The developers, NWS Holdings and Sun Hung Kai Properties, issued a joint statement on Friday acknowledging that the decision to tear down the never-occupied project to make way for luxury flats had generated significant controversy and ``caused discord in the community''.

Facing a possible legislative inquiry into the matter and government insistence that the master layout plan for the project would still have to be followed after demolition, the developers said they would "explore unit renovation and reconfiguration'' of the almost 2500-units as an alternative.

The about face is almost unheard of in Hong Kong, where the private sector - and especially large developers - generally win any battle over property rights.

The idea that perfectly good buildings would simply be demolished in order to make way for luxury flats at a massive profit for developers, however, proved to be too much even for Hong Kong.

Democrat lawmaker Cheung Man-kwong called the decision a victory for the people. ``The developers have listened to the public and stopped committing a big mistake,'' he said.

Legislative Council housing panel chairman Cham Kam-lam welcomed the decision but said an investigation into the deal between the government and the developers would continue. ``The panel has just received documents from the government concerning the Hung Hom Peninsula. We will study the documents carefully to decide whether to convene a special meeting,'' he said.

NWS Holdings managing director Henry Cheng denied the government intervened in the decision. ``We have not encountered any pressure,'' he said.

``I hope that we can sell the building after renovation. The profit will drop a little bit, but we can sell the building after several months. It is possible and acceptable to keep the buildings and renovate them for sales.''

In their statement, the developers noted that the controversy, if allowed to fester, could undermine their position in the territory.

The companies said through a spokesman that they ``do not want to precipitate an assault on private property rights and freedom of contract, as this would impair the business environment in a free economy. The two developers place great emphasis on community harmony''.

The harbour-view flats were originally built under the government's abandoned Private Sector Participation Scheme, a programme intended to provide affordable housing for middle class residents. Fears by wealthy land owners and developers that the scheme would erode property values led the government to abandon subsidised housing altogether in 2002. Earlier this year the Hung Hom project was sold to NWS Holdings and Sun Hung Kai for a below-market land premium of HK$864 million.

If sold as is, it has been noted, the developers would have fetched a HK$1 billion profit.

But with the current rebound in the property market, real estate analysts say the value of the property has risen to HK$6 billion and a resale to the government now would earn developers a profit of at least HK$2 billion. Had the site been demolished and converted to luxury use, it is estimated the developers would have made about HK$6 billion.

The developers were careful on Friday to assert their legal right to do whatever they wanted with the property and they admitted no wrongdoing in the affair.

``The two developers have acted entirely within their legal and contractual rights at every stage of their dealings with Hung Hom Peninsula,'' a spokesman said. ``The decision to change the demolition plan was made after taking into account prevailing circumstances and listening to public opinion.

``We have tried to be understanding and balance all interests with this decision.''

The spokesman said the developers' priority as public companies was to make money for their shareholders.

Friday's decision to renovate and enhance without tearing the structures down, the statement said, ``could produce a profit in a shorter period of time and avoid taking an investment risk for three to four years''.

Secretary for Housing, Planning and Lands Michael Suen welcomed the developers' decision.

``I believe that members of the public will be delighted,'' he said.

``It is also in line with the original intent of the agreement reached between the government and the developer in the lease modification completed earlier in the year.'' But he noted that apart from delivering a written statement to the developers to oppose their plan, he had not approached either or brought any pressure to bear on them.

NWS Holdings corporate communication manager Kwan Chak-fai, conceded that the public response to the demolition plan had been far greater than was expected.

michael.ng@globalchina.com

teddy.ng@globalchina.com