The tender for the 90 per cent ownership of Merry Terrace in Mid-Levels has been withdrawn after offers submitted by the five bidders fell short of the owners' expectations.

It is now planned for re-tender in this quarter.

Sources said that the private owners were negotiating with Savills, an international property agent, about the details of re-tendering.

Property agents said the tender for the property this time would be worth between HK$3 billion and HK$3.5 billion, at least 12.5 per cent lower than the previous asking price of HK$4 billion.

The Merry Terrace owners appointed Jones Lang LaSalle to handle the tender early this year.

As the site has the potential to be developed into a large-scale luxury residential project, Merry Terrace attracted Henderson Land Development, Wheelock Properties, Nan Fung Development and an unnamed developer to submit bids in March. Swire Properties has also submitted an offering letter to the owners.

However, the offers submitted by the developers were lower than the owners' expectations of HK$4 billion, according to sources. "And all the offers were subject to different kinds of special conditions," one source said.

They included no height restrictions to be imposed by the government before the building approval for the redevelopment has been obtained.

Developers are worried that the government could impose restrictions on the site; it has put height limits on luxury districts such as the Peak and Kowloon Tong, according to property consultants.

Any height restriction will affect the profitability of the site.

Alex Ng, an executive director at Knight Frank, said: "Many developers are definitely interested in the site but they wouldn't offer aggressively for the site as they still need to acquire the remaining units as well as face potential development restrictions."

Merry Terrace at 4A-P Seymour Road was built in 1963. It comprises five 14-storey residential towers with 196 units and a saleable area of 202,944 square feet.

The 52,466 square foot site has been developed with a plot ratio of 3.9. However, the site could have a plot ratio of nine, based on town planning regulations and building ordinances. Merry Terrace could be redeveloped into a luxury residential project with a maximum gross floor area of 472,194 square feet.

Developers are aggressive in land acquisition in the area. Emperor International Holdings has acquired 90 per cent ownership of 9A-H Seymour Road and Ying Fai Mansion . A major developer has acquired part ownership of old buildings in Caine Road and Seymour Road for three redevelopment projects.

Charles Chan Chiu-kwok, the managing director of Savills Valuation and Professional Services, said developers were interested in sites in Seymour Road as they could gain extra floor area through redevelopment without paying land premium.

"No land premium is payable for redevelopment since government leases for most of the sites at Seymour Road have no restrictions on development plot ratio," Mr Chan said.

It is easier for developers to acquire old buildings in the area due to the widening gap between prices of existing flats and new projects. Prices of new properties in the area would be more than HK$10,000 per square foot while prices of old buildings ranged between HK$5,000 and HK$6,000 per square foot only, according to Mr Chan.