#Update* Hong Kong land auction fetches US$1.3 bln, beats forecast

HONG KONG: Hong Kong on Wednesday July 28 auctioned a plot of land for HK$10.4 billion (US$1.3 billion) in its third-most expensive land sale, beating forecasts and adding to fears of a bubble in one of the world's hottest property markets.

Hong Kong's privately owned Nan Fung Group won the auction. The government, in its fourth auction this year, received an opening bid of HK$8 billion for the site at Mount Nicholson Road, in the Peak district, known for its luxury homes.

The deal was closely watched as prices at the auction are an indicator Chinese investors' appetite as they diversify their portfolios due to policy tightening at home. Analysts estimate that a fifth of buyers of Hong Kong's luxury apartments come from China.

"Foreign investments will certainly drive up the market," said Charles Chan, a managing director at Savills Valuation and Professional Services. "From the result of this land auction, we could see a 10 to 20 percent increase in luxury residential prices over the next two to three years."

The auction comes more than a month after the government sold a site in Kowloon for HK$10.9 billion, which was the second most expensive land auctioned by the government.

A Reuters poll of 10 analysts had expected the site, which they said offered a gross floor area of about 325,000 square feet (30,190 square metres), to sell for HK$9.89 billion. But the strong prices in may not be reflective of the entire market.

The property market faces overheating worries, with housing prices rising by 10 percent since the start of this year, after gaining about a third last year, driven by record-low interest rates and Asia leading in the global economic recovery.

The government has been trying to curb prices from rising too quickly by slapping a higher stamp duty on luxury apartments this year and pledging to increase supply.

It is also increasing its scrutiny on Hong Kong property developers such as Henderson Land Development, which was investigated by police after announced sales of several units at one of its luxury apartment developments ultimately failed to close..

Government land auctions earlier this year before the June sale of a Ho Man Tin site had met with lukewarm response, easing overheating fears then. But luxury residential prices have been holding firm so far due to brisk buying by rich Chinese.

While Wednesday's result was better than expected, it's still a far cry from the heady days of 1997, when a site was sold for HK$11.82 billion, the highest price ever paid at a government land auction in Hong Kong. -Reuters

A general view of the auctioned site of the former government staff quarters at Mt Nicholson Rd at The peak area in Hong Kong PHOTO by Reuters