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1. Land sale prices flag boom for property

2. Van der Kamp misses the point on rail study

3. Lands Department to hold land auction

4. HA Monitoring Group on Disposal of Kingsford Terrace

1. Land sale prices flag boom for property
PEGGY SITO and ERNEST KONG, SCMP 20 April 2004

High reserve prices offered for the first two sites to be auctioned after a 19-month freeze on land sales indicate the growing strength of the property market, experts say.

Two residential sites in the New Territories will be auctioned next month with offered prices at the upper end of market expectations.

The Lands Department said yesterday it had accepted minimum guaranteed bids by K. Wah International of $1.206 billion for a site in Ma On Shan and $469 million for a plot on Tung Lo Wan Hill Road, Sha Tin.

"The price offered by the developer is a strong indicator that home prices will continue to surge in the next few years," said Victor Lai, managing director of Centaline Surveyors. "It also indicates its projection that home prices in the next two years would not be falling."

Under the land sale system, a developer offers the Land Department a minimum price it guarantees to pay for a site. If that price meets the government's target reserve, the site will be brought to auction.

The reserve for the May 25 land auction means the government will reap at least $1.675 billion from the sales.

Mr Lai believes the sites will attract keen bidding from both big and small developers. He expects the winning bids to be 25 to 30 per cent higher than the reserve prices.

That could translate to prices exceeding $4,500 per sq ft for the completed Ma On Shan flats, and more than $5,500 per sq ft for the Sha Tin units - about 30 per cent higher than present market values.

Ronald Cheung, director of Midland Realty's valuation department, said the pricing reconfirmed the government's intention not to sell off land cheaply.

Property consultants also said the high prices indicated the continued strength of the property market. Such signs were welcome at a time when the market had been entering a period of uncertainty following a price surge of more than 30 per cent in the past eight months.

More sites were expected to come for sale in the next few months, they said.

The government announced the land sale suspension in November 2002 in a bid to shore up the housing market, which had slumped since 1997. The last auction held by the government was in September 2002.

The K.Wah International offer is the first time the government has accepted bids for sites since it announced the resumption of land sales in January.

Over the past few months, developers have been calling for the government to soften its stance on high sale prices for public sites as their offers failed to meet the target reserve.

The Ma On Shan site, with a total floor area of 753,800 sq ft, will be developed into a high-rise housing estate, while the 260,781 sq ft Sha Tin lot will be a low-rise residential project.

In another positive sign for the housing market, a luxury site at 10 Pollock's Path, The Peak, was bought last month by Chau Sing-ha, the sister of Shaolin Soccer movie star Steven Chiau Sing-chi, and Chau Man-ki under the company name The Star Royale Limited for $320 million, or $14,600 per sq ft, Land Registry records revealed yesterday.

2. Van der Kamp misses the point on rail study
Letter to Business Editor, SCMP, 20 April 2004

In his Monitor column of April 16, "Transport debate puts cart before donkey", Jake van der Kamp questioned the validity of using property value increases as a measure of external benefits generated by the MTRC's proposed South Island Line and West Island Rail Line (SIL/WIL).

Mr van der Kamp suggests that the estimated property value increases reported in a recent Hong Kong University study are mere transfers of wealth (or at a dubious multiplier effect) and do not represent actual increases in value. He is wrong. He seriously misinterprets our analysis and in the process muddies the waters when it comes to assessing new railways in Hong Kong.

As explained in our report, we took considerable pains to estimate value added to real estate by the presence of a nearby rail station. Our estimated property value increases reflect expected willingness to pay on the part of consumers in the property market for assets that will become more valuable due to vastly improved transport. (In fact, one could argue that the current transport bottlenecks in Southern are holding property values below what they would otherwise be).

Mr van der Kamp also questions our estimates of "the economic value of time savings, travel safety and other considerations, which I defy anyone to assess with accuracy". Here, I agree with him - to a point. Unfortunately, he missed the clear statement in our summary that "the direct external benefits shown here should be viewed as broadly `indicative' rather than precise". That said, our estimation procedures for the economic value of time savings are consistent with international practice and are, at a minimum, "broadly indicative" of the economic value of such savings.

Our most grievous error according to Mr van der Kamp is ignoring "the opportunity cost of capital". Did he read the report? It clearly sates that we applied a 4 per cent real annual discount rate for economic benefits and for financial benefits to government, and 7 per cent real annual for private property owners. Both are based on their presumed opportunity costs of capital!

We were careful to avoid double counting of changes in property value and time savings. The issue here is that an important component in willingness to pay for property is based on the reliability and speed of travel. To overcome this, we counted only the time savings of the public housing residents in Southern and Central/Western.

Likewise, our estimates of private property value increases are net of rates and property taxes paid to government. Hence, we can present those figures in addition to the financial returns to government of the associated rates and property taxes.

