Developers use tenders to their advantage as they seek to control falling property prices
- Builders are using tenders to avoid flooding the market with unsold property and openly reducing prices as market cools
The recent spike in the number of relatively cheap flats offered through tender is a clever strategy by builders as it helps them to achieve higher prices without harming the reputation of their project in the event of poor sales and also prevents them from openly cutting prices, say market observers.
Figures from the Sales of First-hand Residential Properties Authority show that the proportion of new homes put out for tender has risen to 15.6 per cent from 220 in September to 346 in October.
In late June, Chief Executive Carrie Lam Cheng Yuet-ngor announced a series of measures to bring more affordable housing to the market amid runaway property prices.
One of the measures requires developers to release at least 20 per cent of total units in each launch either through public sale or tender. Builders also have to release the price list at least three days ahead of the official sales launch.
But as the property market cools down, builders are reducing the impact of the regulation by offering most of their flats through tender, which also prevents them from flooding the market with unsold flats, said Lawrence Poon Wing-cheung, senior lecturer at City University of Hong Kong.
Poon said the tenders allow developers a lot of flexibility. “They can control how many units they want to sell, the price and the sentiment related to the sale whenever they want.”
Louis Chan, vice-chairman for Asia-Pacific and chief executive of residential sales at Centaline Property Agency, said buyers should be careful with tenders as the practice leaves a lot to be desired.
“It is not surprising for buyers to pay 20 per cent or more [than the indicative price].”
He added that it was difficult for brokers to advise their clients as they themselves were unaware of the prices expected by the developers.
But Poon said buyers could avoid paying higher prices by referring to prices of neighbouring new projects when submitting a tender.
Last week, Kowloon Development suspended the public sale of 112 flats at its One East Coast development in Yau Tong, east Kowloon. It instead put 134 flats, including the 112 flats, on tender from Saturday.
As of Sunday, only 17 flats were sold via tender, but they achieved high prices.
For instance, a 391 square feet, two-bedroom flat on the 20th floor was sold at HK$24,366 per sq ft, the highest in the project so far.
It was also 56 per cent higher than the HK$15,590 per sq ft, a 517 sq ft flat sold last week at the nearby Peninsula East.
Centaline’s Chan said the tender of One East Coast is unusual because flats priced under HK$10 million that are not in demand are rarely sold through tender.
Other developers including Sun Hung Kai Properties and Billion Development and Project Management have also been offering a high number of relatively cheap flats through tender at their Park Yoho Napoli and The Horizon projects respectively.
The Sales of First-hand Residential Properties Authority told the Post that the government has no intention to prohibit the sale of residential units by way of tender at this juncture, and that it would keep monitoring the situation.
Sun Hung Kai Properties said it had offered for tender some flats with special designs to accommodate the needs of different buyers, but denied that it was using tenders to avoid generating negative market signals.
Kowloon Development did not respond to emailed requests for comment.