The land premium game is being played at its classic best again. It's the developers vs the Hong Kong Government and, given the record of past matches, the developers are the favoured team.
We are now at the stage where the developers moan about the frightful state of the property market and the money the Government wants for development rights.
Only one land premium agreement has been signed since October and the number of appeals for reduction of previously agreed premiums is on the rise.
But first let's describe the playing field. All land in Hong Kong, except for that under St John's Cathedral, is on leasehold. The leases specify what sort and size of buildings can be erected.
So in effect Hong Kong has two levels of development approval. One is the zoning through the Town Planning Board and the other the lease agreements. The lease agreements are the most important.
The leases can be modified, of course, but then the Government takes the view that it sold the leases for prices reflecting the value of the improvements allowed on them at the time.
If it is to make concessions which raise the value of these permitted improvements then it is entitled to a large share of the proceeds from the concessions. It therefore charges a land premium to change the leases.
Given that some of the original leases are for low-return uses such as ship repair or goods storage, and that the proposed new uses are high-density residential development, the difference in value can be enormous.
So you may think that successful property development is a business of buying land at low prices then selling completed property at high prices, but mostly it's not.
It's a business of buying lease conversion rights at low premiums then selling completed property on that leasehold land at high prices. The key for most developers is low premiums. That's where they really make money.
And they are happy to wait a very long time for it. Cheung Kong waited four to five years to get premiums down to the level it wanted on Whampoa Gardens and South Horizons; and its patience paid off.
It cleaned up on those and many others for which it waited to let market cycles bring premiums down.
They have the resources to wait, too. The average net debt-to-equity ratios of the big developers run to only about 30 per cent at present and the figure is going down.
They are buying little new land while selling off completed projects at whatever the market will bear, and use the money to pay down debt.
They are essentially betting that they can last out a Government which has a millstone around its neck in the form of a pledge to provide 85,000 new housing units a year.
They were even helped out by this Government when it suspended sales of land by auction or tender until March next year, knocking small developers out of the running.
So what happens now is that bank loans to developers, say 20 to 25 per cent of total lending, go down as the developers sit on the sidelines and shed crocodile tears about how tough things are.
Sooner or later the banks will want to put the money back to work and, as confidence improves, the outlet will be mortgages.
Then suddenly it will become apparent that there is a woeful shortage of new housing coming on to the market, that the Government's target will be missed and that Hong Kong desperately needs its private-sector suppliers to make up the shortage.
As one the developers will rise from the sidelines, strike their premiums at the bottom of the market once again, pleading for special concessions because they have risen to the call of public service, and then run away with the ball, straight to the goal.
It has happened time and time again. They are playing the game as they always have played it in the past.
Move aside, World Cup. There is a better spectator sport coming soon. It's just too bad the underdogs don't have much chance.