The traditional Chinese adage, “Wealth comes from land” has never been as important to many ethnic Chinese around the world as today when growing consumer wealth enables a new class of people to jump gleefully onto the bandwagon of home ownership, particularly in China.
But another old adage: “location, location, location” takes on a new meaning when it comes to the drastically differing levels of consumer protection available to potential homeowners from Canada to Hong Kong to mainland China. Depending on where they buy, their investments could be a fair deal or a costly rip-off that turns a homeowner’s dream into a money pit from Hell.
British Columbia, perched on the Pacific Rim, is the Canadian province closest to Asia and a favored destination for Hong Kong and mainland immigrants. It also serves as a good example of what can be done to help Asian homeowners. A sizeable Chinese diaspora arrived in the 1980s and early 1990s in advance of Hong Kong’s 1997 handover to China and with them came a home-buying boom and attendant scams that finally spurred the creation of a series of strong regulations that protected buyers at each step of the purchase process.
The laws came into effect in 1998 in the wake of massive rip-offs that became known as the “leaky condo scandal.” It was discovered that as many as 50,000 condominiums on the west coast of Canada, particularly in Vancouver and the rest of British Columbia, were experiencing what were called “envelope failures” that allowed water to seep into apartments. Repair costs averaged from C$25,000 (US$21,840) to C$60.000 with some running as high as C$200,000. Another 15,000 condos were also suspected of being substandard.
Following the leaky condo catastrophe, however, the government established a Homeowner Protection Office to deal with building envelope repairs and regulate the construction of new homes. British Columbians are still burdened with the stigma of this crisis but have learned their lesson and moved on.
But while it might seem natural for a self-proclaimed “world city” and real estate driven metropolis like Hong Kong to have similar homeowner or consumer protection legislation in place, think again.
“Hong Kong has a strong consumer culture,” says Christine Loh, chief executive officer of Civic Exchange, a Hong Kong think-tank on public policy and environmental issues. “Yet the paradox is that there is a weak consumer protection culture. There are basic legal provisions, of course but there has not been either a [grassroots] consumer movement or shareholder activism. This may be due to people not understanding their rights, and the government has never spent much time promoting these areas. The Consumer Council is all that the government has done.”
Apart from busying itself with handling petty consumer product or service complaints, Hong Kong’s Consumer Council, a government-subsidized body with no investigative or disciplinary authority, is dedicated to writing research reports or submissions to the relevant government departments regarding consumer complaints. In the last three years, the strongest report the council has issued concerned the development of the electricity market. Anything to do with real estate is deemed too serious a topic for it to handle. As such, Hong Kong’s property buyers only have two words in their armor: caveat emptor (buyer beware).
The unfortunate reality is that words may not be enough in the face of high-handed and devious sales tactics employed by developers or their sales agents, as evidenced recently. At the presale of the posh Park Island and Le Point developments, buyers were told to pay an initial deposit of HK$50,000 (US$6,430) without even being given any sales brochure or price list first.
The incident led to a closed-door meeting between the Housing, Planning and Lands Bureau, the Consumer Council, the Real Estate Developers’ Association and the Estate Agents’ Authority. The outcome: only a set of revised guidelines issued by the latter. The former three parties all washed their hands clean. End of story. Not entirely coincidentally, perhaps, the developers of the two projects are none other than two of Hong Kong’s most powerful, Sun Hung Kai Properties and Cheung Kong Holdings.
In Hong Kong, it is commonly accepted that the usable space of a residential unit is only 65-70 percent of its gross floor area. Yet the sales price is based on a floor area that includes balconies and verandas and a percentage of all common areas. In British Columbia, the sales floor area used in price lists is what is called “habitable space” and depicts only the area which can be lived in and does not include patios, balconies, garages, parking stalls or storage areas, other than closet space. In short, Hong Kong property buyers pay for 30-35 percent of floor space that is uninhabitable.
