China Overseas & Investment has won the two sites in Kai Tak under the "Hong Kong property for Hong Kong people" scheme for a better-than-expected price.
The mainland developer paid HK$4.54 billion, or HK$5,157 per square foot, for the two sites, higher than surveyors' forecasts of up to HK$4.4 billion or HK$5,000 per sq ft.
Vincent Cheung Kiu-cho, national director of Greater China at consultant Cushman & Wakefield, estimated the price of the project would have to be HK$13,000 per sq ft in terms of saleable area to generate a reasonable profit.
Chinachem Group won the tender for a residential site south of Long Ping MTR Station in Yuen Long with a bid of HK$1.3 billion, or HK$2,876 per sq ft, less than the market expectations of more than HK$1.49 billion. This is 11.78 per cent less than the site north of the station sold to the consortium of Sino Land and K Wah International last October.
"The location of the Kai Tak sites is much better. As the number of property sales has dropped significantly, it will be easier for developers to get a better sales response if the projects are in a core urban area," said Cheung.
"It is just like investing in the stock market. If the market is good, you may be willing to buy some junk stocks. If the market is bad, you will buy blue-chip shares only."
Cheung said the good location of the two sites had offset the negative impact of the limitation on buyers.
Under the scheme - introduced to help people priced out of the red-hot property market in recent years - flats built on these sites can only be sold to permanent residents for the first 30 years.
Corporate buyers, including companies, are banned.
Tony Yau Wai-kwong, managing director of China Overseas Property, a subsidiary of China Overseas & Investment, said: "We had taken the restrictions into account. But the location of the sites is very good.
"They are the nearest to the future Kai Tak MTR station [on the Sha Tin-Central Link]. Also, most of the buyers in the market are Hong Kong people."
He added that the company's total investment would be about HK$9 billion.
Yau would not be drawn on the target selling prices.
The sites cover an area of 176,056 sq ft and could yield a total gross floor area of 880,280 sq ft. The project could provide at least 1,145 flats.