Sun Hung Kai Properties, Kerry Properties and Paliburg Holdings have paid a $3.9 billion land premium on their proposed luxury residential project in Ap Lei Chau. The premium, paid for the right to convert the industrial site into a residential and commercial development, was about 30 per cent higher than the market expected and had raised projected development costs above secondary market prices, an analyst said. 'The venture agreed the amount in July, which was a peak level for flat prices last year. Since primary market prices then dropped by 10 per cent in the last half of the year, the premium seems to have lifted development costs to slightly higher than the market price today,' said Charles Chan Chiu-kwok, a director at property consultant Savills. According to a source close to the government, the Lands Department proposed the land premium in June last year and reached agreement with the developers in July. The developers received approval from the Town Planning Board for increasing the average flat size on the development from 670 to 1,098 square feet in November. They plan to build a luxury residential complex on the site. Mr Chan said that after factoring in the land premium, the investment cost of the partners in the development would be $6,000 per square foot, including building costs and interest rates. That will open the bidding for the flats at more than $6,000 per square foot if the developers are to make a profit. However, prices for new homes in the area range from $4,000 to $5,000 per square foot and Mr Chan said they would have to rise by more than 10 per cent to yield the profits targeted by the venture. Sun Hung Kai Real Estate Agency executive director Victor Lui-ting said the partners planned to launch the project in the middle of next year. Prices fetched by units in Sham Wan Towers, a new SHKP residential project, averaged about $5,000 per square foot, while prices at South Horizons, a 15-year-old estate, range from $4,000 to $4,500 per square foot, according to Tam Tak-on, a branch manager at Centaline Property Agency. Paliburg bought the site for $230 million in 1995 and after three years sold stakes totalling 70 per cent to Kerry and SHKP. The project will comprise eight 34 to 36-storey residential towers, providing 816 flats. The total gross floor area of the planned development will be 913,325 sqft.