Hong Kong agents feed illusion of demand to bolster property sales
With 5,000 new properties changing hands every month, that leaves about seven real estate agents chasing after every single transaction in Hong Kong. To survive the competition, the game plan is to create the illusion of demand to persuade fence-sitting buyers to close the deal
Last weekend, three apartment projects opened for sale across Hong Kong, with a total of 1,000 units on offer.
The sale, the first since the Hong Kong Monetary Authority raised the key lending rate, garnered huge interest, with up to 23 buyers on average expressing interest for every unit available.
As a result of the enthusiastic interest received, Sun Hung Kai Properties’ Cullinan West apartments at Nam Cheong MTR Station and Wheelock Properties’ Monterey project at Tseung Kwan O sold out.
It was enough to prompt Financial Secretary Paul Chan Mo-po to write a blog post to remind buyers that changing market conditions could “open up all kinds of risks”.
Are Hong Kong’s property buyers truly unperturbed by rising interest rates, of which there may be nine through the end of 2019?
Not quite. The number of registrations of interest creates the illusion of demand, and by so doing draws fence-sitting property buyers into the circle.
Here is how it works. SHKP requires customers to deposit HK$200,000 to reserve the right to buy a Cullinan West unit. Wheelock requires HK$100,000 for Monterey, as does Cheung Kong Property Holdings for its Seanorama apartments at Ma On Shan. The reservations go into a ballot where the selected buyer gets the chance to pick their preferred units and conclude their purchases.
Developers usually appoint agents not only to market and sell new projects, but also conduct the registration process for prospective buyers as well as arrange refunds for customers who fail to be selected in the ballots.
On the weekend of March 15 and 16, South China Morning Post journalists put down a total of HK$300,000 with Midland Realty to go into the ballot for Cullinan West and with Hong Kong Property Services for consideration at Monterey.
Instead of getting two tickets, the journalists received four. The remaining two were loans extended automatically by sales agents.
“It’s a kind of necessary service to provide a manager’s cheque to clients since banks are closed on Saturdays and Sundays, which happen to be the peak time for registrations,” said Richard Lee, chief executive of Hong Kong Property Services, adding that his agency had set aside “several hundred million dollars” of funds to help potential buyers participate in the balloting process. “We definitely ask our customers to pay with credit card and they later give us their manager’s cheques.”
Hong Kong’s Estate Agents Authority has strict rules prohibiting the city’s 37,000 agents from providing any form of short-term loans or interest-free financial assistance to potential buyers during the registration process. The rules are aimed at preventing the artificial inflation of demand.
With about 5,000 newly listed properties changing hands every month, competition for commissions is intense in Hong Kong, leaving seven agents to chase after every single transaction on average.
The 1,000 apartment units on sale last weekend were valued at HK$10 billion together. With 977 of them sold, agents stood to earn about HK$200 million in fees, assuming a 2 per cent commission for every successful transaction.
The only way to get ahead of the game is to create demand, or at least the illusion of demand.
“A strong registration can propel the market sentiment and indirectly drum up buying interest,” said Pang Shiu-kee, managing director of SK Pang Surveyors. “Buyers get the impression that they will miss out on the opportunity if they pass up this time.”
One local family of three buyers walked away with 11 apartment units between them at Cullinan West for a total shopping bill of HK$230.4 million over the weekend.
“The family submitted about 20 cheques under different individual names to maximise their chances of being picked by the ballot to get their preferred apartments,” said Ken Ng, a senior Midland sales manager at the Taikoo Shing branch, which brokered the transactions.
Based on SHKP’s required HK$200,000 deposit, the family put down HK$4 million, finally buying seven four-bedroom apartments and four single-bedroom units between them, Ng said.
Wheelock had a good weekend, selling every one of the 480 apartment units at Monterey for a total haul of HK$4.18 billion over two days. The developer did so well that it even raised its average price on Saturday by 4 per cent from a day earlier and planned more sales in future.
“I seldom hear about such a crazy response to new apartment sales anywhere in the world,” Pang said.
The Estate Agents Authority conducts random checks on sales events to enforce its regulation and hands out penalties if it receives complaints from customers, according to a spokeswoman. Penalties range from reprimands and fines to suspension of agents’ licences in extreme cases.
The authority received 12 complaints last year of agents that offered loans to bolster sales registration numbers, up from nine cases in 2015. Seven of the nine complaints received in 2015 were substantiated and a range of sanctions were meted out. All of the dozen complaints received last year were still being investigated while no complaints had yet been received this year, the spokeswoman said.
Sammy Po Siu-ming, chief executive at Midland’s residential department, said the agency had issued guidelines to its frontline salespeople, reminding them to comply with the authority’s regulations.
“We request customers to pay deposits either through credit cards or banker’s cheques,” Po said. “Paying for registration for prospective buyers is a breach of the authority’s regulations.”
Still, Midland had set up a HK$2 billion credit line to help any impulse buyer who needed assistance during the registration process, he said.
“Some buyers may not bring their cheque books wherever they go,” he said. “They may be interested after viewing a show flat. This way, customers only need to pay us a deposit with their credit cards. We will then issue them a banker’s cheque for them to join the ballot.”
Midland issued HK$1.3 billion worth of cheques for nearly 8,000 prospective buyers last weekend, he said.