dalgleish said the auction underlined positive sentiment in the market as it attracted bids from companies such as Hongkong Land and Chinachem, who were not usually aggressive bidders in public auctions.

'Property stocks which have luxury residential developments will benefit from the better than expected auction result,' he said.

Chinachem planned to build three luxury residential blocks at a construction cost of $2,000 per square foot, Mr Leung said.

Based on the gross floor area of 341,226 sq ft, the construction cost would be about $682 million, raising the development cost to $6.2 billion excluding interest expenses.

Sino Land chairman Robert Ng Chee Siong, who stopped bidding at the $4 billion mark, estimated the finished apartments would have to sell for $30,000 per square foot to make a reasonable profit margin. Paliburg Holdings chairman Lo Yuk-sui, who stayed in the fray until $5.1 billion agreed. 'They'll still make money, but the profits will be less,' Mr Lo said.

Paul Tam Ming-tak, chief estate agent at the Lands Department, said yesterday the bidding showed developers' confidence in the market despite the anticipated increase in land supply in coming years.

About 31 plots, or 63 hectares, of low density sites are due to go on sale between now and March 1999, he said.

Mr Tam said the first site yesterday attracted 10 bidders while the Lamma site drew six bidders and the Sha Tin site eight.

Cosco International's general manager Yan Chi-ming said his company would build two villa-style houses measuring 3,000 sq ft each.

Mr Yan said the site represented only a small investment for his company but that it was an indicator of more property deals to come.

'Cosco International's local land bank is not very strong at the moment, and we want to expand it independently of our parent,' Mr Yan said.

King Wong Development said the company would develop 12 houses measuring 2,000 sq ft each on the Lamma site.