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Latest land sales in Hong Kong suggest property market is cooling

The major indicator is that two prime Hong Kong residential sites were sold at auction last week for a lower than expected US$1.34 billion, in a sign that one of the world's hottest property markets is cooling off.

Some analysts welcomed the results, saying they may point toward a more stable property market in 2010 and allay concerns over a real estate bubble.
Market observers had expected the sale of the two adjacent sites, representing the first major auction of government land in two years, to draw fierce competition from land hungry developers. But the equally sized plots in a northern area of the city called Tai Po sold for a total of HK$10.4 billion, well below the average forecast.

Blue chip Hong Kong developer Sino Land bought the first site and bought the second site for as part of an 85% owned consortium with K Wah International Holdings. Although the price at the auction was about 13% higher on a per-square-foot basis than that paid by Sino Land and its partners in 2007 for their three other sites in the area, before the global financial crisis chairman Robert Ng described it as ‘very reasonable’ and said the company plans to develop luxury apartments and houses on the sites.

Analysts said developers are likely to be more cautious about price as they are concerned the government might implement measures to avert a property bubble, possibly leading to a drop in property prices.

Hong Kong Chief Executive Donald Tsang said in October that the government was watching real estate prices and would fine tune land policies if necessary.
Talk about the possible formation of a property bubble has increased after home sales and prices surged in 2009 on the back of heavy fund inflows to Hong Kong and strong demand from local end users amid low interest rates.
‘In the face of all the mixed signals, the auction now clears some of the confusion and draws the market closer to reality. It could encourage flat sellers to price their homes at more reasonable levels and boost sales volume,’ said Alvin Lam, director at Midland Surveyors.

But prices could still see upward pressure in 2010. DBS Vickers Securities estimated in a recent report that it expects 10,000 to 12,000 units are set to be completed each year from 2010 to 2012, compared with an average 21,000 annually from 1998 to 2008.

And Lee Shau-kee, the billionaire chairman of Henderson Land Development, said he beleives that property prices will rise another 20% in 2010.
‘A bubble does exist, but unless we see another 20 or 30% increase in property prices, which is unlikely, I don’t think the bubble will burst too quickly, not in the next year,’ said Casator Pany, research director of Cinda International.