The government's plans to vastly increase land supply was dealt a body blow in an auction for a luxury site in Sha Tin on August 9, when there was only one bidder and the plot was sold at a price far below market expectations.
A consortium, involving Kerry Properties, Sino Land and the Manhattan Group, headed by Hong Kong Tourism Board chairman James Tien Pei-chun, bought a 248,175 sqft site in Kau To for HK$5.5 billion. Some market analysts had expected the site to sell for more than HK$9 billion.
The site has a buildable area of about 1 million sqft, which works out to HK$5,332 per sqft, far below market estimates of up to HK$9,000 per sqft.
The timing of the auction was unfortunate, falling in the immediate aftermath of Standard & Poor's downgrade of the United States' credit rating, when financial markets were volatile.
'As a result of the auction and recent stock market fluctuations, we believe secondhand transactions will slow down, and property prices are expected to ease by 5 per cent,' says Jeffrey Ng Chong-yip, senior executive director at Hong Kong Property.
However, other experts believe the lower than expected price was related to the fact that the site was handicapped by the conditions which the government attached to the auction.
'Kau To is a traditional luxury area, mostly with low density houses. However, a government condition is that at least 970 units have to be built, which makes the development pattern different from traditional properties in the area,' explains Alnwick Chan, an executive director at Knight Frank.
Despite the lukewarm response, Financial Secretary John Tsang Chun-wah insists that future government land auctions will go ahead as planned.
Among the eight plots of land the government is scheduled to bring to the market this quarter, the next focus is likely to be on a 755,630 sqft seaview residential site on Oil Street in North Point, when the tenders close today.
A 2.6 million sqft site at Nam Cheong MTR station is expected to start the tendering process next month. Six more sites in Kau To are still available from the government's land list, though their combined area is smaller than the site sold on August 9.
This is not the first time there has been only one bidder in a government auction, but it hasn't happened since 2002, when Chinachem faced no competitor in winning a site in Kowloon City.