Somewhere in Hong Kong, a property agent has shown you a unit. He assures you that you and your partner will be happy there. You agree and as you see the location for the third and final time. You envision this as the place where you’ll spend the remainder of your life. You envision your little ones running around, family events and entertaining new friends.
You sign a contract after you’ve checked the agent’s identity. You deposit a significant down payment and after several days, you don’t hear from the agent. You visit his office and it’s empty. You contact the police and after obtaining specifics and further investigation, you realize you’ve been scammed. The authorities also inform you that this type of property scam is frequent in Hong Kong and that gang members often pose as legitimate property agents.
Beyond the gangsters, beyond identity theft, beyond fake lenders trying to hustle you out of debt, this is where you’ll find Hong Kong’s surreal estate and the frequent white collar scams which are an integral part of the property market in Hong Kong: the legal hustle.
All of this could be hearsay or conspiracy theory, but Hong Kong researcher, Yujing Fun has taken time to study different sectors of the property market, compiling information in his book Cloaking White-collar Crime In Hong Kong’s Property Sector.
These incidents are more diabolical than a James Clavell noble house plot. The white-collar gangsters will force you to sell your property, rent an apartment that is significantly smaller than what you agreed on, these hustlers will have you living on the 100th floor of an apartment that has only 50 floors, and if you follow the press closely in Hong Kong, you may find yourself believing in fictitious numbers, all a part of larger scheme to bring attention to a particular residence.
During our build, Yujing took time to drop science on the hustle of Hong Kong’s property market, identifying specific developers and incidents which contribute to the white-collar scams.
“I think the biggest reason is, the property industry is self-regulated in Hong Kong… It’s actually a very interesting system, in terms of developers, you do have a few government departments related to real estate, the buildings department, the housing authority, but they all have different jurisdictions, none of them have jurisdiction on the way in which development occurs, and what rules there are for property developers to develop.
Only property real estate developers have so called regulations around it and that all comes together in this organization called REDA. The funny thing about REDA, a lot of the big powerful developers, are part of that association, but the interesting thing about that association, if you are a part of that, then you are regulated by REDA, but it’s an opt-in kind of thing. You don’t have to be part of REDA. So small developers, funny enough, have a lot more leeway because they don’t have to follow any of REDA’s directives. The industry gives an air that it is regulated because there are a lot of government departments related to real estate.
There’s the lands department, the buildings department… So there’s a lot of departments that appear to be related to real estate development, however, there’s no real estate development authority sort to speak, but they will contend that they are self-regulated. The interesting thing is that this is an opt-in so not all developers are regulated…” said Yujing.
Beyond the so-called self-regulation of Hong Kong’s real estate developers, there is a system in place that possibly works against consumers. Yujing explained saying “A lot of the funny things is, there are a lot of sales tactics that are part of the law already… When you talk about flats, when you talk about flat size, gross floor area, and all these things, that’s all very confusing. For me, that’s where I think the consumer gets confused more than it is that they actually have to scam you per say. A very obvious scam is not so common. A lot of the way the industry is tilted already is that the consumer needs to know a lot before they can buy a flat at a fair price…”
Rubbish Dump Flats
Winlong Properties was a developer that hustled tenants into flats that were still under construction. Although Winlong dissolved in 2014, their example is important because they were not penalized legally for offering “garbage” flats. “The government at the time was not willing to get into this… Despite the fact that contractually they were bounded, the question was, who’s going to execute the penalties?” asked Yujing.
Henderson Land Development shook up the real estate world when they did an Ali Shuffle and hustled Asia’s most expensive apartment at HK$93,000 per square foot at 39 Conduit Road. The question is, who was the buyer or was this an inside purchase created to influence others?
Yuying explained saying “Henderson, sold a flat… highest price per square foot, one of the most expensive, made headlines. What they did, they announced the flats for a crazy high price… they announced the place sold for this record breaking amount. People thought the market was on the uptick… I won’t say it was actual manipulation… I will say it was interesting, that if you looked at who bought, after they announced that price, a few months later it was never bought. The people who said that they were going to buy at that price, eventually fell out and they didn’t buy those flats at all, which led to the accusations of market manipulation.”
I had a hard time believing this could happen. This hustle, although devilishly brilliant, I believed it was dangerous for a property developer to attempt to manipulate the market this way. Wasn’t there an investigation from REDA? Did any agencies investigate to see if there was an inside purchase beyond the numbers reported to the press?
Yujing explained “Someone says they’re buying it for a ridiculous price, Henderson reported it, it became a worldwide news story and then it turns out a few months later, they didn’t sell it. No one bought it and then the question was ‘What happened to these people who promised they would buy it? Are there legal proceedings against them? No. Is Henderson going to claim anything back from them? No.
So I actually went far enough to dig into who bought them, which companies bought them… there’re too many coincidences… the flats that were bought… According to Henderson, these are all independent buyers and yet, the way they bought the flats… but it’s just interesting to see the coincidences between the people who are supposed to be independent of one another and yet, how they share the same lawyers, how they share the same business addresses and how they share the same people who are responsible for them. So it’s just interesting to think that Henderson claiming that these are independent people.”
