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1. $10b land sale boosts property prices

2. Tamar's fate raises fear of glut

1. $10b land sale boosts property prices
FOSTER WONG and ERNEST KONG, SCMP 28 September 2005

Property prices look set to boom following the better-than-expected results of yesterday's land auction.

Hours after the government reaped $10.15 billion for three residential sites, two developers announced plans to increase prices at their new estates.

The sales also breathed immediate life into the second-hand market, as owners of nearby flats raised their asking prices by more than 10 per cent.

Henderson Land general manager Tony Tse Wai-chuen said last night the company would raise prices at all its new developments, but he did not reveal by how much.

A Wharf spokesman said prices at its Bellagio project in Sham Tseng would be lifted by at least 5 to 8 per cent.

The price rises come after developers shrugged off rising interest rates to mount an intense bidding war at the government's first land auction for the financial year.

With up to eight developers bidding, prices surged as much as 70 per cent from the opening bids and exceeded market expectations of $8.4 billion to $10 billion.

Developers and analysts said the prices paid for the land - two adjacent sites on the West Kowloon reclamation and one at Ngau Chi Wan in East Kowloon - showed confidence Hong Kong's property market would continue to grow.

The government said it was happy with the result but dismissed fears of a new property bubble.

Analysts said flats on the sites, which all sold at an accommodation value of just under $5,500 per square foot, should fetch around $8,000 per sq ft.

But a Sino Land-led joint venture, which grabbed the two West Kowloon sites, said it planned a luxury development that would sell for $15,000 per sq ft. The consortium paid a total of $5.92 billion for the two sites - about 64 per cent above the opening bids.

Sun Hung Kai Properties, the city's biggest developer, paid $4.23 billion for the Ngau Chi Wan site - nearly 70 per cent above the opening bid, beating seven other bidders.

Despite exceeding analysts' estimates, Sino Land chairman Robert Ng Chee-siong described the prices paid as very reasonable.

"It's a reflection of the confident outlook of the local property market," he said after the auction.

The Sino-led consortium knocked out at least six other parties to buy a site at Hoi Ting Road near Olympic Station in Tai Kok Tsui for $3.19 billion, and $2.73 billion for an adjacent site at the junction of Hoi Wang Road and Hoi Ting Road.

The prices were both well above top-end market estimates of $2.8 billion and $2.4 billion respectively.

Mr Ng said the consortium would combine the two sites and spend $9 billion to $10 billion to build a luxury residential and retail development to be completed in 2008. He expected the project to be priced at about $15,000 per sq ft - in line with other luxury developments at Kowloon Station.

Sino Land owns 50 per cent of the venture, with the rest equally shared by Chinese Estates Holdings and Nan Fung Development.

UBS property analyst Franklin Lam Fan-keung said the hefty transaction prices would create "a pretty big technical hurdle" for other land auctions.

"If the government uses the land prices [as a benchmark] to decide the minimum bid for the land auction next time, those prices may be way too high," he said.

Assistant director of lands Alexander Paton said the prices "reflected what the developers think the market is going to achieve in the future. I don't think we are in any stages of a bubble at all".

Sunny So Hok-lun, of Ricacorp Properties, said turnover in the secondary market had dropped 50 per cent in August as owners waited for the auction results, but many had immediately raised their asking prices by more than 10 per cent.

2. Tamar's fate raises fear of glut
ERNEST KONG, SCMP 28 September 2005

The controversial Tamar site is once again the focus of animated debate. Experts are worried that a glut of office space will be created should the 4.2-hectare site be turned over for commercial development and a new office skyscraper be built.

Last month, when Chief Executive Donald Tsang Yam-kuen refloated the plan - officially announced in 2002 but shelved a year later - to build government headquarters on the harbour-front land, there was immediate opposition from political parties and the business community.

Developers are urging the government to turn over the property, one of the last pieces of prime land in Central, for private development.

Ronnie Chan Chi-chung, chairman of Hang Lung Properties, said zoning Tamar for commercial development would link up the business and financial districts of Central and Admiralty, while the Democratic Alliance for Betterment and Progress of Hong Kong (DAB) sees the government benefiting from selling the Admiralty site for private development.

Swire Properties, the biggest landlord in Admiralty, refused to comment on what impact the site might have on its property portfolio.

Property consultants said the site, on the Admiralty promenade, had the potential to generate more than 2 million square feet of office space, roughly the same volume Two IFC generated when it was completed in 2003.

Putting Tamar up for private development could mean an embarrassment of riches in grade-A office supply in 2008 to 2009. The market had a similar experience in 2003, when a sudden jump in office supply at Two IFC forced landlords in Central to undercut each other on rents.

At one point in early 2003, Two IFC rents reportedly plunged to less than $20 per sq ft per month. The rate is now more than $70 per sq ft.

Should the government turn Tamar over for commercial use, the site's roll-out time would be crucial to the market, said Colliers International (Hong Kong) senior associate director Wendy Lau.

"From 2005 through 2007, we are looking at a market where the supply is tight but the take-up rate is strong," she said. "But looking beyond that, new development on Tamar could create a lot of competitive pressure from upcoming projects in the pipeline."

AIG Tower represents the most recent new grade-A office supply in Central, and more than 95 per cent of its 360,000 sq ft of space has been leased out already.

Only 119,000 sq ft of new office supply will be available next year, from Hongkong Land's Landmark East Tower.

Foreseeable new office supply in Central will be in the redevelopment of Central market, which could offer about 700,000 sq ft of space. It is expected to be completed between 2009 and 2010.

Colliers International research director Simon Lo Wing-fai said the commercial development of Tamar now would mean a clash with massive new office supply in Island East and West Kowloon in 2008 and 2009, by the time the project was completed.

Two years from now there could be as much as 4 million sq ft or more of grade-A office supply in Central and other districts. The annual take-up rate last year was about 2 million sq ft, compared with 1.4 million sq ft in 2000, during the dotcom bubble.

Mr Lo said Swire Properties was expected to complete its Westland Road commercial project in Island East in 2008. This could provide 1.4 million sq ft of office space, while the first phase of Sun Hung Kai Properties' huge office project in Union square, Kowloon Station, could see about 720,000 sq ft of office space in 2008.

The second phase of the project, to be completed in 2009, could generate 1.3 million sq ft of office space.

"Some may say that new office space in Quarry Bay and West Kowloon is not the same as new office space in Central. But new office buildings in non-core areas are absorbing demand for office expansion and accommodating the back-up offices of many banks," Mr Lo said.

Simon Wong Sau-chuen, an associate director at CB Richard Ellis, believed the government would move very cautiously if it was to release the site for commercial use.

He pointed out that the government had already changed its mind several times, just before it was to offer the site for sale.