One small step towards a fairer deal for homebuyers

PUBLISHED : Sunday, 12 October, 2008, 12:00am
UPDATED : Sunday, 12 October, 2008, 12:00am

For years, developers have been given a free hand to calculate creatively the gross and saleable floor areas of the homes they build. The government has always favoured self-regulation and market discipline.

The result has been a wide discrepancy between the floor area a buyer pays for and the liveable space available. A 20 per cent shrinkage is considered generous of a developer; 40 per cent may be unusual, but not unheard of. Most flat buyers are aware of this and simply accept paying more for less space. But there has long been a need for greater clarity, so that buyers have a better idea of what they are getting for their money.

A rule introduced by the Lands Department last week will improve the situation by tightening the definition of saleable area. But it is only a small step and there is room for more to be done.

Under the rule, the saleable area will include the internal area of a flat, and the balcony and utility platform if there are any. Another way to arrive at the saleable area is to subtract the flat's share of the common area, bay windows and plant rooms from the gross floor area. Developers will not be able to devise their own calculations. Those who fail to follow the new rule may be denied permission to pre-sell uncompleted flats.

A virtue of the new rule is that it will allow people to better compare like with like, as all developers must use the same approach. And it gives officials the power to punish those who stray from it. Hopefully, this power will be exercised when abuses occur.

But the new rule only goes part of the way towards tackling the problem. Doubts remain about how developers arrive at their calculations of internal area. The thickness of walls, for example, can have a bearing on this and are usually known only to the developer and contractor.

A bigger problem is that it is the gross floor area, not the saleable area, which is quoted when properties are bought and sold. And the leeway allowed to developers in the definition of gross floor area is still problematic.

This usually refers to a pro rata portion of common areas - which may include huge clubhouses, gyms, saunas, mail rooms, gardens, lobbies, machine and air-conditioning rooms, refuse collection points and, in one notorious case, a public transport depot across the street.

Flats will continue to be priced according to gross floor area because this creates the impression that they are bigger, and the price per square foot lower, than in fact they are. Far fairer would be to quote prices on the basis of saleable areas under the new rule, but this seems unlikely to happen. Buyers would be well advised to do their own calculations, and the new rule certainly helps in this respect. But establishing a clear definition of gross floor area would be a more significant move.

Such a move would be strongly opposed by most developers, since maximising the gross floor area is key to their ability to make healthy profits after paying land premiums to the government. This is how our system works.

Still, the new rule does provide buyers with a tool to help determine the real size of their prospective homes. Greater transparency by developers and careful inspection of flats by prospective purchasers may yet allow people to make more informed decisions about this important form of investment.