Opinion / Liang Hongfu
Home-buyers fall into traps of developers
By Hong Liang (China Daily)
Updated: 2006-08-29 07:04
Hong Kongers take pride in being cool-headed, savvy consumers. But when
it comes to buying their homes, the most important purchase a consumer is
likely to make in his lifetime, caution and decorum are often thrown to
the winds.
As the Hong Kong economy is happily rolling along its recovery path, the
property market has regained the festive mood of a county fair, where
snake-oil salesmen mix with honest growers in luring free-spending
customers and their happy families. It came as no surprise that
newspapers in recent months were flooded with reports of unfair practices
by developers and their agents in pushing the sales of whatever they
promise to build.
What's surprising, however, is that so many home-buyers in Hong Kong
could still fall into the same sales traps that have been used time and
again in the past. More and more mainland property agents in Shanghai,
Guangzhou and Shenzhen have reportedly borrowed some of these unsavory
tactics to push the sales of apartments to unwary home-buyers in those
cities.
Unscrupulous developers and their agents love to play on the common
perception, fanned by the gullible press, that property prices in Hong
Kong and the major mainland cities will continue to rise at an
ever-faster rate. Past experience shows that such a prophecy could fulfil
itself until the bubble burst when the cost of money, or opportunity
cost, took a sudden swing in the opposite direction.
But home-buyers seem to have a short memory of those harsh lessons they
learned in the past. A bubbly economy, easy credit and low interest rates
are the unfailing siren call for the property rush. Many prospective
home-buyers blindly believe that if they miss the opportunity to buy at
today's price, they will never be able to afford their dream homes again.
In the stampede, many eager home-buyers, with families in tow and
checkbooks in hand, are being pushed into an open trap.
To set off the buyers' stampede, it is quite common for a developer to
tease the market by selling a few apartments in its development at below
market prices. The publicity generated by the long waiting lines of
prospective buyers outside the developer's sales office would be almost
guaranteed to draw a big crowd when the other apartments in the
development are put up for sale at, or above, market prices.
Many home-buyers were thus pressured into signing sales contracts and
handing over their deposits to fast-talking salespeople in noisy and
crowded sales offices. Many buyers were denied access to detailed pricing
information while being hurried by the salespeople to complete the
transaction.
Property developers have maintained that they are usually not involved in
the "retail" level. It is not uncommon in Hong Kong for a developer to
sell blocks of apartments in a development to a few property agents for
resale to the public. Sometimes, the properties change hands among
property agents, or speculators, several times before being sold on the
open market.
The government has introduced numerous measures to try to minimize
malpractice by enhancing the transparency of information and raising the
standards of service provided by property agents and their salespeople.
But property market sources have noted repeatedly that an orderly market
could only be ensured when prospective buyers were able to keep a cool
head.
In fact, property buyers are putting pressure on themselves because they
are too afraid to miss the boat. Of course, developers and property
agents are often blamed for planting the fear of short supply and
escalating prices in the minds of many prospective home-buyers. If enough
people want to believe that, there is little the government can do in a
free market to protect them from getting fleeced by the overly aggressive
developers and property agents.
To be sure, the supply of property will always be tight in land-scarce
Hong Kong, and demand will remain strong in the foreseeable future as the
Hong Kong economy is expected to grow at a brisk pace. But it is most
unlikely that property prices will increase at as inflated a rate as they
did in the years before the 1997 crash that was triggered by the Asian
financial crisis.
We are living in a very different economic environment from the 1990s,
when years of negative interest rates had greatly inflated asset values
not only in Hong Kong but also in various other Asian cities. A healthy
and vibrant property market is, of course, beneficial to Hong Kong's
economy. Based on supply and demand trends in the longer term, economists
have predicted that property prices in Hong Kong will increase at rates
that are more or less in line with economic growth.
It is most unlikely that this projected trend will be disrupted by any
sudden large influx of foreign capital, which is now largely dispersed
among various mainland markets rather than concentrated in Hong Kong as
it was in the past. The speculators will always be there, but their
ability to dominate the market is seen as being constrained by the
relative cost of capital.
Cold facts and sensible analyses don't support the prophecy that property
prices will surge to unaffordable levels. Therefore, home-buyers should
resist the urge to sign on the dotted line before giving due
consideration to all relevant information about the property and its
price. There is really no reason to rush.
Email: jamesleung@chinadaily.com.cn
(China Daily 08/29/2006 page4)
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