Study on the Sale and Purchase of First-hand Private Residential
Properties in Hong Kong - The Rights of Consumers to Reliable
Property Market Information (Executive Summary) (July 26, 2010)
PDF version
Introduction
1. The Consumer Council (the Council)
has observed disquiet regarding the provision of information to
consumers in the first-hand private residential property market.
Accordingly, the Council conducted this study on the general
availability and reliability of property market information, and
the practices that have been employed by market players regarding
the release of information to prospective purchasers in respect of
particular developments.
2. In general, prospective
purchasers want to know two things. First, what the market
conditions are, particularly in the context of whether it is a good
time to buy. Second, whether a particular property suits their
needs. On both of these, they want assurance that the information
they receive is reliable. In other words, it is truthful, timely
and complete.
3. The Council welcomes initiatives
launched by the Government over the past two years to enhance the
transparency and clarity of property information on uncompleted
first-hand private residential properties. In particular, the
latest nine new measures work towards information transparency and
fair deals and have achieved initial impact. To build on the
existing safeguards, the Council has made in this report
suggestions to further enhance information transparency in the
first-hand residential property market to better protect the
interests of prospective purchasers of private residential
properties.
Study Methodology and
Findings
4. For the study, the Council
conducted general research and undertook a series of field visits
of developers' sales offices to examine how information was
disseminated to prospective purchasers of first-hand private
residential properties. Field visits were conducted by Council
staff between 12 April and 27 June 2010, involving 19 private
residential development projects. The Council's findings as set out
in section 2 are based on field visits of the 19 development
projects during the said period.
5. The development projects
comprised both completed and uncompleted first-hand private
residential properties, covering various stages of sales, i.e. at
first sales, and at sales that had been launched for a relatively
long period of time. This study was not directed at residential
units in the second-hand market or commercial or industrial
buildings.
6. In the study, the Council also
considered the Government's enhancement measures for flat sales,
implemented through the Lands Department's Consent Scheme and the
Real Estate Developers Association of Hong Kong's (REDA) Guidelines
on Sale of Uncompleted Residential Properties (issued on 1 June
2010), concerning the provision of information in the first-hand
private residential property market.
7. Notwithstanding the enhancement
measures, the Council considers that further improvements can be
made to build on the existing measures to protect the interests of
prospective purchasers of first-hand private residential
properties.
8. In this study, the Council has
explored:
- the general availability of property
market information that prospective purchasers may have at their
disposal and the accuracy and reliability of such information to
enable them to better understand the market and make informed
decisions;
- the practices that have been employed by
developers and sales agents regarding the release of information to
prospective purchasers on particular developments; and
- whether appropriate information is readily
available and accurate.
9. The Council's findings can be
summarised as follows:
Absence of comprehensive source of
information
10. Prospective purchasers do not
have an easily accessible source of information that provides an
accurate and complete picture on the market as a whole, in terms of
the number of flats for sale or sold, and their sale prices, in
order to assist them in making a decision as to when to enter the
market. While relevant information may be obtained from a number of
diverse sources, the average consumer would not have the necessary
skills, or the time, to adequately process all the available
information.
Information varies in
reliability
11. It is common that media reports
on announcements by developers, promotional materials, and comments
by sales agents will selectively cast favourable light on
particular developments. It is difficult for prospective purchasers
to gauge how much credibility can be given to the information, and
the extent to which it resembles the truth. Prospective purchasers
need to be sure that there are safeguards in place to discourage
persons from engaging in misleading and/or deceptive
conduct.
Sale by small
batches
12. It appears to be common practice
for developers to release units in small batches to test the
market, and to subsequently raise prices after getting a favourable
initial market response. The consequential disadvantages to
prospective purchasers are a reduction in choices and increasing
property prices. The Government's latest enhancement measures
require developers to include in the first price list for each
batch of sale increased number of units to be covered in the first
price list, from the minimum of 20 units (or 20% of the total
number of units put up for sale) to a minimum of 30 units (or 30%
of the total number of units put up for sale ) for small-scale
development, and a minimum of 50 units (or 50% of the total number
of units put up for sale) for large-scale development, which may
help alleviate the problem of lack of choice to a certain
extent.
