Strong secondary sales all about choices for homebuyers

PUBLISHED : Thursday, 19 July, 2007, 12:00am
UPDATED : Thursday, 19 July, 2007, 12:00am

Vice-chairman of the [Real Estate Developers' Association's] executive committee Stewart Leung said a new law would lead to further chaos.

'We have already plugged the loopholes and increased transparency,' he said. 'If things are working, why do you want legislation? If there are developers not following the rules, you can sue them.'

SCMP, July 18

Secondary sales monitored in 50 key housing estates in Hong Kong jumped 40 per cent last week to 463 units - the highest weekly level in the past 21/2 years.

The strong showing surprised the market since July is not a peak period for property sales.

SCMP, Property, July 18

The attitude in the first excerpt leads to the surprise of the second, in fact no surprise at all. Homebuyers no longer have to accept the arrogance of developers. They have alternatives.

Look a little more closely at some of the things Mr Leung says here, starting with his assertion that further chaos would result from any new law setting out standards for sales descriptions of flats in new offerings by developers.

I can't imagine what sort of chaos this would be but, if he accepts that chaos already exists, you have to ask why he objects so strenuously to the adoption of a measure aimed at resolving chaos.

He objects, of course, because Reda has tried to forestall the adoption of any legislation on standards by publishing its own guidelines on sales descriptions - 'plugged the loopholes and increased transparency', as he puts it.

The problem, however, is that Reda is not a professional body like the Law Society or the Medical Council, both of which can discipline members. Reda has no disciplinary powers and developers don't need to be members of Reda. Its guidelines are therefore toothless, particularly so because chaos in sales descriptions suits most Reda members just fine.

Thus, despite Mr Leung's assertion that 'things are working', the actual state of affairs is that you never know quite what you are being sold when you buy a new flat in this town.

Does the floor area include a share of the floor area of the lift lobby, the lift lobby's walls, the ground floor lift lobby, the clubhouse, the podium facilities? What is the difference between gross floor area, saleable floor area and marketable floor area? You will find all three terms in sales brochures.

The problem is that there are no binding definitions for developers and that's why many people want legislation. They believe that Reda's guidelines have done nothing more, and were never intended to do more, than delay legislation that was written and ready for enactment 10 years ago.

It is particularly disingenuous of Mr Leung in this context to say 'if there are developers not following the rules, you can sue them.'

Sue under what law, Sir? If this were the stock market, there would indeed be such a law, books full of such laws in fact, and the Securities and Futures Commission would be falling over itself to nab the culprits and punish them with heavy lawyers' bills, which is the SFC's favourite way of stinging people.

But this is the property market. You can't sue. There are no standards.

What happens is that you buy a new flat off the plans because that is the way you have to buy new flats. You don't see the flat itself. You can only see the sales brochure. You have to trust the developer.

And then you take delivery of the flat and find it is a lot smaller than you thought it was and the ceiling a lot lower. You protest and the developer laughs at you and says: 'Your tough luck. You should have known what we meant by marketable floor area. You didn't? Oh, that's too bad. Tough luck.'

There is a way out of this conundrum, however. In the early 1980s, you mostly had to take what the developers offered because the alternative was a pre-war building made with salt sand in the concrete, or a corrugated asbestos squatter hut.

But the private housing stock, including home ownership scheme flats, out of restriction has more than doubled since that time. Your alternative now is to purchase a flat in the secondary market built perhaps 10 or 20 years ago. It is modern, structurally sound, in good condition, and you have your choice of locations.

In fact, the figures say that 80 per cent of all residential property sales transactions are now transactions in the secondary rather than the primary market. I don't know what the percentage figure was in the mid-1980s, as I have no data going back that far, but it would be a great deal lower.

And it is exactly what people like Mr Leung must expect if Reda continues to be obstreperous in this matter of binding standards in sales descriptions.

You never know what you will get in the primary market except that you will probably be disappointed. You thus go to the secondary market where you can see what you buy.

Why should it be surprising that secondary sales are strong?