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Hong Kong housing

Call for action on Hong Kong property developers’ opaque sales and stockpiling tactics

Experts say sellers push up prices by putting properties on the market without an asking price, letting bidders make offers with no knowledge of other bids

PUBLISHED : Friday, 02 March, 2018, 9:05am
UPDATED : Friday, 02 March, 2018, 3:30pm

The government needs to stop property developers using opaque sales tactics and stockpiling flats to push up prices amid skyrocketing housing costs in space-starved Hong Kong, experts said on Thursday.

The strategies, raised by Financial Secretary Paul Chan Mo-po after his budget speech on Wednesday, have been blamed in part for the city’s housing crisis.

Chan said the government would need to manage the property market in a “holistic” way, in the face of criticism for launching few initiatives to ease the housing shortage. He said the hoarding strategy was “undesirable”.

In 2013 the government founded the Sales of First-hand Residential Properties Authority to regulate developers’ sales tactics, but critics say it has done little.

Lee Wing-tat, chairman of policy think tank Land Watch, said the authority needed to take action to stop flats being offered to the highest bidder in tendering processes. Under that arrangement, sellers put small numbers of flats on the market, without an asking price, and let bidders make their offers without any knowledge of other bids.

Lee said the opaque bidding process is problematic because it leaves “room for manipulation” to push up property prices. He said developers commonly work with agents, offering them big commissions to sell flats for a certain price, and that the process “creates a market distortion”.

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“Property agents can just tell the buyers that the flat is worth such-and-such a price, and that the value is bound to increase in a number of years. But buyers have no way of knowing if this is true,” he said.

Getting an inflated price for the places sold that way – often the penthouse or duplex – means developers can set higher prices for flats in the rest of the development, which will be sold on the open market.

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Lee said the authority was “too passive” in investigating such cases. “The authority has the power to create a code of practice or a subsidiary regulation to say that all sales and purchases of flats need to have an open price list,” he said.

Both Lee and former lawmaker Tony Tse Wai-chuen said the highest-bidder approach was getting more prevalent.

In the past few months, some flats sold for record prices through tender sale, including the luxury development Victoria Harbour, built by Sun Hung Kai Properties in North Point. Last November, a 1,173 sq ft unit on the building’s 10th floor sold for HK$68.73 million (US$8.8 million), or HK$58,590 per square foot.

Parts of the ultra-exclusive Mount Nicholson – built on The Peak by Wheelock and Co and Nan Fung Development, and boasting Asia’s three most expensive homes by floor area – were also sold this way.

Lee and Tse agreed there were ways to stop property developers hoarding flats, referring to the companies’ tactic of holding on to flats after getting presale consent from the Lands Department, and releasing them when prices goes up.

Currently, Hong Kong property developers can sell flats 30 months before a project’s completion after getting presale consent. They do not need to put the flats up for sale within a certain time period. The consent only requires that developers put up for sale 20 per cent of the flats in their first batch.

Lee said there were cases where the last batch of sales came five years after the first.

“The government could set a condition in the presale consent that they at least have to put a number of flats up for sale within the first half of the year,” Lee said. “This then can at least reduce the possibility and phenomenon of property developers hoarding flats.”

He said a common strategy is to only put a small portion up for sale, so projects become oversubscribed and developers can use that popularity to push prices up further.

The authority said it would continue to monitor the sales practices of developers. 

The scarcity of affordable housing is one of Hong Kong’s most pressing economic issues, and one which Chief Executive Carrie Lam Cheng Yuet-ngor has vowed to address. The city is, according to many studies, the most expensive housing market in the world, and the waiting list for public housing is nearly five years long.

Additional reporting by Sandy Li and Jeffie Lam