The taxpayer lost out on making $644 million from a land sale in Ma On Shan last year, the Director of Audit has discovered. Dominic Chan Yin-tat estimated the hotel site, controversially sold to the Li Ka-shing empire for $120 million, could have fetched $764 million if used for housing. A suggestion by an official at the time that the site be withdrawn and rezoned for housing was rejected by his superiors. The deal, in February last year, drew severe criticism from legislators, who asked why the Government had not withdrawn the site instead of selling it so cheaply. The site had several advantages - a waterfront location and close proximity to a public transport terminus and a shopping arcade. The $120 million tag represented an accommodation value of about $200 per square foot based on a total floor area of about 620,000 square feet. But Cheung Kong (Holdings) deputy chairman Victor Li Tzar-kuoi, son of Li Ka-shing, rejected the claims, telling critics to 'put their money where their mouth is'. He said his company's bid was the highest and 'it's the market price'. The auditor, presenting to legislators his latest report on government spending, found the site had been zoned for hotel use in 1995 under a trial scheme to encourage the building of hotels. However, the Executive Council had not been told of this change in land disposal policy or its financial implications. Neither was the Chief Secretary for Administration informed, even though the hotel industry's outlook had dramatically worsened by the time the land was sold. In addition, a reserve price was not set because the site was sold through tender rather than public auction. Only two developers bid. The auditor discovered Director of Lands Bob Pope had suggested rejecting the bid and re-zoning the site for residential use. He said the Government could have pocketed five times more than Cheung Kong's offer. Mr Pope estimated the site was worth $1.06 billion in November 1997. However, the idea was opposed by the then director of planning, Peter Pun Kwok-shing, saying the site was suitable for hotel use and government credibility would be undermined if it suddenly withdrew the site. Former secretary for planning, environment and lands Bowen Leung Po-wing agreed with Dr Pun's arguments and ordered the tender process to continue. He said considerable effort had been made to persuade the Executive Council and residents to zone the site for hotel use. In the report, the auditor recommended that a reserve price should be set for all land for sale by tender and that Exco and the Chief Secretary for Administration should be informed of major changes in the property market. In a reply, Secretary for Planning, Environment and Lands Gordon Siu Kwing-chue agreed with the report's findings and Mr Pope said tender procedures could be improved. Mr Pope said reserve prices for the sale of land by tender would be considered.