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The government's HK$14.12 billion windfall from Tuesday's land auction may not
immediately herald the spectre of a property bubble, but a continued shortfall
in the supply of residential units over the coming three years could embolden
developers with stronger pricing power, at least in the short-term.
"The government should sell more land to avoid a bubble,'' Morgan Stanley
analyst Kenny Tse said in a research report. "As Hong Kong is already facing
tight supply up to 2007, further restraint in near-term land sales could
potentially cause severe undersupply in two to three years' time, given that
land sold today will be completed only in 2008 at the earliest.''
Hong Kong developers typically commence sales of their residential properties 20
months ahead of completion while sites usually take three to four years to
develop.
At present, the annual supply of units is below 20,000, insufficient to meet the
historical demand, which exceeds this number, Nomura International (Hong Kong)
analyst Nicole Wong said.
A consequence of this undersupply will probably be the acceleration of property
tenders from the two rail operators with projects along the West Rail likely to
start in 2005, she added.
"In early 2005, the existing inventory will be able to offset some of the
demand. But, from the second half of 2005 to early 2006, a short supply squeeze
will mean that developers' pricing power is stronger,'' Wong said.
So far, Cheung Kong (Holdings), which won the bidding war for the Ho Man Tin
site, is asking buyers of its One Beacon Hill luxury development to pay about 4
per cent more than previously. Sun Hung Kai Properties also said it would not
rule out raising prices at its development projects after it beat off stiff
competition to buy the other site in San Po Kong.
Eric Chow, general manager of Sun Hung Kai's property agency unit, said he
expects the number of transactions to jump 20-30 per cent in the fourth quarter
versus the second and third quarters.
According to BOC International (BOCI) Research, Cheung Kong has a development
land bank of 7.3 million square feet and 14.7 million square feet of farmland.
Sun Hung Kai's land bank is 13.2 million square feet with another 21 million
square feet of farmland. Stripping out this year's land auctions, their
respective development land banks are 5.2 million square feet and 12 million
square feet, BOCI said.
As it is expected that developers will want to rebuild and hold on to their land
banks as well as delay new launches in anticipation of higher prices, there
have been growing calls for the government to lower the reserve price for sites
to boost land sales.
However, Secretary for Housing, Planning and Lands Michael Suen would not be
drawn into a debate over the addition of more sites in the application list
next year, saying only the government will closely monitor the market
situation. "The land sale results reflect developers' expectations of the
property market,'' Suen said. "You can't simply say that the government is
adopting some [high land price] policy.''
Regal Hotels International executive director Donald Fan said one suggestion was
for the government to announce the application list on a three-year basis
instead of annually.
"The move can provide a clearer picture to developers,'' Fan said.
Nicholas Brooke, a former vice-chairman of the Town Planning Board, also
recommends that the application list could be expanded to allow developers to
trigger the sale of a site at any price instead of a guaranteed reserve price
if the "market is sufficiently robust''.
dennis.eng@globalchina.com
eli.lau@globalchina.com
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