The government yesterday kicked off a two-month consultation period on the new law, which it hopes to introduce to the Legislative Council in the first quarter of next year.
“There are consumer protections in other areas, and there should be similar protections on selling properties,” Eva Cheng, the secretary for transport and housing, said as she called for improved transparency, as she unveiled the proposed law. “It has to be done, and there is never a better time.”
Cheng said the current slump in property prices in Hong Kong did not affect the government's motivation to put new rules in place. A steering committee has been working on the rule changes over the past year. The new law would govern all first-hand projects, whether completed or sold off-plan.
The maximum penalty for misleading the public would be a fine of HK$5mil and seven years in prison. Minor breaches would be punished by a fine of around HK$100,000.
Under the proposed rules, developers would have to make a sales brochure on each property available at least seven days before sales begin. The brochure would list the property's address and the neighbourhood it is in. The brochure would also have to provide the saleable area of the property, and would not be allowed to contain artist's impressions of the development.
Residential property in Hong Kong has traditionally been priced and promoted based on gross floor area, not the net area. But consumers have complained about misleading practices from developers, who often include an apportionment of public areas such as lift lobbies, electricity plants and clubhouses in the gross floor area of a flat.
Cheng admitted that current legislation on new-home sales was insufficient.
“We agree the current measures are not sufficient,” she said, adding that the new rules were a top priority for her bureau in the coming year.
“The public is rightly concerned about the sale of first-hand properties,” Cheng said.
The saleable area is the floor area of the residential property itself, including any verandah or utility platform, but excluding bay windows and public parts of a development.
Developers would also be required to provide a price list for the development at least three calendar days before it goes on sale. With the government cracking down on property speculation in Hong Kong, transactions have stalled and prices weakened.
Edward Farrelly, the director of research for Hong Kong, Macau and Taiwan at brokerage CBRE, expects residential prices to fall 20% over the next year.
The new rules would have an impact, he said. “I think there's a lot of good in getting more transparency into the market,” he said. “It remains to be seen how the secondary market responds.”
New home prices would likely rise as a result of developers building extra costs into their baseline price, Farrelly said. But they may not be able to push through that kind of increase in the current market.
“Developers will try to resist a major hit on their margin,” Farrelly said. “However, if the market is faced with a downturn, they may have to accept lower margins.”
Andrew Lawrence, the Hong Kong property analyst at Barclays Capital, has forecast a decline of 25% to 30% in Hong Kong property prices, assuming the former British colony pulls off a soft landing. The drop would rise to 35% to 45% in case of a hard landing, Lawrence predicts.
His favorite pick in the sector is Cheung Kong, run by Hong Kong tycoon Li Ka-shing, since the company has been deleveraging its balance sheet over the past 24 months.
That should allow it to buy assets at the bottom of the cycle, Lawrence said. Cheung Kong is Hong Kong's second largest developer by market capitalisation, behind Sun Hung Kai Properties.
By contrast, Sun Hung Kai, the world's second biggest developer by market capitalisation, was relatively highly geared, Lawrence said. It and Henderson Land had the potential to need to issue fresh equity in the future, he said.
By Reuters
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