Why selling a property by tender in Hong Kong can be more profitable
Understanding how the process works can help you avoid any potential pitfalls
Chris Hui is director of agency (development and investment) at A.G. Wilkinson & Associates, a surveying firm. He talks about how to sell a property by tender.
Why should a landlord sell by tender?
A developer or a big landlord may want to sell a building in its entirety, or a house, by way of tender. There may be many reasons for doing so. It may be because there are no comparables on the market, meaning vendors are at an advantage when it comes to negotiations. Potential buyers may make offers higher than expected, while the vendor has more control over the time frame. Developers are inclined to also sell their completed single-family houses by tender, because they don’t have to follow new home-sales rules, such as uploading price lists in advance. For property owners of a building, especially those that are decades old and require constant maintenance and repairs, they probably would like to sell the [whole] building – if it has redevelopment potential – by tender through a collective sale arrangement. Landlords holding at least 80 per cent of the building ownership, or the so-called undivided shares as set out in the Deed of Mutual Covenant (DMC), must agree on a collective sale with the signing of a joint sales agreement before starting the tendering process.
How does a sale by tender work?
A tender is like an auction, carried out in a confidential manner within a given period. When selling a property, or portfolio by tender, the appointed agent will first make an announcement through advertising, news release and other marketing channels to draw attention. Particulars, such as gross floor area, saleable floor area, site area, plot ratio, building conditions, permitted land uses, redevelopment potential [if any], as well as the tender closing date, will be made public. Interested parties can request an inspection before submitting a written tender. If there is market interest, the vendor will likely receive tenders and have to consider the sealed offers within a specific period. The whole process may take two to three months if the vendor is the single owner, including marketing, negotiation, tender submission, tender review and acceptance of an offer. If it is a collective sale, it could take a few months and longer for most or all building owners to agree on the base prices and terms and conditions to be stipulated in the joint sales agreement. After the closing date, the vendor and agent will go through all submitted tenders. With the agent’s advice, it is up to the seller to choose the winning bid based on the price and terms and conditions offered. If it is a collective sale, the decision should be based on the base price agreed upon previously. However, buyers could make a conditional offer, such as different payment terms, request the removal of unauthorised building works, [among others]. These terms and conditions are included by the seller’s solicitor in an official tender document. If the seller does not accept any submitted tender, he or she can instruct the agent to negotiate with the bidders again to see if any of them would be willing to offer a higher price or change their conditions, or choose not to proceed.
What are the advantages of selling by tender?
Because there is no asking price and all bids are kept fully confidential, potential buyers cannot base their offer on what others are willing to pay. It increases the chance of getting a higher bid. The vendor has total control over the process. The vendor has no obligation to accept the highest tender. Also, the agent could make good use of the marketing campaign to generate as much interest as possible. Some sellers, such as developers, may use the tendering process to gauge, or to “test”, the true market value of their assets.
What are the disadvantages of selling by tender?
In arranging a collective sale tender, getting consent among most landlords and have them agree on a base price can be a long and drawn-out process. Because an intense marketing campaign is needed, the seller is required to bear the marketing costs or advertising fees as well. Legal fees will also be charged by the solicitor handling the drafting and signing of the joint sales arrangement. And unlike listing your home through estate agents, you can only appoint one property consultant or agent to carry out a tender process to make it cost effective.