Mind-boggling incentives for a layperson homebuyer in Hong Kong

September 26, 2014 / By  

I recently participated in the sales launch of a new residential development in Hong Kong as a helper in the contract-signing department. The project was very well-received, evident from the rate at which the herd of buyers snapped up all the available flats. What struck me the most was the multitude of incentive packages that came along with the selected flats and how confused I first felt looking at the price list descriptions!

Initially, developers used sales incentives to attract buyers back into the primary sales market following implementation of cooling measures. Alongside requirements of the Residential Properties (First-hand Sales) Ordinance (the “Ordinance”), the treatment of sales incentives has now become a rather complicated matter for all parties involved.

Consider the following simplified example of two similar flats presented to a buyer along with Package A for Flat A and Package B for Flat B. Which flat should he or she pick?

Source: JLL Research

Based on the list price, Flat A is cheaper than Flat B. After the stamp duty rebate, this still holds true for a first-time homebuyer. However, for a non-first time homebuyer, Flat B turns out to be less expensive even though on the contract, the stated price of Flat B is 4% higher than Flat A. Also, had the stamp duty rebate been in the form of an outright discount as in Package C, a buyer would have saved more on the total payment. Buyers with different stamp duty obligations will therefore find that the effective purchase price of an apartment varies based on the benefits of available discount alternatives. Imagine a buyer having to assess the multitude of incentive packages with varying terms and conditions depending on the flat being selected, on top of financial, tax and legal considerations!

At the sales launch, many buyers ended up being heavily reliant on their sales agents for selecting a most suitable deal under time pressure and may not have felt that their interests were “better protected” as the Ordinance promotes.

From a developer’s perspective, transparency of information has helped provide “a level playing field for vendors” as orchestrated by the Ordinance. Yet, developers have had to invest additional resources in keeping up with ever-changing incentive schemes offered by competing product while having to abide to the regulations under the Ordinance.

Finally, from the Authorities’ perspective, residential transactions have become more difficult to gauge as some incentives such as stamp duty rebates could easily cloud over the actual transacted price of a unit.

Whether the Ordinance, under the influence of sales incentives has maintained a “clear” and “fair” playing field for all parties involved remains arguable but one thing is for sure – the sales incentives marketed alongside flat sales have made new home purchase decisions quite mind-boggling for a layperson homebuyer!

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