IT has been a year of ups and downs for the territory's property market, especially the mass residential sector. Few people had expected to see a rise of 30 per cent in average home values between January and March. But it was the subsequent sudden turnaround that took everyone by surprise. If there was any hint, it would have come from Governor Chris Patten's pledge on March 29 to take steps to cool down spiralling home prices and set up a special inter-department task force to recommend how to tackle escalating prices. At that time, not many people had believed the Government's efforts would pay off because the upward momentum of the property market was so strong. People's faith in the market's strength was not entirely groundless - bolstered mainly by the aggressive attitude of local developers in bidding up prices of land put up for sale at public auctions over the preceding months. The record price of $3.94 billion paid by Sino Land last December for a single plot of residential land at Lung Ping Road was seen as a trigger for the spectacular rallies of property prices in the first quarter of this year. At another government auction held on March 1, Sino Land bought a residential lot in Farm Road for $2.26 billion, setting a record of $5,600 per square foot on the accommodation value. These auction results were well above market expectations, adding fuel to the increase of property prices. Banking on such positive news, developers were taking the lead to raise property prices. Four days after the March 1 auction, Henderson Land Development pushed up by 13 per cent the average selling price of 80 flats at its Sunshine City project in Ma On Shan. Other developers and individual sellers were also quick to revise prices, and push them up. As developers have to pay more for land, it seems to be natural for them to raise selling prices of properties. The Government, as the territory's ultimate landlord and the prime beneficiary from high property prices, should be happy with the encouraging auction results. However, mounting social and political pressure left the Government in a dilemma. With people's dreams of owning an average home moving farther away on the rising prices, the Government was urged to do something to control the situation, regardless of whether it was out of its control or not. The Government's income relies heavily on land sales. A drop in property prices - hence land prices - would mean a reduction in revenues. While the Government's intervention might have its own cause, developers in the private sector thought price increases were attributed to lack of land supply and insisted on upholding the normal laissez-faire approach to business. Developers, treating property as a commodity, feared that the implementation of too many administrative measures would suffocate the market and certainly they did not want to see their profits trimmed by those measures. Government officials' calls, made in April, for people not to buy properties for several months, and the talks of introducing a new capital gains tax and harsh deposit requirements for new developments, all had a negative effect on developers' business. The long-term relationship between developers and the Government - both beneficiaries from high land prices - had turned sour since November 1991 when local banks were directed to lower mortgage lending limits from 90 per cent to 70 per cent. There was a rise in discontent among firms in the private sector as developers had been forced to cut property prices, when the upward price swing was reversed last April. With consistent administrative measures and threats from the Government, developers became more worried about the future. Their concerns, if not discontent, led to a showdown at a public auction on May 26 when a group of 12 developers bought a Fanling residential site for $2.04 billion and the consortium, joined by two more companies, paid $510 million for a Yuen Long lot. The prices for both sites were substantially lower than market expectations and the coalition's action was seen as a protest over the Government's threats to impose strict controls on the property market. The Government quickly responded with a proposal to review the way Crown land was auctioned. Although developers, and even the Government, said later that there was no evidence of a cartel in the auction, uncertainties of the new anti-property measures - which were announced later - were agreed to be the main concerns resulting in the developers' conservative bids. Nevertheless, the May 26 auction did send a signal to the Government that its coffers would be among the hardest hit by any substantial falls in property prices. It was also difficult to tell the extent of the effects from the auction results on the Government's consideration of measures to cool down the property market. But the new measures, including the ban on re-sale of unfinished flats and the quota for internal sale by developers, were considered by some analysts as having been watered-down to avoid a market crash. Developers hailed the new measures as sensible and reasonable but charged that they would increase their development costs and bring about inconvenience to home buyers. Residential prices headed downwards further following the publication of the measures, while buyers and sellers remained uncertain about the market's outlook. Then developers' confidence in the market was tested again at a Government auction on July 26. Prior to the auction, people were not over-optimistic about the results. Surprisingly, however, exciting bidding emerged, with a Tai Po residential site going for $890 million to a consortium formed by Hong Kong Parkview, Lai Sun Development and China Travel Service, and the other Tai Po site selling at $335 million to Paliburg Development. It seemed the power play between the Government and developers was over. But it was not so. Early in August, an Independent Commission Against Corruption (ICAC) inquiry into allegations of collusion at the May 26 auction was revealed. Developers involved in the auction were apparently unhappy about it. At the following Government auction on August 23, only a few major developers were present and two lots of Crown land were sold to the same company, CITIC Pacific, after just one bid at a price lower than expected. The third lot had to be withdrawn when no one made an offer - the first official withdrawal since 1981 at a public auction. Some analysts took the poor auction results as a sign of further slowing down in the property market, while some suggested it was a boycott by big developers over the ICAC's investigation into the May 26 auction. The Government's recent decision to postpone indefinitely any further measures to slow the property market could relieve tension and will be welcomed by developers. Government officials believe speculators have largely left the market and home prices have moderated considerably, ranging from 10 to 30 per cent. The second-phase measures under consideration were believed to include introducing a punitive capital gains tax and/or higher stamp duty on speculative short-term buyers and sellers in the market if the first-stage measures had not proved strong, or effective enough. The tug-of-war between the Government and developers on the administrative interference in property prices is likely to continue.