Hong Kong’s competition watchdog has taken legal action against two real estate agencies for allegedly fixing sales commissions with rival firm Centaline, which has been granted leniency in exchange for cooperation.
The Competition Commission alleged on Tuesday that Midland Holdings’ two subsidiaries – Midland Realty and Hong Kong Property – had fixed a minimum net commission rate of 2 per cent with Centaline Group’s Centaline Property Agency and Ricacorp Properties.
By fixing commissions paid to real estate agencies by property developers, the firms had, in effect, limited the rebates that could be offered to property buyers, thus manipulating the final price of properties, the antitrust watchdog said in a statement.
“The rebate is a significant factor that buyers consider when they choose an agency, because the higher the rebate, the less buyers have to pay,” the commission’s head of investigations Vincent Wong said in Cantonese at a press conference on Tuesday evening.
“As rebate is an element that affects the price that a purchaser will ultimately pay for the relevant property, the Commission has reasonable cause to believe that such arrangements amount to serious anti-competitive conduct in the form of price fixing,” the commission’s statement read.
The watchdog said in its statement that fixing commissions amounted to a contravention of the First Conduct Rule of the Competition Ordinance, which prohibits market participants from preventing, restricting, or distorting competition.
But it did not say how many people were affected by the alleged price fixing, or the benefit it had brought to the firms.
The watchdog said it launched proceedings against executives including Midland’s Deputy Chairman Angela Wong and CEO of Hong Kong Property Services Dave Ma. Three others are from Midland Realty – CEO for residential in Hong Kong and Macau Sammy Po, Director of Hong Kong district Jimmy Lee, and COO for Kowloon and the New Territories Kelvin Cheong.
The commission’s Wong said senior management at Midland and Centaline held six meetings between October and December last year, agreeing to ramp up controls on the rebate that agents could offer to clients.
The minimum net commission rate of 2 per cent was decided on during the last meeting in December, and frontline staff at the four subsidiaries were notified via internal memos issued around the same time.
The commission is seeking remedies before the Competition Tribunal, including the disqualification of the five directors; an admission that Midland, with the five, had violated the First Conduct Rule; and costs from the five defendants for the investigation and legal proceedings.
The Estate Agents Authority (EAA) – a statutory body established in 1997 in accordance with the Estate Agents Ordinance – had declined to comment on whether Wong’s EAA membership would be revoked, local media reported.
Rival granted leniency
Rival firm Centaline, which was also implicated in the price-fixing investigation, submitted a leniency application to fully cooperate with the watchdog. In exchange, the commission would not launch legal proceedings against the company.
But Centaline could still face legal action, the commission’s legal services executive director Lester Lee said at Tuesday’s press conference, though not from the commission but the homebuyers affected by the price-fixing.
The commission hailed the leniency policy as an asset that enhances deterrence by “offering a strong, clear, and transparent incentive” to report and cease anticompetitive conduct.
Chief Executive Officer of the Commission Rasul Butt said in the statement that the prices of residential properties “should be determined by market forces and be free from manipulation by industry players.”
“Home ownership is a much cherished dream for many families and individuals in Hong Kong, and it is by far the most significant financial commitment one can ever have,” he said. “[T]he Commission wishes to reiterate that it will spare no effort in disrupting hardcore cartels that affect people’s livelihood, particularly in sectors such as the property market.”
The investigation comes amid an ailing property market that has seen a decline in home sales and property prices. In tandem, land sales have also taken a significant hit, resulting in a shortfall of more than 80 per cent.
Meanwhile, Midland said it has always attached great importance to regulatory compliance. It resumed trading on Wednesday, after trading was halted at around 2 pm on Tuesday.
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