1st Hand Sales Ordinance Impact on HK Property MarketFirst it was the rule demanding property agencies state the actual usable (in property-speak, “saleable”) area of second hand flats and now this. Back in January everyone was still getting used to the idea of gross and saleable flat sizes (the space you actually get to live in, not including lifts, clubhouses, bay windows, hallways and so on). Confusing at it may seem most prospective buyers appreciate the extra details. So with something of a PR win for the Estate Agents Authority, the government has stepped into the property regulation fray.

As of April 29 of this year, the Sales of Firsthand Residential Properties Authority (SRPA) fully came into effect. The point of the SRPA for buyers and developers alike was to create a clear, fair and balanced means of regulating first hand residential property sales by increasing transparency among other things. It is now a crime to buck the mandatory requirements. Time will tell if it works.

According to the SRPA website, the ordinance encompasses, among other things, provisions regarding advertising, misrepresentation and false or misleading claims. “The Ordinance sets out detailed requirements in relation to sales brochures, price lists, show flats, disclosure of transaction information, advertisements, sales arrangements, and the mandatory provisions for the Preliminary Agreement for Sale and Purchase and Agreement for Sale and Purchase for the sales of first-hand residential properties,” the website states. In most parts of the world that’s called ethical business practises but in property mad Hong Kong the rules of the game are quite different. So how is this likely to influence the market in general?

For buyers it means, just what it supposed to: increased transparency that will help in, “Shielding buyers from misleading marketing information,” theorises Colliers International Executive Director of Residential Sales Ricky

Poon. “Also, with price lists required to be available at least three days before the commencement of sale, it allows a ‘cooling off’ period for potential buyers to make their decision to buy a residential unit or not.” Probably not a bad thing at all.

According to Knight Frank, some developers rushed unsold units to the market ahead of implementation of the new regulations — and some cut prices — so as to avoid creating new sales materials that could be invalid after the 29th. Of course the cynics out there will conclude it was partially to avoid having to come clean on their projects. Beyond that, Knight Frank’s director and head of research and consultancy for Greater China Thomas Lam notes only major developers (Swire Properties with Dunbar Place, Henderson Land with Green Code) waded into the market in the months immediately following the SRPA. “We expect only a limited number of primary residential units to be launched in the coming 2 to 3 months. Primary residential sales will therefore hover at low levels in the near future,” Lam estimated.

To Joseph Tsang, managing director and head of capital markets at Jones Lang LaSalle in Hong Kong the ordinance has a supply effect. “It will cause delays in launch plans for developers. Plans may have to be altered for preparation of new marketing materials. It will have an impact on the overall supply in the market this year.” The estimate of 13,000 new units coming on the market will probably have to be adjusted downwards. And in typical Hong Kong fashion, everyone is playing a game of wait and see — what are the criticisms, how is the public reacting, what are other developers up to? “From now until September I think the market will be pretty quiet. You’ll see a few re-launches … but I don’t’ see any new stock coming on to he market until the last quarter of the year,” says Tsang.

Combined with recent stamp duties, Knight Frank expects mass residential prices to drop 10 percent, luxury prices around 5 percent over 2013, and overall residential transaction volumes 10 percent this year. JLL’s data seems to back that up, calling the sales market “weak,” in its May Property Market Monitor, with sales dropping 24 percent over April. Capital values in the mass residential market slipped 2.5 percent on the heels of vendors dropping their prices again on softening demand.

But Tsang doesn’t think the SRPA has anything to do with the status of the market. “Everyone is trying to blame [the state of the market] on the new ordinance. It’s got nothing to do with it. The SRPA is actually quite a good thing. It’s a bit tedious and complicated, but it’s just trying to make everything clearer and protect the customer.” To Tsang’s mind, the market’s squishiness has more to do with continued cooling measures, which are particularly hard on the luxury sector. Colliers sees negative pressure rising on transaction activity and predicts luxury prices will drop an average of 10 percent in the next year.

Ultimately the SRPA isn’t the bad guy but the powers that be could be focused on fixing other sales loopholes, like the stated size of a property. If Tsang had to pick one “fix” it would be to implement of a London-type internal floor area number. “It would be the quoted area. Now we’re talking about saleable areas and even though they’re trying to unify [standards] there are still discrepancies as to the real meaning. Even if we quote saleable area it doesn’t really mean the net, net area,” he states. But at least the sales brochure will be clear in its discrepancies.