Runaway Hong Kong land prices spark renewed calls to bring back auctions to replace tendering

The recent spike in land prices has raised concerns whether the Hong Kong government should scrap its tendering process, and bring back auctions to sell plots of land, to improve the transparency of deals.

Surveyors are calling for a change in the land sale system as they fear there is no end in site for the rising costs of buying land, after they reached abnormally high levels in the past few months.

Chinese conglomerate HNA Group’s purchase of its third residential site at Kai Tak area for HK$13,000 per square foot last month was seen as the main reason for the 27 per cent increase in land prices in just one month alone, between December and January.

Victor Lai Kin-fai, the chief executive of property consultancy Centaline Professionals, is among many in favour of changing the way the government sells its plots, as prices run madly out of control.

“Auction is the best way to ensure sites are sold at fair market levels with bidders exchanging bids openly,” he said.

“Everyone knows who participates in the bidding and what they offer.”

In the past, government auction opening prices were often set at about 20 per cent below market level.

Auctioneers lowered or raised the increment in response to developers participating in the auction.

If one site received a slow response, the auctioneer , in some cases, might lower the increment from HK$10 million to HK$5 million to boost interest, or vice versa.

A return to such a system, said Lai, would avoid sudden surges in land prices, over very short time periods.

“But in a tender, there is no transparency at all and one or several bidders can be very aggressive and reckless in their offers. The tender system has accelerated the upward movement of prices, which has led to an unhealthy development of Hong Kong’s property market,” he said.

HNA paid a record HK$13,500 per sq ft for its first site in Kai Tak area in November last year and a month later then broke its own record after it won its second site for HK$13,600 per sq ft.

That marked an increase of 164 per cent compared with the first government site sold in the area for HK$5,157 per sq ft, in June 2013.

Residental land prices in Kai Tak have been pushed above HK$10,000 per square foot since HNA bought its three lots.

Thomas Lam, senior director of Knight Frank, said that Hong Kong must adopt alternative ways of selling its land.

“There shouldn’t be just one single method. In mainland China, land is sold by both auction and tender,” he said, suggesting urban plots, which generate the keenest bidding among developers, should by sold by bidding.

Lai of Centaline said Hong Kong should follow the mainland’s practise of publishing all bid prices offered by tenderers.

“Singapore also announces the first top three bidders for land sold by tender. The market would welcome more information,” he said.

Last week, Hang Lung Properties chairman Ronnie Chan Chichung labelled recent prices at government land auctions at “irrational fever” level and cautioned that his own company is having difficulties replenishing its land bank in the city amid aggressive bidding from deep-pocketed mainland rivals.

Stewart Leung, chairman of Wheelock Properties, however, is against any auction system.

“Land sold by auction is always dominated by the big conglomerates. Small to medium-sized developers will have no chance and be effectively pushed out of the game,” he said.

Leung is confident the current phase of land being sold for shockingly high prices won’t last forever, adding the firm will continue participating in government tenders to build up its land bank.

An statement from the Land Development Bureau insisted the government sells land at market value.

“Public tender is a fair, just, competitive and transparent means of disposing of land in an efficient manner,” it said. “After a land sale tender is awarded, the Lands Department will announce the name of the successful bidder, its premium bid, the name(s) of all other tenderer(s) and the names of the parent companies of all the tenderers, if shown in the Forms of Tender submitted.

“It is not our practise to disclose bid prices offered by unsuccessful tenderers. A tenderer is free to make a bid at any price which may be frivolous. The disclosure of all the bid prices could send misleading messages to the property market,” it said.

“The public may get an idea of the level of competition from the number of bidders for each site tendered.”