Housing prices in Hong Kong have risen by 138 percent over the past decade, more than anywhere else in Asia, according to the international online residential property consultancy Global Property Guide. Against the backdrop of skyrocketing housing prices and stagnating salaries, the antipathy among Hong Kongers for property developers is increasing and becoming the focus of deep-seated social conflict.
Income from land sales has for many years been key to the Hong Kong government’s ability to keep government finances in the black. Since the treasury is also a beneficiary of high real-estate prices, the public finds it difficult to believe that the government would be willing to challenge property developers. However, two recent incidents imply that housing policy may be about to change.
The biggest action by the Hong Kong Independent Commission Against Corruption since its establishment 38 years ago has, of course, attracted a lot of media attention. With the arrest on bribery charges of Rafael Hui (許仕仁), a former chief secretary for administration of Hong Kong, and Raymond Kwok (郭炳聯) and Thomas Kwok (郭炳江), co--chairmen of Sun Hung Kai Properties — Hong Kong’s largest company in terms of market value — the commission’s investigation into contacts between government and business is unquestionably a warning to Hong Kong’s property developers.
However, the Residential Properties (First-hand Sales) Bill may have an even more far-reaching effect. In the middle of last month, the Hong Kong government’s Executive Council passed the draft bill to increase transparency in the sale of new residential properties. During the two-month public consultation period, the draft bill received widespread public support. These are its main points:
First, housing prices should be calculated based on actual floor space. Second, within 24 hours of entering into a preliminary agreement for sale and purchase, the owner must, among other things, enter a description of the residential property and the price of the transaction in the Register of Transactions. Third, misleading and false sales information constitutes an offense and carries a maximum fine of HK$5 million (US$644,000) and imprisonment for up to seven years.
Hong Kong Secretary for Transport and Housing Eva Cheng (鄭汝樺) says the draft bill balances the interests of all parties and is beneficial both to seller and buyer. Indeed, there is nothing wrong with punishing developers for providing false and misleading information. Buying a home is one of the largest investments we make in a lifetime, so we could well use the penalties for giving misleading information in Hong Kong’s Securities and Futures Ordinance as a reference for criminal liability in cases where the seller provides misleading information.
The Hong Kong government has taken housing market standards seriously and prohibited developers from providing false and misleading sales information to protect consumer interest not a moment too soon. Market information is opaque and there is a great discrepancy in the information available to the buyer and the seller. Consumers are like lambs to the slaughter and civil and criminal law penalties under the common law system are insufficient to bring housing justice to the disadvantaged.
Once the supervision and control of the sale and purchase of new residential property has been written into law, unscrupulous developers will not be able to rely on asymmetric information availability to take advantage of the buyer, and they may be prosecuted for using misleading and false information. This will help correct improper practices among property developers, which is necessary to increase confidence in transactions and protect the reasonable rights of good and honest developers and consumers.