Back in the days, before Henderson hustled Asia’s most expensive apartment, 39 Conduit was Rocky Mount and back then, a hustler slash developer called Carry Express Investments had some people who didn’t want to sell. So, they devised a plan, they physically staged construction in order to convince owners to cash out.
“39 Conduit used to be a building called Rocky Mount. Some of the owners didn’t want to sell for the price that Carry was offering because they thought they would get more out of Carry if they held on… 50% did not want to sell. Carry Express got upset, so they decided that they’re gonna hire this architect called Elton Chow and they’re gonna start building around the building which these people did not want to leave and by doing that, they’re going to block the nice view that they had, therefore lowering the prices… They basically started an operation that looked like they were going to start building something. There was some land in front of it where they put tractors and start pretending to build. It was not really that they were building anything. The whole thing was a giant play. Carry Express went back to the people and said ‘We’re going to build, take the money you have now, or watch your property plummet and we’ll buy it off you for peanuts.’ Of course, they sold” said Yujing.
The Numbers Game
Beyond the most expensive apartment sale in Hong Kong, the other scams include convincing buyers that they’re living on the higher floor of a building. Speaking on 39 Conduit Road, Yujing said “It’s a 46 story building with 88 floors… the top floor is 88 even though the building’s only 46 stories. Of course in Hong Kong and in China, those high numbers actually mean a higher value, the higher you are the more commanding the view of the city is. There are only 46 floors but the top two floors are 68 and floor 88. You won’t know unless you count the floors.”
Gross Floor Area
That new flat that you signed off on, the one that is supposed to be 1,200 square feet, you may need to verify those numbers. Believe or not, 200 of those feet you’re being charged for, they might not even be in your apartment.
“The gross floor area is how much area does a unit holds and you’re buying all that area. It’s really awkward because it’s not the same area as your flat. They’re usually much smaller than a gross floor area, but you’re paying the price per square foot for the gross floor area… imagine, let’s say you’re buying a flat for one thousand square feet… However, it’s possible that your flat has only 800 square feet. That’s because of this thing called an efficiency ratio. Gross floor area is one of these weird concepts that Hong Kong’s real estate has…
The idea is basically that what you own in the building is not just your apartment, it’s also your mailbox, it’s also the common areas, that’s part of the areas that you would use. So therefore, in reality, you’d be paying for those areas too. The swimming pool, the gym, those are area too, so they lump all these guys in. That all counts into the gross floor area.” said Yujing.
Another area that developers continually take advantage of his not being accurate with marketing material, indicating that a property is convenient to major locations in the city. “They’ll be pretty smart, they’d be like, approximately this amount of time will take you to A, B or C but actually any realistic understanding of the geography of Hong Kong… that doesn’t make any sense… it’s smart because they do put approximate on it.” said Yujing.
When you consider the number of scams, you have to ask why there wasn’t more involvement by REDA or perhaps further regulation by the government. Yujing explained that consumers shouldn’t look for much protection when it comes to white-collar crime, saying “Under pressure they will try and do something… there are no real actual penalties or laws, even though the lands department can hit them with an investigation, and basically can try and see if there is any wrongdoing whatsoever, there’s nothing else they can try and do besides try to basically ask for investigations. They will have to make a big case for the police to get involved.”
Options For Consumers
Where do consumers go? Where can they turn if they feel they’ve been hustled or scammed by a developer?
“I’m stuck on where they can go because I don’t know where they can go. The best place to go, I hate to say it is to the press it seems. Unless you make your case big enough, no one cares it seems… I’ve found the best place to go is the press. If it’s big enough and the story is high enough, the press will report it and you might get some remedies there… but I don’t know where to say to go, despite all my research…
I think of the things to look out for is to be very firm in your mind, what you want to do. I think it’s more of an attitude than it is things to look out for. Each developer and each of their sellers, each of their real estate agents have their own tactics and their own language and their own way of selling their specific building. You can’t decipher all of them…. the most important thing to understand that there are a few basics. There’s this concept called the gross floor area and there’s this thing called the efficiency ratio. You should always ask how big your apartment actually is…” said Yujing.
Are these property scams or are some developers taking advantage of the average consumer’s ignorance? Are the majority of property developers in Hong Kong playing by the rules, while a few hustlers tarnish their image?
After speaking to Yujing, It seems as if the property market heavily favors developers. Unless consumers know what to look for, they may find themselves paying for a unit that is smaller than advertised, living on the fictitious floor of a building and worst of all, paying way more than market value for a unit, all because the building’s numbers may have been manipulated by an inside purchase.
Unfortunately, in Hong Kong, the majority of stories published on property scams will have consumers thinking that gangsters with fake IDs, posing as debt collectors are the only problem in the property market, while a few white-collar thugs, who don’t adhere to REDA’s standards frequently commit legit hustles and scams
It’s all good, it’s the legal hustle of Hong Kong’s surreal estate.