They have urged the government to correct an expected shortage of residential units in 2006 and 2007 by making more sites available and by releasing projects controlled by the MTR Corp and Kowloon-Canton Railway Corp ahead of their original schedules.

The government introduced the application list system as a market mechanism to determine land supply.

Under the system, a developer proposes a price to the Lands Department and undertakes to offer that amount of money. If the developer's proposed price meets the government's target price, the parcel of land goes to tender or auction.

At last Tuesday's land auction - the first after a moratorium of 20 months - Cheung Kong (Holdings) outbid 12 other developers to win a site of 150,760 square feet in Ma On Shan with an offer of $2.09 billion.

KWah International bought the second site, a smaller plot of land in Sha Tin, for $865 million. The figures were more than 70 per cent higher than the government's reserved prices.

Analysts wondered this week if the high price levels could be sustained when more sites on the application list were released.

The market will be tested when a residential lot in Sa Po Road, Kowloon City, is auctioned off later this month.

Eddie Hui Chi-man, associate professor in the building and real estate department at Hong Kong Polytechnic University, said the high bids at last week's auction were an expression of strong demand built up among developers during the 20-month freeze. But prices would drop if more land was made available, he said.

Professor Chau Kwong-wing of Hong Kong University's department of real estate and construction said the land sale system could be used to control the balance between land supply and demand.

'If the government sets a higher reserve price, the developers' desire for sites will not be as keen,' he said.

On the other hand, the government could generate strong developer interest by setting reserve prices below the market level.

Landscope Realty managing director Koh Keng-shing predicted bidding for the remaining sites on this year's application list would be strong.

'Only 17 sites are scheduled for sale this year. This isn't enough to meet developer needs,' he said.

Analysts said developers could afford to pay high prices for all 17 sites.

Tuesday's aggressive bidding prompted property consultants to revise their total sales forecast for all 17 sites to $30 billion from $14billion, just over $2 billion less than the $32.24 billion developers paid for government land during the market peak of 1997.

Hang Seng Bank criticised the lack of transparency in the land sales mechanism in its May economic report.

It urged the government to disclose reserve prices and explain how these had been determined for the sake of greater transparency.

The report said such transparency would contribute to the market's stability.

Land prices were an important indicator of future property prices, the report said, adding that winning bids gave a true reflection of developers' perceptions of the market.

Without land prices for reference, the property market would lack an important piece of information for deciding on its future directions, the report said.

HSBC analyst Derek Cheung said the existing system was acceptable. But he said developers had different ways to replenish their land banks and did not have to make high bids for government sites.

For example, developers were negotiating with the government for a change in land use for nine million square feet of farm land in the New Territories, he said.