A cooling-off period for new home sales
28 October 2009
Poll: New home sales
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Poll closed: 18:00:00 10-Nov-2009
As we sit here writing Webb-site.com in the spare bedroom of our 128th floor flat at Exponential Fortune Mansions (where the floors are numbered 1, 2, 4, 8, 16...), we wonder what is all the fuss about the numbering of floors in apartment buildings?
A certain other English newspaper sent us a series of leading questions (to which they did not print our answers) including:
"Do you think Henderson's decision to skip 40 floors comprise serious or blatant abuse of acceptable marketing practices in HK?"
No we don't. It's a harmless gimmick which appeals to the vanity of some buyers who know what they are getting. But if any buyer later claims to have been deceived into believing that he would be 88 or 66 storeys above street level, then he can always sue the developer for fraudulent misrepresentation. We doubt that any buyer with that kind of money would not read the sales brochure, visit the site, and realise that the numbering was just a status gimmick, but if they think they can prove their claim, then they can sue. Henderson Land is not unique in this - other developers routinely omit numbers or strive to number projects with an 8, or price the apartments with eights, to suit the quadrophobic and octophilic psychology of their market. SHKP's The Cullinan, for example, has penthouse units up to the 93rd floor and show flats on the 88th floor, of a 68-storey building.
Which brings us on to their next question:
"Should the government set up a statutory body to put a stop once and for all to the questionable marketing practices of developers?"
No, because we already have laws against fraud. As with the on-going wrangle over how to measure the floor area of an apartment, a potential buyer should read the sales brochure, read the contract, and visit the show flat, or preferably the finished apartment, with a tape measure, and decide for himself whether the area is sufficient for his needs and whether the price is fair. It is common for developers to show off a flat without any wardrobes for storage or doors in doorframes, to make it look more spacious than it will feel when you have occupied it. It is also common for them to include a lot of common area (not exclusive to the home) in their definition of floor area. So what? Take that into account. Finally, if you are still unhappy, or unclear on what is on offer, don't buy it. That's what makes a free market.
What we need
So there's no need for yet another regulator. What we do need, though, given the large amounts of money involved, and the high pressure sales tactics involved, is a statutory cooling-off period for the sales of new apartments. This would give buyers say, 5 or 10 business days (excluding Saturdays, Sundays and public holidays) to sober up, come back and get a full refund with no conditions. Developers might complain that such a right would amount to a "put option" over the property, which people might exercise if the market goes down during the cancellation period. That is true, but the developer can price the risk of cancellation into their products. It might encourage them to be a bit more transparent in the original sale process to reduce the number of retuned sales. The Government would need to clarify that stamp duty would not apply to cancelled sales.
The SFC is now proposing a cooling-off period for the sale of structured investment products, which readers of this site strongly supported in an opinion poll a year ago, so we are pleased to see it. Sales of apartments involve even more money, often with high leverage, so it is only right that the Government should put an end to the controversy over sales tactics by giving buyers enough time to review their decision without pressure. Developers should support this if the draconian alternative is a new regulator of sales practices.
Tell us what you think
What do you think? Should there be a cooling off period for new home sales? If so, how long? Please take our opinion poll above.
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