Hong Kong developers vow to sell 20 per cent of housing estate flats on the open market, yielding to criticism of unfair tender process

The industry body for Hong Kong’s property developers said its members would from now on ensure that 20 per cent of flats in a new project are sold on the open market, as the government warned it could take action against those that sell through tender.

Lawmakers have slammed developers for the increasingly widespread and “unfair” practice of selling new flats through tender, a marketing tactic they claim puts the buyer at a disadvantage. And they were quick to criticise Thursday’s decision by the Real Estate Developers Association (REDA) for not going far enough.

According to government figures, use of the tender process, in which homes are sold to the highest bidder, has doubled recently as the city’s builders try to push up prices amid a slumping market.

The practice has raised concerns among senior government officials and regulators, who have urged developers to use the more transparent method of selling on the open market.

“Think how much a buyer has saved for his whole life to buy a property, only to find himself in an unfair transaction environment, not fully informed and not even knowing the price,” said Andrew Wan Siu-kin, deputy chairman of the Legislative Council’s housing panel.

On Thursday REDA said its members – about 90 per cent of Hong Kong’s builders – had now agreed to sell a fifth of new units in each batch of a “non-luxury” projects on the open market. The industry body had called a meeting to discuss the issue after saying the spike in small flats being sold through tender was “not what we want to see.”

The decision that emerged from the meeting was immediately criticised by lawmakers, because it would still leave developers free to sell the remaining 80 per cent of a project through tender.

“Earlier this week, REDA warned members not to do too many tender sales. One would have thought they were trying to get things right. Now it turns out they are only pretentious,” said Wan.

He said he would urge the housing minister to ban the sale of small flats through tender, describing the practice as “unscrupulous”.

Ahead of REDA’s meeting, Secretary for Transport and Housing Frank Chan Fan said the government would be closely monitoring industry sales practices.

“The government noticed a recent increase in the number of developers offering new flats through tender. The sales practices of some individual developers are dissatisfactory. We would not rule out the possibility of taking appropriate action to ensure transparency in the sales of new flats,” warned Chan.

“The consensus was reached after collecting views from 20 member companies. We will ensure the sales are being conducted in high transparency.”

Terms of the tender would also be published on the developer’s website to increase transparency, said Leung.

Regulations require developers to release a price list at least three days before the official sale date to allow prospective buyers to study the details of the project and assess the fairness of the prices.

However, the rule does not apply to units sold through tender, which simply go to the highest bidder.

An estimated 30 per cent of 5,500 new flats were sold through tender in the first quarter of this year, according to data from the Sales of First-hand Residential Properties Authority.

The figure compares to 14 per cent of 3,280 new flats sold through tender in the final quarter of 2018, according to market watchers.

Sales by tender, which were previously only used for large units in prestigious locations, have been extended to more downmarket areas and to smaller and smaller flats.

A case in point was Billion Development, which offered 577 units out of a total of 667 at The Horizon in Tai Po through tender sale, according to a document from the Transport and Housing Department. The developer did not put any units, with size starting from 468 square feet, on the open market.

Sun Hung Kai Properties released 70 per cent of the 449 units in Phase IIB at its Park Vista development in Yuen Long for sale through tender. The development has 712 units, with sizes starting from 232 square feet.

On Wednesday the Sales of First-hand Residential Properties Authority, which regulates the sector, sent a letter to REDA asking for further information on tender sales of cheap flats.

The Consumer Council said consumer rights should be protected if flat sales through tender continue to rise.