High pressure sales
tactics
13. Some sales agents play on the
natural anxiety of prospective purchasers and attempt to induce
them into making hurried purchase decisions. For example, by
promising that favourable treatment will be given if a deposit or
any other consideration is given immediately and concocting
information that is suggestive of future rising prices and scarcity
of supply. Moreover, the tactics are carried out in an environment,
for example, through one-way flow control arrangement, that
increases anxiety levels and makes it difficult if not impossible
for prospective purchasers to undertake a thorough and useful
inspection of a property. These might lead prospective purchasers
into making hurried decisions to buy properties that ultimately
prove to be unwise and even damaging to their interests.
Recommendations
14. To address the above concerns,
the Council has proposed the following recommendations:
Clear guidelines regarding
pre-launch activities of first-hand properties
Recommendation 1:
Developers and sales agents should refrain from releasing
unofficial "intentional prices" or using any other imprecise terms
relating to the potential price of flats to be offered for sale,
and from taking a deposit or any other consideration, before an
official launch of flat sales.
15. At present, it is difficult for
prospective purchasers to verify whether developers or sales agents
have released false information for the purpose of creating the
impression of a robust market and thereby talking up property
prices and sales. When this conduct is combined with offers by
sales agents to accept a deposit or similar consideration, it
compounds the anxiety among prospective purchasers to move quickly
on a purchase. This only exacerbates the potential for artificially
inflated prices, and may lead to unwise purchases. The Council
considers that prohibitions should be introduced to limit this sort
of possibly speculative information dissemination by developers and
sales agents. (Paragraphs 3.2 to 3.6 of the study report
refer)
16. The Council accepts that there
may be practical difficulty in effectively preventing such price
information from being circulated in the market, as it is almost
impossible to verify whether it is the developers, market analysts
or reporters who are responsible for the release of those prices.
However, the Council is of the view that it is important for the
Government to send a clear message of its disapproval of releasing
confusing and possibly misleading pricing signals to the
market.
Recommendation 2: If
"private sales" are to be allowed, they should be properly defined,
and an upper limit on the percentage of units available for
"private sale" should be reinstated.
17. Sale for most of the development
projects under study was promoted as "private sale" but the units
concerned were found to be open for sale to the general public. In
these circumstances, a question arises as to whether describing
sale of units as "private sale" when they are in fact generally
available is a deceptive ploy. The Council recommends that the
Government make it clear whether "private sales" are allowed to
exist, and if so reinstate an upper limit on the percentage of
units available for "private sale", for example, 5%. Conditions
should also be imposed on how information is disseminated to the
public regarding this type of sales. (Paragraph 2.9 Part A
refers)
Removing impediments to viewing of
show flats
Recommendation 3: Measures
should be introduced to ensure prospective purchasers have
sufficient time for viewing of show flats, i.e. to discourage the
setting of conditions or restrictions for prospective purchasers,
such as imposing onerous registration and appointment procedures,
and imposing obstructive one-way flow control arrangements for the
viewing of show flats.
18. The Council's past experience
and current field visits (before the Government's introduction of
the new enhancement measures) found that the procedures by which a
few sales offices guided the activities of prospective purchasers
when viewing show flats created an environment that was not
conducive to making careful and considered purchase
decisions.
19. Such procedures raise anxiety
levels on the part of prospective purchasers and can also prevent
competition from operating effectively in the market, since
purchase decisions are swayed more by questionable sales tactics
rather than close inspections of potentially suitable properties
and correct assessment and comparison of different properties on
offer in the market. The Council considers that measures need to be
introduced to ensure prospective purchasers have sufficient time
for inspecting show flats, to enable them to undertake
comprehensive inspections. (Paragraphs 3.7 to 3.12
refer)
Controls over unreliable and
deceptive representations
Recommendation 4: Sales
agents should refrain from distributing unauthorized materials
(i.e. their own materials) to prospective purchasers at sales
offices, unless there is an accompanying statement quoting the date
and the source of the information.
