CONCRETE ANALYSIS
Concrete Analysis
by

Hong Kong homebuyers need balance between transparency and simplicity

Developers and buyers have become used to new sales practices but some aspects, like sales brochures, still need to be improved

PUBLISHED : Wednesday, 27 May, 2015, 2:20am
UPDATED : Wednesday, 27 May, 2015, 2:20am

The Sales of First-hand Residential Properties Authority last month launched new measures and suggestions to further enhance the transparency of new home sales. But is this what potential buyers really need?

One of the suggestions is to have developers arrange the balloting session and the flat selection session on two separate days. The authority believes this would allow potential buyers to have at least one more night to think over their flat selection.

As required by the ordinance, developers have to provide sales brochures and price lists, and information of sales arrangements, at least seven days and three days before a sales day, respectively. This was aimed at ensuring home seekers have enough time to collect all necessary information for a purchase decision.

However, based on our experience, home seekers already have ideas about flat selection before they register to buy a flat. The suggestion is unnecessary and will impose extra restrictions on developers and make the sales process even more complicated, after the improvements of the past two years.

JLL research shows that average monthly new home sales dropped from 1,100 flats to only 600 in the first six months after the Residential Properties (First-hand Sales) Ordinance took effect on April 29, 2013. But they have since rebounded to an average of 1,500 flats. This shows that developers and buyers have got used to the new sales practices. So far, more than 180 residential projects with over 29,000 flats have been released for sale.

It is true that buyers are better protected under the ordinance. For example, sales brochures now offer more information about projects, and the ordinance has more rigid restrictions on show flats. Some of the rules, however, have not benefited home seekers.

Sales brochures are one of the problems areas. Under the ordinance, developers basically have to update the sales brochure for any remaining flats for sale every three months, even if there is only one flat left. It involves lots of resources and is time-consuming, thereby increasing their marketing costs.

Small to medium-sized developers would suffer the most because they have already borne a higher investment cost. This measure would dampen their profit margins and make it even more difficult for them to compete with the big guns.

Leasing is another issue. Landlords also need to comply with the ordinance if they plan to sell these leasing properties. The flats would be treated as first-hand properties even if they have been leased for a long time. We have a client who developed a small low-density residential project many years ago and kept two flats for rent and his own use. When the client planned to sell one of the remaining flats, he had to prepare everything, including a sales brochure and a website. The owner had to hire architects, lawyers, surveyors and consultants for the preparation, which cost more than HK$1 million. Is it necessary to request the owners or developers to prepare a sales brochure in this case?

And it can be challenging to prepare a sales brochure in some cases. If a property was completed many years ago, it is difficult for the owner to get the detailed information and floor plan. The preparation work involved is much more complicated than one can imagine. Such complex rules have dampened the interest of owners or developers to sell their flats and this affects new housing supply.

Another rule that needs to be improved is the requirement that hard copies of the sales brochures be available 24 hours a day. Is this necessary when an online version is already available on the website? Because of the complicated requirements under the ordinance, developers have to provide extra details of a new project and its neighbourhood. Hence, it is common to see brochures amounting to hundreds of pages. For some large developments, developers could print up to 30,000 copies, while more than 25,000 copies could be left unused. We should review the requirements on sales brochures and offer environment and buyer-friendly brochures.

Moreover, sales brochures involve many technical terms and outline zoning plans, and the floor plans are more complicated than before. The content is not easy for ordinary people to understand. It is good for home-seekers to get more information about the project to avoid misunderstanding. However, the government also has the responsibility to educate people in how to understand such information.

The ordinance has been in effect for two years and has increased transparency in new home sales. The next step for the authority should be a review on how to make home seekers understand a project's key information and how to encourage people to get the information themselves instead of asking developers to put every detail in the sales brochure.

Henry Mok is regional director of Hong Kong Capital Markets at JLL

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