Home­own­ers locked i

Home­buy­ers are locked into prop­erty man­age­ment con­tracts. finds de­vel­op­ers both sell and man­age prop­er­ties. Own­ers can­not ex­er­cise com­pet­i­tive ten­der­ing with­out 50 per­cent votes to re­move the man­ager. Res­i­dents’ share can fall be­low the 50-per­cent thresho

China Daily (Hong Kong) - - CRITICAL HK ISSUES -

Prop­erty de­vel­op­ers can, un­der ex­ist­ing Build­ing Man­age­ment Or­di­nance (BMO) reg­u­la­tions, foist their own prop­erty man­age­ment sub­sidiaries on home­buy­ers. The agree­ment — Deed of Mu­tual Covenant (DMC) — to con­tract a prop­erty man­age­ment com­pany for an en­tire de­vel­op­ment, can be sealed by the first unit buyer.

Davis Wong, pres­i­dent of the Fed­er­a­tion of Hong Kong Prop­erty Man­age­ment In­dus­try, cau­tions that “The covenant can eas­ily run over 100 pages. It is im­pos­si­ble for the first pur­chaser to scru­ti­nize it care­fully, es­pe­cially when the buyer is ea­ger to move into a new apart­ment.”

Even for multi-block hous­ing com­plexes like Wham­poa Gar­den, Mei Foo Sun Chuen and La­guna City, the first pur­chaser sign­ing the DMC con­tract locks in all res­i­dents to the doc­u­ment — with­out choice.

In many cases, de­vel­op­ers would name their sub­sidiary com­pa­nies to man­age the prop­erty un­der the DMC. If in­di­vid­ual home­own­ers later find the man­ager’s per­for­mance un­sat­is­fac­tory, agree­ment is needed from 50 per­cent of un­di­vided shares to ter­mi­nate the con­tract. This is of­ten dif­fi­cult to muster.

In­di­vid­ual own­ers are at the mercy of cor­po­ra­tions who hold con­sid­er­able shares of shop­ping malls or park­ing lots. If de­vel­op­ers rent th­ese com­mer­cial units out rather than sell them, de­vel­op­ers re­main the dom­i­nant own­ers.

This fun­da­men­tal in­equity im­posed on cit­i­zens in­vest­ing their life sav­ings, con­tin­ues with­out chal­lenge. The BMO mech­a­nism, in the mat­ter of prop­erty man­age­ment, fa­vors de­vel­op­ers.

On­go­ing lit­i­ga­tion

The hun­dreds of clauses in the le­gal jar­gon of the DMC can hide traps for home­buy­ers. Wong cites many cases of un­fair DMCs signed in the 1980s where own­ers had to pay main­te­nance for pub­lic ar­eas, or main­te­nance of ex­ter­nal walls, while ad­ver­tis­ing in­come de­rived from them go to the de­vel­op­ers.

Leg­is­la­tor and a mem­ber of the Busi­ness and

The low par­tic­i­pa­tion rate of in­di­vid­ual own­ers at gen­eral meet­ings is an­other rea­son why DMC man­agers have wide lee­way to take ma­jor de­ci­sions uni­lat­er­ally.

Own­ers’ cor­po­ra­tion op­tion

Apart from the DMC, own­ers can form their own in­de­pen­dent body cor­po­rate to hire and su­per­vise build­ing man­agers. It is not manda­tory to set up an own­ers’ cor­po­ra­tion un­der the BMO, but a hous­ing es­tate can have only one DMC man­ager and one own­ers’ cor­po­ra­tion. Ter­mi­na­tion of the own­ers’ cor­po­ra­tion has to con­form with the pro­vi­sions in the BMO that ap­ply to the DMC.

Re­spond­ing to a China Daily en­quiry, the Home Af­fairs Depart­ment con­firms there are cur­rently about 40,500 pri­vate build­ings in Hong Kong, of which 26,100 are ser­viced by prop­erty man­age­ment com­pa­nies. About 8,800 build­ings are man­aged by own­ers’ cor­po­ra­tions or other in­for­mal res­i­dent bod­ies.

About 5,600 build­ings are with­out any form of prop­erty man­age­ment.

2014 pub­lic con­sul­ta­tion

In 2014, the Home Af­fairs Depart­ment launched a pub­lic con­sul­ta­tion ex­er­cise to re­view the BMO. The key points were to con­sider low­er­ing the thresh­old for ter­mi­nat­ing the DMC from 50 per­cent to 30 per­cent ag­gre­gate share, and to limit the DMC ap­point­ment term to five years.

The depart­ment re­tained the thresh­old for ter­mi­na­tion at 50 per­cent, cit­ing a lack of con­sen­sus to lower it. The Depart­ment feared that “low­er­ing the thresh­old for the ter­mi­na­tion of ap­point­ment might lead to dis­putes and af­fect the qual­ity of build­ing man­age­ment”.

How­ever, the Home Af­fairs Depart­ment pro­poses that the term of DMC ap­point­ment be au­to­mat­i­cally ter­mi­nated five years af­ter the for­ma­tion of the own­ers’ cor­po­ra­tion. That would al­low the own­ers’ cor­po­ra­tion to rene­go­ti­ate terms, or re­place the DMC man­ager through open ten­der. So far, no reg­u­la­tory re­vi­sion has

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