20. The Council's field visits and
complaints indicated that some sales agents played on the natural
anxiety of prospective purchasers, and attempted to induce them
into making hurried purchase decisions by speculating on matters
such as future rising property prices and scarcity of supply. In
some cases, to establish their point, sales agents supplied
handouts they prepared, in addition to the sales brochures and
price lists. (Paragraphs 3.35 to 3.38 refer)
21. The existence of this sort of
unofficial information, particularly in the context of high
pressure sales chatter, simply adds to the anxiety and confusion
that can arise in making a purchase decision. The Council therefore
recommends that the distribution of unofficial materials by sales
agents should be prohibited, or at the very least that any
information not officially produced by the developer should, apart
from having the consent of the developer, include a qualification
that the information is not official, and that the material
prepared should clearly indicate the basis upon which the
information relies.
Provision of timely and useful
transaction information
Recommendation 5: An
online "Property Market Information Platform" (PMIP) should be
established to enable the general public to obtain, through an
independent and authoritative source, comprehensive property market
information regarding first-hand private residential properties in
Hong Kong.
22. In its 1996 report "How
Competitive is the Private Residential Property Market?", the
Council recommended, amongst other proposals, that the Government
should facilitate consumer access to reliable property information
by allowing public access to a centralized housing property
database that provides information on the property market and
housing development data.
23. The Council reiterates its
previous recommendation of improving the flow of property
information by setting up a centralized property information
platform for public use to provide accurate, up-to-date and
authoritative information about the property market.
24. The Council strongly believes
that an online "Property Market Information Platform" (PMIP) should
be established to enable the general public to obtain, through a
'one-stop' service comprehensive property information, and such a
platform will also enable the Government to monitor transactions in
the first-hand private residential property market in Hong Kong. To
ensure that the PMIP commands credibility and recognition, the
Council considers that it should be set up and managed by an
authoritative and independent body, for example, the
Government.
25. The proposed PMIP should pull
together existing data of developers on an individual development
project basis, and relevant information provided by various
government departments. The PMIP should provide prospective
purchasers with a timely benchmark of current transaction prices
and unit availability concerning residential development projects,
and there should be the requirement that information be posted on
the platform within 24 hours (real time in the long run) after the
signing of a Preliminary Agreement for Sale and Purchase (PASP), as
well as after the signing of the formal Agreement for Sale and
Purchase (ASP).
26. Similar systems exist in other
jurisdictions with the same market characteristics as Hong Kong.
(Paragraphs 4.3 to 4.21 refer)
27. The Council understands that the
establishment of the proposed PMIP requires immense manpower and
capital resources, and professional know-how to collect, verify and
update information. There is also the issue of legal liability on
the accuracy of the information. But the benefits of such a
platform to various parties as well as to the economy as a whole
should not be brushed aside. It will be particularly instrumental
in view of great public concern regarding recent incidents of
cancellation of alleged sales, and also the drop in Hong Kong's
real estate transparency ranking (according to a recent global real
estate market study).
Provision of sales brochures and price
lists
Recommendation 6: Sales
brochures and price lists should be made available at sales offices
for distribution to prospective purchasers at the time of sale
(i.e. throughout the entire sale period) and should be made
available before the viewing of show flats.
28. The Council observed that at a
few developments (before the introduction of the new enhancement
measures), either sales brochures or price lists were made
available to prospective purchasers. Some of these cases were sales
that had been launched for some period of time. In such cases,
prospective purchasers had to rely on supplementary information
provided by sales agents. Where sales brochures and price lists
were available, they were not easily accessible or were placed on
the sales desks at the very late stage before prospective
purchasers left the sales offices. As a result, prospective
purchasers did not have the opportunity to bring sales brochures
along with them for cross references when viewing the show
flats.
29. Current rules only require sales
brochures and price lists to be made available prior to the
commencement of sale and they only apply to the sale of uncompleted
residential properties. As this is a requirement beneficial to
prospective purchasers, the Council considers that it should be
extended to cover completed residential properties as well.
