In an effort to safeguard the interest of buyers, the Hong Kong Estate Agents Authority recently released a set of practice guidelines to improve the information on floor areas for second-hand residential properties. Effective by end-2012, under the guidelines, real estate agents will be required to provide the saleable floor area of a unit in all marketing materials associated with it. By definition, the saleable floor area is smaller than the often-quoted gross floor area, as it excludes common areas such as lobbies, clubhouses and public corridors.

Quoting the saleable floor area will help clear away some of the uncertainties faced by buyers, though it may also, at least initially, lead to weaker sales volumes. With residential prices currently near record highs, quoting smaller floor areas and higher unit prices (based on saleable floor area) could have a negative psychological impact on buyers.

Reduced volumes, however, are unlikely to have a major impact on prices. Under the current low interest rate environment, sluggish volumes have not translated into lower prices. On the contrary, we believe that the introduction of the new floor area guidelines may lead to prices in the secondary market rising. This is because buyers will likely compete for the few properties available in the market with relatively high efficiency ratios (the ratio between saleable and gross floor area), thus driving up their prices. In turn, this activity will probably set new benchmarks for the market as a whole.

Against this backdrop, we do not expect the provision of saleable floor areas to have any significant negative impact on the market.

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