This is a city where land is so scarce and so valuable that a parking space sold not so long ago for $500,000, where a two-bedroom apartment with a view of the murky waters of Hong Kong harbor can easily rent for $10,000 a month, where land developers often commit hundreds of millions of dollars to a real estate project with barely a shrug.
Which explains why the governent land auction in August was the stuff of history.
An auctioneer working for Hong Kong’s colonial government raised his gavel, seeking a bid of at least $4.5 million for a 26,000-square-foot lot zoned for factories, and was met by stony silence. No one bid.
And over the gasps of many in the packed auditorium in City Hall, the plot of land was withdrawn from sale, the first time this has happened here in more than a decade.
The great Hong Kong land boom-which has caused prices for residential land to nearly triple since 1990 and has left this city with some of the most expensive real estate on earth less than three years before Britain is to hand back its crown colony to China-appears to be over for now.
And no one is more pleased about the turn of events than the bureaucrats of the British-run colonial government, which has vowed to end frenzied real estate speculation in Hong Kong in the time left before China takes control on July 1, 1997.
“The result of this auction was in line with our intention to bring down prices,” said Raymond Wong, a spokesman for the Hong Kong government. “It is the wish of both the public and the government to see a moderation of land prices, and that is what is happening.”
The worst fear of some officials-and even some of Hong Kong’s billionaire developers-has been that a continuing, dramatic rise in prices would inevitably lead to a crash, a grave danger here since land companies make up nearly half the benchmark Hang Seng index on the Hong Kong stock market.
Since the government announced a package of changes in the spring meant to end runaway land speculation, property values in Hong Kong have dropped 10 to 30 percent, depending on location.
The changes include strict limitations on the sale and resale of unfinished apartments and a ban on the sale of unfinished homes more than nine months before completion.
Small speculators, who had made overnight fortunes by buying and quickly reselling apartments while they were still under construction, have largely been driven out of the market.
There was the threat of tougher measures-including rent controls, or so it was rumored-if the first round of new laws failed to bring down prices.
The price downturn came after three years of very sharp increases that brought land costs within striking distance of those in Tokyo, home to the world’s most expensive real estate, and made it virtually impossible for middle-income families here to buy a home.
To the surprise of outsiders, the question of 1997 barely enters into a discussion here of land prices, and worries about Hong Kong’s prospects under Beijing’s rule appear to have almost nothing to do with the recent drop in property values.
Land buyers seem remarkably sanguine over the future of this glittering bastion of capitalism, even as it prepares to come under the control of China’s communist government.
“It’s very clear,” said Michael G. Green, the director of Hong Kong research for the Nomura Research Institute. “that there are a huge number of people in Hong Kong, probably the silent majority, who are in the know and who continue to invest large amounts of money into property because they believe the risks are absolutely minuscule, no matter what the perceptions in the West.”
He said that as a result of the recent drop in property values, the era “of sudden spikes and sudden plummets” in values may be over. “I think we’ve entered a very healthy stage,” he said. “The threat of the crash is gone. And I don’t think there ever was a real threat.”
If anything, the Chinese government is doing what it can to inspire confidence in land values.
At last month’s auction, two other plots of land sold for the minimum bid-$123 million for a 164,700-square-foot parcel earmarked for luxury apartments, and $29 million for a 36,200-square-foot warehouse site-and both went to a company controlled by the Chinese government, Citic Pacific Ltd. (The plot withdrawn from sale was considered of only negligible quality because of its soft soil.)
After the auction, a local newspaper quoted the company’s chairman, Larry Yung Chi-kin, as saying that “property investment in Hong Kong is a major area that guarantees steady revenues”-just the sort of bullish appraisal of the Hong Kong land market that developers want to hear.
There is an important element of self-interest for China in keeping land prices high, since it will control huge pieces of undeveloped property in Hong Kong when it takes over in 1997.
The Chinese have encouraged the land boom of the 1990s by holding Britain to an agreement that allows the colonial government to auction off only 50 hectares of land-equivalent to 124 acres-each year.
Land has been at a premium almost since the day Britain acquired Hong Kong island in 1842. Most of the rest of the colony was acquired in 1898 under a 99-year lease.
Today, there are nearly 6 million people on 669 square miles of land, about one-third the area of Rhode Island, and some neighborhoods of the colony’s Kowloon peninsula are among the most densely populated places on earth.
The real estate markets have been surging ahead for most of the last 15 years as Hong Kong solidified its position as the financial hub of Southeast Asia and as the principal entryway to the booming markets of China.
The market did tumble in 1989 after the crackdown on democracy demonstrators in Tiananmen Square of Beijing sent jitters across the border. But it was not long before land prices here began charging up again, this time in an atmosphere of wild speculation never before seen.