Moreover, the sales brochures and price lists, for both uncompleted
and completed residential properties, should be made available to
prospective purchasers at the sales office before the viewing of
show flats. This would facilitate the process of making informed
decisions and would also assist either those who do not have access
to computers and printers to be able to download relevant
information from developers' websites, or those who do not know how
to use them. It would also enable prospective purchasers to make
comparisons with the information that is presented on a developer's
website or generally in the show flats. (Paragraphs 3.26 to 3.34
refer)
Recommendation 7: The time
gap (currently up to 5 days) between the sale of a flat and the
release of the transaction record on developers' websites and the
proposed PMIP should be shortened.
30. Timely information is often
critical for making a wise purchase decision, especially where
pressure is being placed by sales agents to commit to a deal. The
Council therefore recommends that developers be required to post
property related information (including price lists, the number of
units available for sale and transaction information) on the PMIP
once the information is made available to the market (i.e. to post
after signing of a PASP or ASP). This is in addition to providing
the information on developers' websites and displaying it at the
sales offices.
31. This would enable the public to
more quickly ascertain whether developers have actually sold their
properties for the price they claimed to be selling at, and to have
accurate property information (e.g. the units available and the
offer price) to assist in their purchase decisions. (Paragraphs
3.39 to 3.43 refer)
32. For certainty of information, it
would be useful to have reference to transaction information which
is set out in ASPs instead of PASPs. Moreover, taking into account
the need to make timely information available to prospective
purchasers to facilitate their purchase decision, the Council
considers that requiring developers to post information about
transaction cancellation on the PMIP may help address the concern
about inflated sales or inaccurate transaction information
resulting from uncompleted transactions. Taking Beijing as an
example, Beijing's Real Estate Transaction Network has in place
some measures such as issue of public notices on violations by
developers in respect of reporting false sales through repeatedly
posting and withdrawing offers from the transaction network, and
providing sales performance data that do not match the sales
records on the city's information network.
Complete information on price and
units for sale
Recommendation 8: A
facility for prospective purchasers to examine the PMIP be provided
at the time of sale.
33. Presently, prospective
purchasers rely on information in sales brochures and price lists,
and material supplied by sales agents whose primary concern is to
procure a sale. The problem of the making of misleading claims on
pricing and availability of units, future performance and so on can
be contained, and the anxiety caused by lack of verifiable
information can be alleviated, if prospective purchasers are able
to check on a range of related matters at the time of
sale.
34. The proposed PMIP is aimed at
providing an extensive source of information. The Council therefore
recommends that the PMIP must be provided in real time at the sales
office where a prospective purchaser pays a deposit or enters into
an agreement. Having this facility on site and readily accessible
will enable prospective purchasers to consider a range of relevant
information, thereby assisting them to make an informed choice.
This would strengthen prospective purchasers' confidence in the
accuracy of information upon which their purchase decision is
based.
Strengthen the existing complaints
handling mechanism
Recommendation 9: An
element of neutrality should be introduced in REDA's preliminary
complaints screening process.
35. Prospective purchasers need the
assurance that there are safeguards in place to properly handle
complaints, for example regarding misleading information in the
sale of private residential properties. The Council recommends that
measures be undertaken now to provide some safeguards for consumers
by way of strengthening the existing industry measures that address
misleading and deceptive conduct in the real estate
sector.
36. Currently only developers and
their staff or agents are involved in examining whether complaints
made to REDA should be followed up. The Council considers that the
absence of a neutral element in REDA's preliminary decision making
process should be addressed. The Council recommends that the
essential element of neutrality, which can be found in the process
of REDA's Compliance Committee, should also apply to the
preliminary examination of complaints, since both processes are
equally important in the delivery of satisfactory outcomes, and
both should observe the principle of neutrality.
Conclusion
37. At present, prospective
purchasers of first-hand residential properties face an asymmetry
of information when compared to developers and sales agents.
Accordingly, they are not likely to be in a position to get clear,
accurate and comprehensive information before making their purchase
decisions, although such information would be conducive to making
wise purchase decisions.
38. The Council considers the above
recommendations to be both pertinent and proportionate in
protecting consumers who are buying what is likely to be the single
most expensive purchase in their life. In addition, given the
importance that information has in a competitive marketplace, the
measures proposed should also be of benefit to the real estate
sector as a whole.
