Direct Property Group - the reply

"Last Monday’s blog pondered the activities of a business group called Direct Property Group, which advertises overseas property, but declines interviews because they wish to keep their business model secret. This prompted several reader comments, both on the blog and via email. So I repeated my offer of an interview to managing director Steve Lovell, but he still refused.

He opted to have his say without addressing my questions - to whit, he sent me a statement. He threw down the gauntlet for me to publish it, complete with an unsubtle threat.

Never mind his reticence, in order to be scrupulously fair, because he thinks my blog “was written with a clear element of “journalistic flair”, and, according to him, was not as well researched as it could have been, I will reply in detail to his missive. “I would like to put the record straight, so far as the insinuations in your blog (and those created by your readers responses) are concerned,” he said. Fair enough, here you go.

Not that interesting
“The following facts should dispel any notions of “intrigue” about us. We really are not that interesting,” he says. He states that because they are not estate agents, they don’t need to register under the Estate Agents Ordinance in Hong Kong. I think I covered that point in the blog. “We only  actually sell overseas property that we ourselves own, or have secured the right to buy. If the law required us to have a license, we would have one, he says. Like their competitors, they don’t mention precise addresses of listed properties on their websites. “Interested persons can contact us for more details which is standard practice, he states.

Only Hong Kong buyers
He only sells to Hong Kong buyers, not to UK, European and US-based people, because “logically, European and US based persons would have their own real estate contacts in their own country and have no need to come to Hong Kong.” He is “creating property opportunities for people based in Hong Kong and the region, in foreign property markets which our clients may not have ordinarily seen or have easy access to.”
 

Registered business name
Lovell states that “the Direct Property Group name is a business name that is duly registered with the Business Registration Office, Hong Kong, pursuant to the Business Registration Ordinance. However, when you search for the company registration of Direct Property Group, it is confusing. A search discloses three British Virgin Islands incorporated offshore companies, trading in Hong Kong under the registered business name of Direct Property Group.
 

Upmarket office address
Now as to the office address. Lovell boasts that his premises are at the “highly prestigious Three Pacific Place, one of the most expensive office premises on Hong Kong island.” He says his neighbours in the building include Sotheby’s Real Estate, Jones Lang LaSalle, Societe General, Bank of New York Mellon, Tencent Holdings and other major corporations.

He scoffs at the notion that it’s a “short term office in Wanchai” as suggested by reader CBRE, whom Lovell says he believes to be a competitor of his. Well I’m not a competitor and when I strolled by I found Lovell’s outfit to be operating out of a business centre at Level 3 in Pacific
Place 3. It’s definitely a business /executive centre. I could find no listing for Direct Property Group on the directory for that floor of the building.

Sale and purchase documents 
I’m interested in what company name Direct Property Group puts on their sale and purchase documents. And to what company buyers pay the money. A client tells me that when you sign on the line with them, they use a BVI company. But, interestingly, when it comes to receipt of the client’s funds, Lovell uses a Hong Kong registered company with almost the same name as the BVI one, the only difference being to add “{HK}.”
 

No more Uncle Sam
Lovell says that having bought and sold over 800 properties in the United States, the company has withdrawn from that market as property prices have risen too much, which is why there are now no USA listings on the website. In London, he claims to have sold over 200 properties, and says that many customers are repeat purchasers.
 

Business model
But it’s the business model Lovell guards most closely. He says: “As mentioned by Lain (colleague Lain Brand), we either own or have already committed to buy the properties that we sell. If they are not sold by us to our customers, then we become/remain the owners of them and remain so until we sell them. In fact, I have just returned from a sourcing trip for this purpose. So far as I am aware, no other property business in Hong Kong has made such a financial commitment for their offerings. That is our uniqueness but it is far from intriguing.”
 

The client version
I beg to differ. A bit more research with a former Direct Property Group client suggests that the company’s model does not target to buy and resell, not exactly. It seems they buy “Subject To Contract,” then negotiate a long completion time with the vendor. They include a term that stipulates buyers cannot be gazumped. I understand their aim is then to reassign that conditional sale to someone else, at a higher price, before their original completion date.

Once you've signed the contract to buy this property (that they don't actually own yet), then they take your money and pay the original seller. Then, I assume, they take their profit.

Two clients have given me similar versions of this process. Again, I wonder where this transaction takes place, from a tax and legal perspective? “Operating lawfully is obviously very important, and that is what we do,” states Lovell. For the record, I have not, and do not, say that what he is doing is illegal.
 

Unsavoury tone
Then, Lovell states what an upstanding chap he is, having lived here for over 17 years, being a Permanent Resident, and considering Hong Kong his home. He feels the “underlying tone of my blog is slightly less than savoury.” Then comes the threat. “The insinuations made in your blog are potentially very damaging and you may wish to be careful about making such allegations,” he says.

He tells me either to post his response (or the spirit of its content) in my blog, to put the record straight, or to take my blog (and the associated reader comments) down, so that “the negative insinuations are removed from the public arena.” Well, here it is.
 

Thanks but no thanks
“|In the meantime, if you see a property you like and have genuine interest, please let us know as we would be happy to assist you.” Glad he has a sense of humour, but forgive me if I pass on that offer. “Otherwise,” he concludes, “we do not wish to be contacted again about your blog or a bigger property industry story.”

anna.fenton@scmp.com