One of Hong Kong’s biggest property sales agencies has landed itself in hot water over a wily move to spur transactions, as anticipation runs high for the government to relax its real estate rules.
Home prices will almost certainly jump if Hong Kong’s Chief Executive John Lee Ka-chiu scraps a set of regulations during his address on October 25. If that happens, buyers and sellers can walk away from their pre-address contracts without penalty, according to a memorandum provided by Centaline Property Agency and its Ricacorp Properties subsidiary, seen by the Post.
The Estate Agents Authority (EAA), an industry-run statutory guild for sales agents, was quick to weigh in, calling the unusual hedge by Centaline and Ricacorp “inappropriate.”
The memorandum “may lead to legal disputes and cause confusion in the property market,” the EAA said in a statement, adding that its arrangement and terms “may involve evasion of taxes and/or other legal liabilities. The EAA is looking into whether the use of such a memorandum may have breached the EAA’s guidelines and will take follow up actions accordingly.”
Shih Wing-ching, the founder and chairman of Centaline Property Agency, during an August 29, 2018 forum hosted by four think tanks on tackling Hong Kong’s land and housing supply. Photo: Handout
Centaline, which employs 4,280 agents at 380 branches across Hong Kong, is standing firm. The agency chain’s founder Shih Wing-ching rejected any accusation of tax evasion, saying that his barristers “agreed there is no problem” with the memorandum.
“It’s not a hard rule,” he said in an interview with the Post. “It is actually the market condition that [necessitates]” the unorthodox arrangement, he added.
The war of words underscores how Hong Kong’s property industry, grappling to regain its footing after the end of a decade-long bull run, is reeling from a 15-per cent slump from its September 2021 peak. Centaline, Ricacorp, Midland Realty and Hong Kong Property Services (Agency) have laid off 3,100 sales agents between them since the beginning of 2023, as transactions shrank last year to a 32-year low.
“Property agents want to snatch clients before the [policy] address,” said Chau Kwong-wing, the University of Hong Kong’s Chair Professor of Real Estate and Construction. The market is “now in a stalemate” as many buyers are now waiting for the address for clarity on the direction of home prices, he said.
The number of newly approved mortgage, an indicator of demand in the housing market, fell 28.6 per cent last month to 1,438 cases while their value shrank 31.9 per cent to HK$3.72 billion (US$475 million) from August, according to data provided by the mortgage broker mReferral.
The industry is lobbying the government to remove the restrictions – dubbed colloquially as “spicy measures” – first put in place in 2009 in the aftermath of the 2008 Global Financial Crisis. The removal of the measures may stimulate demand, increasing home sales by 5 to 10 per cent, according to an estimate by Victoria Allan, the founder of the property agency Habitat.
That is where Centaline’s hedge comes in, taking effect only if relevant conditions are met. If the government keeps a 15-per cent stamp duty unchanged, the agent will destroy the provisional sales and purchase agreement, and return the deposit to the buyer, “unless otherwise agreed by the buyer and seller within three days after the address,” according to the memorandum.
The memorandum may cause confusions between the buyers and sellers “if it is not properly drafted with specifications,” said Lilian Chiang, a senior partner and head of the property department at the law firm Deacons.
It is “vague and may not truly reflect parties’ intentions,” she said, adding that buyers and sellers must “fully understand the implications,” or “risk litigation when there are disagreements on the conditions after the policy address.”
To be sure, the debate may be moot, as few have “dared to” sign on to Centaline’s memorandum after EAA’s warning, Shih said. If a property buyer insists on signing such a memorandum, the agent will communicate with the solicitors of both parties based on the specifics before signing the contract, he said.
