Prices of Hong Kong's homes are becoming more polarised, with a growing gap between luxury and mass market apartments, marked by the scarcity of land for high-end developments and government policies focused on boosting the supply of small flats. The government's rejection of a developer's attempt to trigger an auction for a piece of land in Kau To Shan, Sha Tin, is indicative that the administration does not want to sell valuable land at low prices. The 212,051 sqft site, with a developable floor area of 318,076 sqft, was estimated to have a value of HK$2.2 billion to HK$2.5 billion. In the mass market, the tender for a residential project above West Rail Nam Cheong Station was awarded to Sun Hung Kai Properties after a winning bid of HK$11.8 billion, representing an average cost of HK$4,468 per square foot, lower than market expectations of HK$5,500 or above. This was apparently related to a restriction that most units should not exceed 500 sqft, plus the project's large scale of about 3,300 units, reflecting a more cautious attitude towards the mass home market. Marcos Chan, head of research for the Greater Pearl River Delta at Jones Lang LaSalle, says both luxury and mass housing prices have surged sharply since the market trough in 2009. Luxury prices have risen by 82 per cent, while mass market prices have increased 73 per cent. 'The price gap between luxury and mass homes is probably at a record high today. Prices of high-end properties are rising faster given their limited supply and strong demand, and this is especially true for new luxury residential projects in the primary market,' he says. 'Super-deluxe properties are often selling at sky-high prices. The price gap between luxury and lower-end properties is expected to widen. Even if the market turns south, the luxury sector will be more resilient and the likely correction will be smaller than in the mass market.' Super-deluxe houses have continued to set record prices, undaunted by the softened market environment. In August, an 8,300 sqft house at Pollock Path on The Peak was sold for about HK$800 million, representing an average price of about HK$96,000 per square foot. The government has introduced measures that include restricting the size of new apartments to increase the supply of small flats and to help families achieve home ownership. The luxury market has been spared a heavy-handed approach. Developers continue to record positive sales of new luxury projects, though overall sentiment has weakened and volumes have shrunk. Notable sales include K Wah International's Marinella in Aberdeen and Sino Land's One Mayfair in Kowloon Tong, both selling at an average price of about HK$20,000 per square foot. Prices remain firm at the very top end. A two-storey detached house at 19 Cooper Road, Jardine's Lookout, is on the market with an asking price of HK$560 million, with a site area of 16,360 sqft and a developable gross floor area of 9,816 sqft. 'Properties of this quality are rare in the city and it is not hard to imagine the potential of this site,' says Angel Law, director of Prestige Homes at Savills, who is marketing the property. The gap between luxury and mass residential prices has widened markedly since the mid-1980s, as shown by data for flats in Class B and Class E categories compiled by the Rating and Valuation Department. Class B property has a saleable floor area of 430 sqft to 752 sqft, while Class E property has a saleable area of 1,722 sqft or above. Average prices of Class E property on Hong Kong Island were just 32 per cent above those of Class B in 1986. The premium increased to 63 per cent in 1997, 117 per cent in 2003 and 139 per cent last year. In Kowloon, prices of Class E property were 61 per cent above those of Class B in 1986, but the gap increased to 137 per cent last year. Thomas Lam, director and head of research for Greater China with Knight Frank, says the growing wealth gap and a supply-demand imbalance have polarised the local market. 'Luxury home prices have rallied spectacularly in recent years with the arrival of more overseas money, especially from cash-rich mainland buyers.'