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Kenneth Ko

Sophia Wong

HONG KONG'S PROPERTY developers are in the dock over their sales tactics.

News that Sun Hung Kai Properties (SHKP) overstated the value of flats in its Park Island project by more than 25 per cent has focused attention on a sales process critics say lacks transparency and is beset by dubious marketing techniques.

They allege buyers are in danger of being misled and more needs to be done to regulate property sales and enhance consumer protection. The calls follow scenes of chaos, confusion and conflicting information at several recent sales.

This week, SHKP admitted it had overstated the value of 1,400 flats at its Ma Wan development by HK$700 per square foot.

It blamed a breakdown in internal communications.

Last Thursday, the developer, one of Hong Kong's biggest, claimed the flats were being offered at an average price of HK$3,300 per square foot.

However South China Morning Post  calculations, based on the price list released the following day, showed the actual average was about HK$2,600 per square foot.

Widespread scepticism greeted the developer's claim.

SHKP did not say when it discovered the error, nor why it had not taken the initiative to rectify the situation before Saturday's public sale.

Most buyers who turned up to the public sale would have found that their chosen flats were priced far below the HK$3,300 average, which had been widely reported in newspapers. As a result, they may have been misled into thinking they were getting a bargain.

During the course of the day SHKP sold about 1,800 flats in Park Island - an event which was described as the most successful residential sale since the 1997 property slump.

Insignia Brooke International consultant Nicholas Brooke said private residential sales lacked transparency in pricing and sales arrangements.

'Clearly there are a lot of marketing techniques which give buyers the impression there's a strong market, prices are moving upwards. Developers are trying to talk up the market prices being quoted.'

The HK$3,300 per square foot average quoted by SHKP created the appearance of strong demand and a buoyant market for Park Island, coming after the developer released the first batch of flats in the project at a rock-bottom HK$2,250 to HK$2,317 per square foot. Its initial pricing had sparked fears of a renewed price war. Property prices have been in a five-year slump since falling about 60 per cent in 1997-98.

'Buyers are in a confused situation in a sense. They don't know what they should know. For example, what are they actually paying for?' Mr Brooke asked.

Some developers were exaggerating the prices they achieved, the number of flats they sold and the preferential terms they provided.

'They're not playing the game properly,' he said.

SHKP now says the average price for the Park Island public sale was less than HK$3,000 per square foot and the overall average for the entire 2,569-unit project, including about 770 units sold earlier through internal sales, was HK$3,300 per square foot. The internal-sale units were said to have brought between HK$3,000 and HK$3,500 per square foot.

However, many market players including analysts, agents and other developers remain unconvinced.

One market player said he had calculated the average price for the 1,800 units sold through public sale was about HK$2,650 per square foot.

He also collected prices for about 400 units sold through internal sales. Based on this information, he put the average for the 2,200 units at about HK$2,750 per square foot. Others put the figure at about HK$2,800.

Prices for the 300 or so flats sold through internal sale are not available.

But analysts noted prices would need to have been significantly higher to bring the average for the entire project to HK$3,300 per square foot.

Troubles surrounding the sales and marketing of flats, especially unfinished ones, have been an issue for persistent debate and criticism for years.

Lack of transparency is especially evident in internal sales of unfinished flats. There is no legal requirement for developers to issue a price list for internal sales. They need only publish a price list for the first batch of units offered for public sale.

An executive with a developer said his company issued no price list for most of the flats it sold. When a buyer came to the sales office to inquire about a flat, he would be quoted a price for that particular unit.

As a result no one apart from the developer can know when and by how much prices change. And no buyer will know whether the flat he has bought is cheaper or more expensive than the one next door.

Given the weak market, developers have been offering initial batches at deep discounts to attract attention, and then selling through internal sales at higher prices.

Developers are allowed to sell 30 per cent of a project's units through internal sales without restrictions. Such sales have been used as tools to test the market prior to a public sale, which is subject to more restrictions.

Prices and other information are often withheld until just before an internal sale takes place, leaving buyers little time to make a decision.

Internal sales were originally designed for developers to sell flats privately to employees, friends and associates. Now, most go to the public.

Concerns have frequently been raised that internal sales have the potential to create a false market. Developers are under no obligation to disclose the prices achieved or the number of flats sold, and so buyers have only the developers' word.

On August 10, confusion erupted at the internal sale of Park Island when buyers crowded into the sales office but found they had no access to a full price list. The developer progressively released units in batches - some buyers had to rely on agents holding up placards listing the prices of selected units.

Two days later the chaos was repeated at the internal sale of the Cheung Kong (Holdings) Banyan Garden project at its Hunghom sales office.

Hundreds of potential buyers queued outside the office from afternoon to evening but Cheung Kong did not say when the sale would start, frustrating some.

A Cheung Kong executive later said about 100 units were sold at the internal sale. But a few days later, Cheung Kong executive director Justin Chiu Kwok-hung contradicted this, saying no internal sale had taken place and would-be buyers had only been allowed to visit show flats.

Hong Kong Institute of Real Estate Administration president John Hui Wing-to said developers should be given flexibility and recent sales had been quite orderly and existing practices did not need to be tightened.



Murky marketing attacked