Pricing list: Striking a balance between transparency and flexibility

Pricing list: Striking a balance between transparency and flexibility

WHEN the developers of GEM Residences released last week a full price list for all 578 units ahead of its launch on Friday in the name of greater transparency, the move was largely seen by many in the industry as a publicity gimmick to boost sales.

One view is that it would not hurt to release a price list and stick to it on the first day of sales, since the likelihood of being able to mark up prices on strong demand is low under current market conditions.

Others feel that there is no need to overplay the usefulness of a price list that is only valid for as long as developers stick to it. After all, no developer will wittingly deny themselves the flexibility of adjusting prices subsequently to maximise profits.

The timing of the price-list release - just one day before the balloting day of rival project Stars of Kovan by Cheung Kong Property - has added to the perception that there is a "strategy" behind it.

While the motivation of GEM Residences' developers Gamuda, Evia Real Estate and Maxdin is up for interpretation, the move has opened a can of worms for the industry.

Currently, it is not mandatory for developers to disclose prices of released units in private residential projects until balloting day, though they usually provide an indicative price range during the preview. While the indicative price range is often close to the actual price on balloting day, there may be occasional surprises.

This is unlike executive condominiums (ECs), for which developers need to submit their price list to the HDB and release that price list in showflats two days before the sales. Developers usually stick to the price list at least during the balloting, unless they notify the HDB of any change.

Granted, no developer would like to tie themselves down to a publicly released price list, lest they feel the need to make adjustments during the launch. Under already tepid market conditions, developers will likely bemoan any additional disclosure burden. It would then appear that an open price-list policy will not be widely adopted if there is no regulatory requirement for it.

This issue on price list was not addressed when Singapore passed amendments last year on the Housing Developers (Control and Licensing) Act to tighten requirements on showflats and legislate the provision of detailed sales data by developers on a weekly basis.

While a high level of data transparency here allows buyers to check on past transactions to evaluate if advertised discounts are real discounts vis-a-vis transacted units of similar size, floor and orientation in a project, there are no past transactions at the outset for comparisons within a project to be made for the first batch of released units.

If demand turns out much stronger than expected, a developer may choose to change its price list, even several times on a launch day, giving rise to what some industry players call a "dynamic price list".

Hong Kong has chosen a middle-of-the-road approach to pricing transparency since April 2013, in a bid to strike a balance between enhancing market transparency and allow a certain degree of flexibility for developers. To enable buyers to have a fuller picture of prices for "a considerable number of units in a development", the Chinese territory requires a minimum number of units in each price list to be released at least three days before sales begin.

For a development with 30 or fewer units, all units must be included in the price list; one with more than 30 but fewer than 100 units has to produce a price list with at least 30 units. For a development with 100 units or more, the developer has to release at least 20 per cent of the units in the first price list, subject to a minimum number of 50 units, and at least 10 per cent of the units for each subsequent price list.

Developers in Hong Kong follow a prescribed format for the price list, hence facilitating easy comparison between different developments by prospective buyers. No expression of intent is sought before the price list is made available.

Hong Kong goes further in requiring an unmodified showflat be provided too if the developer is to make available a showflat for viewing, and for sales brochures to be released at least seven days before sales begin. Of course, even under the Hong Kong regime, a developer may still choose to change prices during the launch. But at least, that partial price list provides a basis of comparison for prospective buyers.

For most people, buying a property is the most significant investment to be made in their lifetime - one that dips into their life savings, CPF and on top of that, ties them down to a debt that stretches up to 30 years. Having greater price certainty will aid decision-making, particularly with the total debt servicing ratio (TDSR) in place. Currently, it is also common for developers to release units in batches. This "sell by batches" approach enables developers to test the market and adjust their sales strategy in light of market response. But often, there may be no clarity on which units are being released and which are set aside for subsequent release. Some developers have gone on, after a dismal showing at a launch weekend, to report a lower number of released units than what was earlier said, so as to make the percentage take-up of released units look better.

As a result, prospective buyers for a private residential project cannot be fully certain if subsequent "new release" touted by the developer are new released units or leftover units from earlier batches. And without having seen an original price list to begin with, they have to take whatever price discounts dangled by developers with a pinch of salt. There have also been instances where prices were marked up for unsold units in a project that is nearing or has obtained temporary occupation permit, and then having a discount applied on the marked-up price list.

While each property development is differentiated from the next not only on pricing, price remains a major component of a property purchase.

On that note, there is room for a more balanced approach to price transparency - Hong Kong's example may be worth some consideration here. While developers should have all the flexibility to tweak their pricing strategy to maximise profits, greater transparency will allow prospective buyers to truly enter with their eyes open.

This article was first published on May 27, 2016.
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