To offset the potential for a mere movement of value from one part of Hong Kong to another, we consistently used highly conservative estimates. For example, we counted as a net increase only half of the estimated increase in ground floor commercial properties.

Likewise, we considered property value increases only within the narrowly defined catchments of 400 metres from a station entrance (and from this subtracted extremely hilly areas). In effect, we considered less than 80 per cent of the properties within Southern and Western. While property beyond 400 metres - but within another 100 to 200 metres - would benefit less, the impact would not be zero.

To sum up, far from being "absurd" or ignoring something as basic as opportunity costs, our estimates of external benefits for the SIL and WIL are based on credible methodologies (fully explained) and they are almost certainly an underestimate. (For example, the rail line would likely lead to the rejuvenation of Wong Chuk Hang and perhaps save Ocean Park). Such indirect benefits (along with their net employment gains) are being explored in an ongoing project that we expect to complete soon.

Something Mr van der Kamp failed to mention is our assessment of the estimated financial savings in health-care costs due to reduced roadside pollution associated with a shift of passengers to rail. As with our estimates of time savings, the benefits of improved air quality occur not only in Southern and Western but also in Central and Wan Chai due to reduced traffic.

These direct health-care estimates for a major infrastructure project mark a breakthrough for environmental health assessments in Hong Kong. It is also clear that the benefits we reported for environmental health represent only a modest portion of the actual benefits. We hope to investigate this point further.

Our report, "West Island Line/South Island Line; Direct External Benefits", may be downloaded by going to: www.hku.hk/cupem/home/CentrePublications.htm.

BILL BARRON,

The University of Hong Kong

3. Lands Department to hold land auction
Hong Kong Government, 19 April 2004

The Lands Department announced today (April 19) that two residential sites, Sha Tin Town Lot No. 487 at Site 15, Area 77, Ma On Shan and Sha Tin Town Lot No. 510 at Tung Lo Wan Hill Road, Sha Tin had been successfully triggered for sale under the Application List system. The sale of these two lots will be by auction to be held next month.

Assistant Director of Lands, Mr Chris Mills, said that the Government had accepted the applicants' minimum guaranteed bids of $1,206 million for Sha Tin Town Lot No. 487 and $469 million for Sha Tin Town Lot No. 510. These will be the starting prices for the sale of the lots at the auction.

Sha Tin Town Lot No. 487 has a site area of about 14,006 square metres and the minimum gross floor area to be completed shall be 42,018 square metres. Sha Tin Town Lot No. 510 has a site area of 10,626 square metres and a minimum gross floor area of 14,536 square metres is required to be completed. Both sites are designated for private residential purposes.

"Both lots will be offered for sale in the first Government land auction to be held since 10 September 2002. The auction will take place on 25 May 2004 afternoon at the Hong Kong Cultural Centre," Mr Mills said.

The conditions of sale for both lots will be available for distribution by 30 April 2004 when the particulars of the land auction will also be gazetted.

4. HA Monitoring Group on Disposal of Kingsford Terrace
HKHA Press Release, 16 April 2004

A four-member monitoring group has been set up under the Housing Authority's Subsidized Housing Committee (SHC) to oversee the disposal of Kingsford Terrace, a Private Sector Participation Scheme (PSPS) in Ngau Chi Wan.

The Chairman of SHC, Mr Ng Shui-lai, will act as the convenor of the Housing Authority Monitoring Group on Disposal of Kingsford Terrace PSPS Flats. Other members are Mr Chan Kam-lam, Mr Wong Kwun and Mr Stephen Yip Moon-wah.

A spokesman for the Housing Authority (HA) said today (16 April) that the SHC had earlier decided to set up a monitoring group to oversee the disposal of the Kingsford Terrace PSPS flats.

According to the way forward endorsed by SHC, the Government would negotiate with the developer for a lease modification premium through mediation and settle the developer's claims flowing from the alleged failure of the HA to nominate purchasers.

"The main role of the group is to monitor the progress of the negotiations and report to SHC as necessary. Members will also advise on matters relating to the interest of the HA and the public during the negotiation and be consulted on any settlement proposals before approval will be sought from the Secretary for Housing, Planning and Lands. The setting up of the Monitoring Group will also increase the transparency in dealing with the disposal of the PSPS flats," the spokesman said.

As a fallback option, the HA would buy back the whole development if both parties fail to reach an agreement, the spokesman said, adding that the Monitoring Group would be asked to steer the negotiation with the developer on matters relating to the buy back plan.

The Government and the HA have been exploring on the feasibility of different options to dispose of the PSPS flats following the re-positioning of housing policy in November 2002. The Government is determined to withdraw from the market and introduced a series of initiatives to stabilize the property market. In line with the policy, the Government ceased the sale of subsidized sales flats.