THE weakened property market faces a crucial challenge on Wednesday when a prime residential site in central Kowloon - considered the biggest and best-quality lot of Crown land in recent years - goes under the hammer. Despite its quality and good location, analysts are relatively reserved in their forecasts of the selling price for the 280,510 square foot site at Lung Poon Street, Diamond Hill. Conservative forecasts put the price at $3.3 billion, while the most optimistic is about $4 billion. The auction is a timely litmus test for the dampened residential market, with local developers lobbying hard for a relaxation of the 70 per cent ceiling for mortgage lending. The Government's firm position on keeping the mortgage ceiling unchanged is expected to contain property prices. It has been estimated that the restriction on mortgage financing has partly contributed to a drop of about 15 per cent in residential prices since last year. Coupled with concern about the potential effect of the Sino-British row, confidence could be waning. Property analysts generally believe that Wednesday's auction will be dominated by cautious bidding by just a few major developers, given the size of capital investment. Developers are also expected to form alliances to spread investment risks, effectively cutting competition and resulting in a lower selling price. Henderson Land Development has made known its intention to bid for the Diamond Hill site with partners. Sino Land, World International and Sun Hung Kai Properties are also possible bidders. The site, next to the Mass Transit Railway's Diamond Hill station, has a potential floor area of about 1.16 million sq ft for residential purposes and about 561,880 sq ft of commercial space. Chung Sen Surveyors predicted the site could sell for $3.95 billion, representing an accommodation value of about $2,300 per sq ft. Mr Pang Shiu-kee, director of S.K. Pang Surveyors & Co, tipped a slightly lower price, $3.8 billion, or an average of $2,210 a sq ft. Mr Law Cheung-kwok, economist at South China Brokerage, put the price at $3.3 billion. He did not expect to see any spectacular bidding, particularly amid uncertainties over Hongkong's political reforms. To support his projection, Mr Law said the Diamond Hill site was not the only prime site in Kowloon available, adding that plenty of land had redevelopment potential. But most analysts agreed that the site had a quality not found recently in Crown land. An analyst at Mansion House Securities said bidding would be dominated by a few major developers and competition should be fierce. His price tag is $3.64 billion, based on projected selling prices of $3,800 a sq ft for the residential units and $4,500 a sq ft for the commercial space. The other lot being offered at Wednesday's auction is a 129,380 sq ft industrial-godown site in Sheung Shui, which has a potential floor area of about 323,458 sq ft. Analysts are substantially divided in their price forecasts, ranging from $107 million to $168 million, or an average cost of $330 to $520 a sq ft, reflecting different expectations for the industrial property sector.