The Hong Kong government raises the possibility of criminalizing theft by false pretenses by property developers. The media are focusing on the proposed penalties, and it is true that the idea of property giants’ directors being hauled off for five years in Stanley Prison has a certain appeal, however fanciful. But the real story is what the resulting law will purport to ban and whether it will succeed.
A quick look through the proposal to regulate the sale of first-hand residential properties by legislation gives us a fairly vivid reminder of what the developers have been allowed to get away with under their much-loved self-regulation. The issue, of course, came to a head last year when public opinion finally decided it had had enough of the developers’ blatant cheating (fake floor numbers, fake sales to create fake prices, fake show flats and fake supply shortages to induce buyers to sign sales agreement at midnight).
It has long been common knowledge that developers exploited their right to rip off home buyers to the maximum and then some, but it is still galling to see that it will take a threat of prison to force them to reveal the internal dimensions of apartments and make small print in brochures big enough to read…
One headline breakthrough here is that the developers will have to quote prices per square foot of saleable area – basically the space within the walls of the property, plus veranda. This will end the ‘GFA’ scam, whereby purchasers pay for each square foot of ‘gross floor area’. There is no official definition of GFA, so developers have been free to add the unit’s share of the hallway, the stairwell, the elevator, the building’s entrance lobby, the mail boxes, the air-conditioning plant, the caretaker’s hovel, and even recreation facilities like club houses, gyms and swimming pools. Hence, say, 700-square-foot flats with 490 square feet of living area.
When you buy a bag of rice that has ‘5 kg’ printed on it, the vendor is breaking the law if the label exaggerates the quantity of the grain or if he adds stones to bring it up to weight. To developers, a requirement to meet such a basic level of honesty is an extreme impertinence and indeed an infringement of their rights. Thus the objection recorded in the report…
(How very touching – that poor ‘couple of Members’. Annex A lists the committee’s painstakingly hand-picked composition; the vested interests from the property lobby were easily outvoted.)
The Standard story quotes the developers’ cartel representative as saying that he hopes the regulations will not be too tight or they will hamper transactions and drag the economy downwards, and a property agency boss as predicting a 30-40% slump in sales should such a law come into force. The implication is that our economy relies on people selling each other concrete boxes. A high-school economics student knows that such trading creates no net GDP. So who cares? Indeed, if Centaline and other property agencies close half their branches, the massive increase in available retail space will give an instant boost to street-level neighbourhood economies all over Hong Kong.
It would be interesting, however, to know what makes these people believe that a requirement for producers to be honest will suppress demand. People didn’t stop buying rice when laws forced merchants to provide what they promised. Will per-square-foot prices be so eye-wateringly painful they will shock buyers into a bit of common sense?
Logically, the proposed law should apply retroactively to the secondary market – that is, the whole existing private-sector housing stock. But this would ‘reduce’ the size of existing apartments (you would see the walls grinding several feet towards you from every direction), which would make existing owners unhappy and burst into tears and stamp their feet, and it would confuse buyers, so obviously we can’t have that, can we?
The property tycoons are putting a brave face on it. Business ethics and human morality are so alien to them that we must assume Beijing gave the Hong Kong government a sharp sword to place at their throats. This proposal dates back to the same outrage in mid-2010 that led textiles scion James Tien to launch a charity for the ragged poor, and the government itself to organize a similar effort. Revolution was in the air.
Note that the proposed changes do nothing to restrict the property cartel’s freedom to collude, or the massive pricing power the developers enjoy thanks to the government’s policy of keeping land for housing in artificially short supply. They will continue to rip buyers off; they will just have to make it clearer.
One thing has changed: China Daily comes up with a funny headline…