If the Hong Kong and British Columbia property markets are considered mature, mainland China is the infant counterpart. It is a market so red hot in the last few years that the central government has had to introduce regulations aimed at cooling down the market and warding off rampant speculation.
Most recently, Chinese media focus has been on the controversy surrounding developers making astronomical profits out of property sales. A Chinese netizen who goes by the name Wonderbue pointed out that the numbers issued by the Shanghai Statistics Bureau show that the average development cost per square meter of residential property increased 41 percent from 2000 to 2005, while the average residential sales price per square meter jumped 101 percent in the same period. Based on the same set of numbers, the average rule-of-thumb profit margin for developers was 54 percent in 2000 and 119 percent in 2005.
“How can the developers still deny that the profits they make are prodigious?” Wonderbue protested.
Another mainland netizen, Zou Tao, made news ripples worldwide in April and May 2006 after a highly publicized call to potential Shenzhen homebuyers to boycott the property market.
Zou’s “Not Buy House” movement urged people in Shenzhen to suspend any property purchases for three years. "So we don't become 'house slaves,' and so we don't have to carry the burden of heavy debts throughout our lives," Zou wrote in one of his online proclamations.
The average housing price per square meter in Shenzhen reached 8,752.94 yuan (US$1,094) in the first quarter of the year, up 20.62 percent from a year ago. Zou suggested that people rent houses instead because rental prices have remained at a relatively stable level.
While Zou’s movement drew a wave of support on mainland chat and message boards, its ultimate impact was hard to discern. His current fate – he has since been variously reported as under arrest or in hiding – is unknown and he hasn’t been heard from online since August. In the wake of his boycott call, however, the Shenzhen Municipal Government announced plans to build 114,000 tiny (30 to 50 square meters) apartments for low-income residents within the next five years. Initial public enthusiasm for the project was dampened, however, when it was reported that the lion’s share of the units would be going to employees of the Shenzhen Public Security Bureau.
Beneath the surface of excessive profiteering lies a host of contributing structural and non-structural factors against which mainland homebuyers have little defense. These include an absence of firm laws and basic freedoms, the population’s desperate housing needs as income increases, an immature and rigged land system, corruption at every level of government, the unavailability of reliable market information and statistics to consumers, and developers’ and foreign investors’ frenzied speculation. Against such a backdrop, consumers’ interests and basic rights would be the last thing on political leaders’ agendas.
“It is very common in the whole country for developers to spread falsified information that supply falls far behind demand and jack up prices accordingly,” said Chinese economist Wang Xiao Guang.
“Some developers purposely misinform potential buyers that all units are sold out when in actual fact 60 percent remains unsold,” he added.
On the other side of the Pacific, would-be home buyers in British Columbia fare considerably better with basic consumer rights. The most prominent is the seven-day cooling-off period after the purchase contract is signed that allows the prospective buyer to change his or her mind and reclaim a full refund of the initial deposit.
Prospective buyers are entitled to receive a “Disclosure Statement” from the developer at the time of entering into a contract of purchase and sale. Developers are bound by the Real Estate Development Marketing Act to disclose in detail all relevant information pertaining to construction and to file the document with the Superintendent of Real Estate. If there are subsequent changes to the information provided in the Disclosure Statement, the developer is bound by law to file an amended disclosure statement and provide copies to all purchasers.
All new home purchasers in British Columbia are entitled to a 2-5-10 home warranty provided by third party insurance agencies authorized under the Homeowner Protection Act giving them automatic insurance coverage for all workmanship deficiencies for the first two years, for building envelope damage for five years and for structural damage for 10 years after move-in. Such consumer rights are unheard of in Hong Kong, much less on the mainland.
Martin Luther King Jr. once said, “Morality cannot be legislated, but behavior can be regulated. Judicial decrees may not change the heart, but they can restrain the heartless.” This should be sound advice for any community that values human rights and societal progress.