The cut-price sale to Sun Hung Kai Properties and a New World Development unit also came under fire for favouring big developers that increasingly face an uncontested market due to the exit of small players.

However, had the deal taken place a few weeks previously, it would have favoured one of Hong Kong's smaller building contractors, Wai Kee Holdings.

Wai Kee bailed out of this money spinner by selling its 50 per cent stake in First Star, the project developer, to Sun Hung Kai Properties for just $593.2 million.

Why it gave up the opportunity to partake in a redevelopment bonanza, made possible from the government's retreat from the subsidised homes-for-sale market, reveals much about the state of the industry. The project involved a capital commitment that was arguably beyond its resources, but that may not have been the only limiting factor.

One of Wai Kee's units, Zen Pacific Civil Contractors rose to notoriety for a corruption-tainted piling scam, a scandal that forced the government to pull down $250 million worth of flats and cost the construction company $80 million in fines. Zen Pacific Civil Contractors was also banned from future public housing work in September 2000.

Substandard piling was discovered on two 34-storey blocks in Sha Tin in 1999. The blocks were demolished with the sale of the remaining flats delayed until two new ones were built. The delays cost the government about $600 million. If the government was going to stir anger over the non-tender Hunghom deal, it may not bode well with the public that it went to a company associated with such controversy.

For small Hong Kong contractors used to the sure thing of public housing contracts rather than development risk, a bird in the hand is not to be discarded easily. 'They would probably be a bit loath to have all their capital tied up,' said Kim Eng Securities research director Stephen Brown.

First Star - in which Sun Hung Kai and the New World Group each own 50 per cent - is effectively paying $2.7 billion for the existing flats. Of this $1.91 billion comes from relieving the government of its guarantee to buy the blocks on completion from the joint venture developer. The government originally intended to sell the flats as subsidised housing but withdrew them to support property prices.

The remaining $864 million was paid to the government by First Star to modify the lease and allow the firm to sell the flats on the open market. First Star was expected to demolish the existing flats, which have never been inhabited, to replace them with more profitable luxury accommodation that would take better advantage of the uninterrupted views of Hong Kong Island.

New World Development director Stewart Leung Chi-kin said turning the site into luxury flats would cost up to $1,300 per square foot or $2 billion. Sun Hung Kai revealed that First Star also had to repay a $1.9 billion mortgage on the project.

Excluding the price of acquiring half of First Star the whole project is expected to cost Sun Hung Kai more than $2.4 billion - more than double Wai Kee's market capitalisation. Based on sales at the nearby Harbourfront Landmark, for $8,000 per square foot First Star's revenue from luxury flats on the site could be as high as $12.4 billion.

Using the above cost figures it could earn a profit of up to $5.7 billion.

Few firms could comfortably commit such capital: such is the reality of the dominance of the Hong Kong property market by a handful of firms.

A property analyst said: 'There are not many companies out there that can take on developments of this scale because of the money that you need to do it.'

Changes in government policy over the past 10 to 15 years had also increased the risks associated with property development.

Mr Brown said: 'If you've only got a few billion dollars, the last thing you're going to do is put a disproportionate amount of them into the Hong Kong property market because the rules might change again.

'There are a handful of guys who can put a few billion dollars down on the table and it doesn't really matter to them.'

When Wai Kee got involved in the Hunghom estate it was a relatively safe government-backed project with a guaranteed price for the completed flats.

The change to a private housing project was not to Wai Kee's taste. Wai Kee's announcement last week of the sale of its stake in First Star stated: 'The group is not a private property developer and has no expertise in the development, sales and marketing of private property developments.'

The sale to Sun Hun Kai 'represents a good opportunity for the group to realise its investment ... and to concentrate in its core businesses', the announcement continued. Wai Kee's core businesses are civil engineering, quarrying, bio-technology and toll roads.

Wai Kee's announcement on the sale was criticised by corporate governance activist David Webb for not providing shareholders with enough information to assess the deal.

Important details such as the size of the loan against the property and the premium to be paid to the government were omitted from the announcement.

These figures were revealed by the government and Sun Hung Kai only in the aftermath of the transaction.

'All of the facts should have been made clear in the announcement to Wai Kee shareholders,' Mr Webb said.