Jeff Law Kwok-on, senior manager for the Kowloon area at Midland Realty, said yesterday's land auction reflected the recently dampened residential value.

He said residential prices in the Lu Wo Hui area, where the Fanling site is located, had dropped by more than 15 per cent since April.

Therefore, he said, the auction price of the Fanling site was still at a reasonable level.

Kenneth Cheung, director of CF & Associates, said the auction result would affect market sentiment further.

But the poorer-than-expected result was not totally surprising because the residential market in the New Territories would possibly be hit harder under the Government's policy of increasing land supply.

''Most of the new land supply will be located in the New Territories, which will have a bigger effect on residential prices there,'' he said.

More than 10 developers teamed up in bidding at the auction, effectively reducing competition and subsequently lowering selling prices.

William Sham, senior valuation manager at Colliers Jardine, said the auction was virtually dominated and controlled by domestic developers.

Although the prices fetched were lower than market expectations, he said they were still ''fair and reasonable'', adding that developers were expected to enjoy an attractive profit margin in the development of the two sites.

William Wong, senior associate at Brooke Hillier Parker, said the auction reflected a strategy by developers to spread investment risk and reserve capital for better business opportunities.

The auction results also indicated that the Government would be one of the losers in a falling property market.