'Apply sale rules to all homes'

Many Hong Kong homebuyers are not getting what they think they are paying for, but a new law to come into effect next year may force developers to become more transparent about the true size of the new flats they put up for sale.

However, that will leave secondary market sales open to continued misinformation about the actual usable area of flats, say critics, who believe the provisions of the new law should be extended to such sales as well.

Leland Sun, managing director of Hong Kong-based mortgage financier Pan Asian Mortgage, believes the new law will promote greater transparency, but urged the government to extend its provisions to the secondary home market, as well as to the sale of commercial, retail, and industrial properties.

A recent case that has attracted controversy in the market is Crown by the Sea, a new development by Cheung Kong in Tuen Mun, in which a flat offered last year by the developer as having a gross floor area of 1,514 square feet had an internal usable floor area of just 1,078 square feet - 71 per cent of the gross floor area stated on the company's price list.

The gross floor area included 310 square feet of common areas allocated to the flat (according to the project's price list this includes lift lobbies, lift shafts, electricity-meter rooms, refuse rooms, and a pro rata allocation of clubhouse areas); and an 80 sq ft bay window space. But a buyer would have to search through small print of the marketing brochure to calculate the flat's actual usable floor area.

Despite their reputation as being savvy buyers, Hong Kong homebuyers seldom examine the fine print or do the calculations to work out what is the real price per square foot of usable space in an flat.

As a result, the so-called efficiency rates of Hong Kong apartments have declined steadily, from about 90 per cent in the 1980s to about 70 per cent today.

In the case of the Crown by the Sea apartment, the buyer paid HK$12.82 million - or a price that was offered by the developer during the launch of the project as being HK$8,470 per square foot, based on the gross floor area of the apartment. However, if the price were calculated based on the actual usable floor area of the flat, it would be HK$11,409 per square foot.

Hong Kong buyers are therefore losing out compared with buyers in markets where sales are based on net usable floor areas, property brokers say.

'New flats offered for sale in Britain, the US and Australia are based on net saleable areas,' said a spokesman for international property consultancy Knight Frank

'Buyers pay for the actual area of the flat only, and that will be measured from wall to wall,'

'In the UK, the area occupied by a bay window will not be included in the price calculation.'

The floor plans for Crown by the Sea stirred up a debate on the social networking websites Sina Weibo and Facebook as well as Cable TV's Property Outlook programme, which pointed out that the apartment concerned included a maid's room marketed as being 27 sq ft in size - though half of that space was taken up by a bay window.

Tsim Chai-nam, a property market veteran of some 19 years, was quoted by Cable TV as saying that he had seen hundreds of old and new flats but had never encountered a room of such a design nor one so small.

Li Ka-shing, chairman of Cheung Kong, last week said the floor plan was public information.

'A Rolls Royce is different from a small car,' he said. 'Products with different features are offered at different prices. It is legitimate as long as there is no cheating.' Victor Li Tzar-kuoi, deputy chairman of Cheung Kong, added that buyers of flats at Crown by the Sea paid for 'net areas' which were stated in sales-and-purchase agreements, and said the 'bay window' cited in the example came free of charge.

But neither of the answers addressed the complaint from critics that the advertised price per square foot was calculated on the gross floor area of the apartment.

Surveyor Lawrence Poon Wing-cheung said marketing of this nature would be outlawed next year when a law to regulate the sale of new flats takes effect. 'From next year developers must use 'saleable area' as the basis for quoting property sizes and prices,' he said.

Such a 'saleable area' will be defined in the Residential Properties (First-hand sales) Ordinance as the floor area of the flat that is measured from the exterior of the enclosing walls of the property and including the area of the internal partitions and columns within the flat.

The provision will also include balconies, utility platforms and verandahs.

Excluded from this definition are all the so-called 'common areas' that are presently included in calculations of gross floor areas by developers.

'This will greatly enhance transparency and avoid the many misrepresentations we are seeing in the sale of new flats,' said Poon, who was one of the 13 members of a steering committee that worked on the bill last year.

The law will also regulate the contents of sales brochures, price lists, show flats and sales arrangements and will provide for penalties including a maximum punishment of seven years' jail and a HK$5 million fine for developers - everyone from company directors to secretaries - who provide false or misleading information to buyers.

Poon said an enforcement unit would be set up to investigate suspected breaches of the law.

'Anyone can report an offence to the enforcement unit if they know of any buyer who has been mislead while buying a home,' he said.

Leland Sun, of Pan Asian Mortgage, who advocates applying the rule to secondary-market sales too, said: 'The new rules will hopefully discourage developers from resorting to creative sales techniques, but only time will tell what new and innovative marketing tactics will be deployed.'

Data on secondary market properties was available through the Ratings and Valuation Department, said Sun, and since property rates were assessed on 'saleable, net, or actual' square footage, that data could be used to enforce a similar sales provisions in the secondary market.

'This is important, as most property transactions are conducted in the secondary market and many homes bought new will eventually be resold,' he said.

$53b

Developers were involved in sales worth this month of properties in the first half of 2012 to raise cash ahead of government land sales