HONG KONG: Yesterday's meeting between government executives and Hong Kong real estate developers was set against a backdrop of extant policy and recent developments.

Among them, the government-introduced land auction mechanism of 2002, which required a developer to agree to pay 80 percent of a site's base price before it could be put up for auction. In yesterday's meeting, developers urged the government to lower the auction bidding prices.

Prices of luxury homes have gained 41 percent on average since the fourth quarter of last year, driven by low mortgage rates, limited supply and money flowing from the mainland, property consultant CB Richard Ellis said in a statement.

Sun Hung Kai Properties Ltd's 'The Arch' luxury residential tower. Bloomberg News

Data at Hong Kong's largest property agent Centaline Property Agency show that flat prices have risen 27.55 percent so far this year.

Walter Kwok, non-executive director of Sun Hung Kai Properties, said after the meeting that, given Hong Kong homebuyers' current affordability, housing prices are "not very high."

The meeting came after Hong Kong's monetary authorities last week tightened mortgage criteria for home buyers and property investors.

The Hong Kong Monetary Authority (HKMA) issued a circular to banks telling them to reduce the amount they lend to buyers of luxury homes from 70 percent to 60 percent of a property's value for homes priced at or above HK$20 million.

For those priced below HK$20 million, the 70 percent loan-to-value ratio will be maintained for loans less than the maximum allowable loan amount, which will be capped at HK$12 million.

In an ostensible market correction on perhaps both the loan demand and supply sides, soaring housing prices depressed property transactions last month with new mortgage loans approved in September dropping 2.5 percent from August, according to figures from HKMA.

New loans approved in September totaled HK$33.3 billion, compared with HK$34.2 billion in the previous month, the data showed.

Property stocks noticeably weakened yesterday ahead of the widely publicized meeting between developers and officials, in a day when Hong Kong's benchmark Hang Seng stock index fell 1.9 percent to close at 22,169 points, the steepest one-day decline in three weeks. The market was concerned that the city's tightening of downpayment requirements for luxury homes will damp demand, and that the government may announce new measures in the meeting.

Possibly reflecting these sentiments, developer shares fell yesterday. Henderson Land, controlled by billionaire Lee Shau-kee, slid 4.3 percent to HK$52.90. Sino Land, this year's best performer on the Hang Seng Property Index, fell 5.4 percent to HK$15.52. Sun Hung Kai Properties Ltd, Hong Kong's No 1 property developer by market value, dropped 3.4 percent to HK$118.20. Cheung Kong (Holdings) Ltd, the second biggest, slipped 3 percent to HK$102.30.

The Hang Seng Property Index's 3.6 percent decline was the sharpest among the four industry groups in the Hang Seng .

(HK Edition 10/28/2009 page4)