Land sales defy the law of logic

PROCEEDS from land sales constitute the major source of income for the Hong Kong Government, yet each year the director of the Buildings and Lands Department says in the Budget speech that it is difficult to estimate revenue from land sales in an active market.

In the past 10 years property prices have surged 700 per cent. The compound growth of prices for office premises was 21.6 per cent and for residential premises 21.3 per cent a year, according to Jones Lang Wootton.

The Government's estimate of how much land it would sell each year exceeded actual sales during the past 10 years, but revenue income was above official forecasts.

Property experts suggested this was because of the withdrawal of land at public auctions when there were no bidders or the bidding price was unsatisfactory.

In addition, there was little real interest in the land exchange programme offered by the Government and so sales fell short of the Government's original target, according to Michael Choi, managing director of Land Power International.

In the past 10 years, the Government sold more than 300 hectares of land through public auctions, tenders and exchanges, yielding revenue of more than $115 billion.

But the Government revised its land sales estimates during the course of each financial year after gauging market sentiment. Because the revisions tended to be upwards rather than downwards, the percentage change could be significant.

The programme for the 1985-86 financial year was first forecast to yield $1.7 billion.

The mid-year revision saw an adjustment to $3 billion, but actual revenue income from land sales was $3.6 billion.

In the 1990-91 financial year the Government planned to sell 77 hectares through public auctions and tenders, the biggest land sales programme during the past 10 years.

Of the 77 hectares, 50 hectares were for the Container Terminal No 8 site. The rest of the land was marginally more than the 25.7 hectares that was put under the hammer during the previous year.

A shortfall in revenue resulted in 1990-91, after estimates of $5.8 billion, because the Container Terminal No 8 land was booked during the 1991-92 financial year.

Several major sites have been sold by the Government in the past 10 years, including the fire services building in 1987, the Garden Road site in Central in 1989 and a Government building on High Street in Western district in 1994-95.

Among the pick of the prime plots to be sold was the Garden Road site, with an area of 8,546 square metres, offered by tender in 1989.

The site is between the Bank of China Tower and the Murray Building.

The sale was regarded as an indicator of the state of the Hong Kong property market after the June 4 Tiananmen Square crackdown in Beijing.

Prior to the deadline for tendering, the Government threatened to withdraw the site if bidding prices were unsatisfactory.

Great Eagle was awarded the site after bidding $2.7 billion.

Citibank Plaza, with a market valuation of $17 billion and a gross floor area of 1.45 million sq ft, now occupies the site. Land auctions are regarded as one of the most exciting events in Hong Kong financial circles. The 1987 auction of the fire services site in Central attracted thousands of people because of its prime location. Hang Seng Bank won the 2,040 square metre site for $8 billion and built its headquarters on the land at an estimated cost of $4.5 billion.

The introduction of measures last year to clamp down on property speculation cooled property prices.

Prices have fallen by more than 20 per cent since their peak early last year.

As a result, the profits of Hong Kong developers have declined significantly but the Government has shown no signs of relaxing controls on the property market.

The investigation of a controversial auction last spring stunned the property development community.

The Independent Commission Against Corruption began an inquiry after the May 26 land sale session resulted in a consortium of developers offering a startlingly low price of $2.55 billion for lots at Fanling and Yuen Long which had been estimated by analysts to be worth $4.5 billion.

Rumours circulated that developers formed a cartel to protect their interests in protest against official interference in their business.

Robert Ng Chee-siong's Sino Land has been among the most aggressive and bullish property developer in Hong Kong.

The company set a record by paying $5,600 per sq ft for a Farm Road property in Kowloon in March last year when it bought the site for $2.26 billion when the market was at its peak.