Home buyers 'better protected from dishonest practices' but issues remain, experts say

A year after the new rule to regulate the sale of first-hand properties came into effect, home buyers are better shielded from dishonest sales practices and developers have already adapted by rushing to offload their projects, say property consultants.

But they said now is the time for the authorities to revisit the ordinance and clarify unclear issues in the law.

"The new rule for sure has given buyers more protection," said Thomas Lam, the head of research and consultancy for Greater China at Knight Frank.

The Residential Properties (First-hand Sales) Ordinance, which went into effect on April 29, 2013, set out detailed requirements in seven main areas such as sale brochures, price lists, show flats and the disclosure of transaction information.

Under the rule, the practice of using "gross floor area" - including each flat's share of the common areas of a building - was banned when advertising flats in new developments. Developers' brochures for new residential projects had to specify the size of flats in terms of "saleable area", which is the usable space within the flat.

It brought to an end the questionable practice of using gross floor area, under which each flat in a development would be allocated, pro rata, a portion of common areas, including everything from lift lobbies and clubhouses to electricity meter rooms and rubbish collection areas, according to property consultants.

Developers have adjusted to the new rule.

According to property agent Hong Kong Property Services (Agency), the number of new units sold in May last year was about 135 but the number rose to 2,000 units in December last year and developers continued to sell well in the first four months of this year.

Among the major developers, New World Development sold 2,712 units during the period from April 1, 2013 to April 28 this year. It was followed by Sun Hung Kai Properties, which sold 1,993 units, according to international property consultant JLL.

Sino Land sold 1,304 units and Henderson Land sold 898 units.

"But there are still many unclear issues in the ordinance," said Lam, who urged the government to issue an updated version of the ordinance.

Charles Chan Chiu-kwok, managing director at Savills Valuation and Professional Services, echoed this view and cited an example.

"The rule is strict, but developers' marketing strategies are flexible. Developers are required to release price lists and discount offers three days before the start of sales, according to the new ordinance.

"But the ordinance does not ask developers to list the commission rate to agents who help brokerage deals. It also does not restrict third parties such as agents giving buyers commission rebates," Chan said.

Chan said a friend received a commission from a developer of 25 per cent against the normal 10 per cent, and was then required to share the commission with buyers. This practice served to prevent the true market value of the properties from being accurately reflected.

Joseph Tsang, managing director JLL's Hong Kong office, said another rule concerns developers of old buildings who may want to dispose of the remaining unsold units.

Under the regulation, all details are required to be listed as provided in the approved building plans. But Tsang said the building's layout may have been changed over the years. It was difficult to rectify the original building plan and he suggested the government allowing landlords to sell existing buildings as is.

Building and real estate professor Eddie Hui Chi-man said the ordinance had helped tip the information balance towards consumers.

"Malpractice cases such as insider deals which will distort the market are now less likely following the introduction of stricter disclosure requirements," the Polytechnic University professor said.

But he added there were “some views” in the industry that the rules such as those on sales arrangements and sales brochures were too rigid and caused difficulties.

Hui said that while it was essential that sales brochures contained detailed information to protect the interests of potential home buyers, updating and printing a big volume containing hundreds of pages especially, in some cases, for a few unsold units, was not cost-effective.

The cost was likely to be passed on to the buyers, he said.

He said electronic sales brochures were more cost-effective and easily accessible but they were still not very popular in Hong Kong.

The academic said he did not think it was necessary to revamp the entire enforcement mechanism at this stage as the present system had given home-buyers more accurate information and helped "alleviate information asymmetry [that had been] in favour of property developers".

The Consumer Council said it was was concerned whether the information was easily accessible to potential buyers, readily comprehensible to them and really useful.