The Hang Seng Index responded negatively to the auction results, losing early gains to close 236.34 points down at 13,836.56.

Brooke Hillier Parker senior partner Nicholas Brooke said the cautious price paid for the Tai Po site indicated developers did not expect significant price growth in the next two years and that Chief Executive Tung Chee-hwa's new housing policy was working.

'Developers are listening [to his housing policy],' he said.

The Government raised $8.5 billion from the auction, which was marred by cancellation of the sale of a commercial-car park site in Kowloon Bay.

A woman outbid the SAR's developers to clinch the Kowloon Bay site for $890 million, claiming she represented Hutchison Whampoa.

Auctioneer Francis Ng announced the sale was cancelled after it was confirmed the woman was unable to pay the $90 million initial deposit for the site.

Henderson Land Development beat various consortiums formed by rival heavyweight developers to win the 982,372-square-foot Tai Po site at a price about 60 per cent higher than the $3.5 billion opening bid.

The price paid by the China Overseas-led consortium for the 178,542 sq ft site in Tuen Mun was about 93 per cent higher than the $1.5 billion opening bid.

Bidding for the Tai Po site proceeded at a fast pace, with Wheelock Properties making the first bid, followed by a Lai Sun Development consortium.

Competition became intense when Sino Land entered at $4.7 billion, then several bids were exchanged between New World Development, Cheung Kong (Holdings) and Henderson.

Sino Land chairman Robert Ng Chee Siong said prices paid for the two sites were reasonable.

'They are not below market expectations,' he said.

Analysts estimated that completed units on the Tai Po site would have to sell at between $9,000 and $10,000 per square foot to make a reasonable profit.

Cheung Kong deputy chairman Victor Li Tzar-kuoi said the price paid for the Tai Po site was within his expectations.

'Property prices will stabilise in coming years,' he said.

Henderson executive director Martin Lee Ka-shing said he expected the total investment cost of the Tai Po residential development to be about $9 billion, or about $8,000 per square foot.

'We will start work right away and will finish the project in about three years,' he said.

Mr Lee said a possible joint venture with Cheung Kong to develop the site was being mooted.

However, Mr Li said: 'No such talk was held.' China Overseas director Xiao Xiao said development of the Tuen Mun site would cost $4.5 billion.

The consortium, in which China Overseas has a 50 per cent stake, comprises Tai Cheung Holdings, Ryoden Development and Kiu Kwong Investment, a Bank of China-affiliated company.

Mr Xiao said the consortium planned to develop six residential towers on top of a three-storey commercial podium.

Units would measure between 500 and 600 sq ft, he said.