Midland Holdings subsidiaries Midland Realty and Hong Kong Property are being sued by the Competition Commission for alleged price-fixing over the sales that harm the benefits of buyers.
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The watchdog claims Midland Holdings fixed the minimum net commission rate at 2 percent with Centaline Group's Centaline Property Agency and Ricacorp Properties.
But no one from Centaline was named as defendants by the commission, which said the group had assisted its investigation in exchange for leniency.
The commission warned this does not mean the group no longer needs to bear legal responsibility.
In a writ filed to the Competition Tribunal yesterday, the commission sued Midland Realty and Hong Kong Property, parent company Midland Holdings as well as five executives for allegedly breaking the first conduct rule of the Competition Ordinance.
The five are Midland deputy chairman Angela Wong Ching-yi; Sammy Po Siu-ming, chief executive officer for residential; Jimmy Lee Chung-yin, director for Hong Kong district; Kelvin Cheong Tsz-chuen, chief operation officer for Kowloon and the New Territories; and Hong Kong Property chief executive officer Dave Ma Tai-yeung.
The commission called on the tribunal to declare the five had violated the first conduct rule, impose a fine on them and disqualify them from the board. The net commission is what is paid by developers after deduction rebates to buyers, and the two groups' agreement would restrict the maximum level of rebate their frontline agents could offer to purchasers.
"The rebate is a major factor for buyers to consider when they choose an estate agent because the higher the rebate is then the lower the amount buyers have to pay," said the commission's head of investigations, Vincent Wong.
For example, if a land developer offers a 3 percent commission to estate agencies for a HK$10 million apartment the fixed 2 percent net commission rate means buyers can only enjoy a 1 percent rebate.
It also means buyers cannot choose an agency based freely on the rebate they offer, Wong said.
He said senior managers of Midland and Centaline held six meetings between October and December last year to discuss the "business environment."
They met at the Royal Hong Kong Yacht Club, where they agreed to step up control on the amount of rebate frontline agents could offer to their clients.
The groups had three other meetings before they finally fixed on the 2 percent net commission rate during the last meeting on December 15, Wong said.
Both groups then issued internal memos with almost identical wording, directing their agents to observe a minimum of 2 percent commission on first-hand property transactions.
"Housing is a major livelihood issue in Hong Kong, while the behavior of the two estate agent groups, which are leading enterprises in the industry, would have a significant impact on the market," said Patrick Kwok Pak-chung, the commission's executive director for operations.
"The commission has been paying attention to the issue and sought information from persons involved," he added. "We intervened soon after the groups achieved the agreement, and we believe we have minimized the agreement's impact on the market."
Stewart Leung Chi-kin, executive committee chairman of the Real Estate Developers Association of Hong Kong, said he was surprised by the news, saying such price-fixing behavior was unacceptable.
Property developers would never agree with an attempt to manipulate the market, he added.
Midland last night said it is seriously treating the matter and has always attached great importance to regulatory compliance in all aspects of its operations and will vigorously defend its position. The company will resume trading of its shares today.
Centaline Property founder Shih Wing-ching did not comment as legal proceedings had started.Editorial: Page 4
