By Hong Liang

Hong Kongers take pride in being cool-headed, savvy consumers. But when it comes to buying their homes, the most important purchase a consumer is likely to make in his lifetime, caution and decorum are often thrown to the winds.

As the Hong Kong economy is happily rolling along its recovery path, the property market has regained the festive mood of a county fair, where snake-oil salesmen mix with honest growers in luring free-spending customers and their happy families. It came as no surprise that newspapers in recent months were flooded with reports of unfair practices by developers and their agents in pushing the sales of whatever they promise to build.

What's surprising, however, is that so many home-buyers in Hong Kong could still fall into the same sales traps that have been used time and again in the past. More and more mainland property agents in Shanghai, Guangzhou and Shenzhen have reportedly borrowed some of these unsavory tactics to push the sales of apartments to unwary home-buyers in those cities.

Unscrupulous developers and their agents love to play on the common perception, fanned by the gullible press, that property prices in Hong Kong and the major mainland cities will continue to rise at an ever-faster rate. Past experience shows that such a prophecy could fulfil itself until the bubble burst when the cost of money, or opportunity cost, took a sudden swing in the opposite direction.

But home-buyers seem to have a short memory of those harsh lessons they learned in the past. A bubbly economy, easy credit and low interest rates are the unfailing siren call for the property rush. Many prospective home-buyers blindly believe that if they miss the opportunity to buy at today's price, they will never be able to afford their dream homes again. In the stampede, many eager home-buyers, with families in tow and checkbooks in hand, are being pushed into an open trap.

To set off the buyers' stampede, it is quite common for a developer to tease the market by selling a few apartments in its development at below market prices. The publicity generated by the long waiting lines of prospective buyers outside the developer's sales office would be almost guaranteed to draw a big crowd when the other apartments in the development are put up for sale at, or above, market prices.

Many home-buyers were thus pressured into signing sales contracts and handing over their deposits to fast-talking salespeople in noisy and crowded sales offices. Many buyers were denied access to detailed pricing information while being hurried by the salespeople to complete the transaction.

Property developers have maintained that they are usually not involved in the "retail" level. It is not uncommon in Hong Kong for a developer to sell blocks of apartments in a development to a few property agents for resale to the public. Sometimes, the properties change hands among property agents, or speculators, several times before being sold on the open market.

The government has introduced numerous measures to try to minimize malpractice by enhancing the transparency of information and raising the standards of service provided by property agents and their salespeople. But property market sources have noted repeatedly that an orderly market could only be ensured when prospective buyers were able to keep a cool head.

In fact, property buyers are putting pressure on themselves because they are too afraid to miss the boat. Of course, developers and property agents are often blamed for planting the fear of short supply and escalating prices in the minds of many prospective home-buyers. If enough people want to believe that, there is little the government can do in a free market to protect them from getting fleeced by the overly aggressive developers and property agents.

To be sure, the supply of property will always be tight in land-scarce Hong Kong, and demand will remain strong in the foreseeable future as the Hong Kong economy is expected to grow at a brisk pace. But it is most unlikely that property prices will increase at as inflated a rate as they did in the years before the 1997 crash that was triggered by the Asian financial crisis.

We are living in a very different economic environment from the 1990s, when years of negative interest rates had greatly inflated asset values not only in Hong Kong but also in various other Asian cities. A healthy and vibrant property market is, of course, beneficial to Hong Kong's economy. Based on supply and demand trends in the longer term, economists have predicted that property prices in Hong Kong will increase at rates that are more or less in line with economic growth.

It is most unlikely that this projected trend will be disrupted by any sudden large influx of foreign capital, which is now largely dispersed among various mainland markets rather than concentrated in Hong Kong as it was in the past. The speculators will always be there, but their ability to dominate the market is seen as being constrained by the relative cost of capital.

Cold facts and sensible analyses don't support the prophecy that property prices will surge to unaffordable levels. Therefore, home-buyers should resist the urge to sign on the dotted line before giving due consideration to all relevant information about the property and its price. There is really no reason to rush.

(China Daily August 29, 2006)