HK's Midland faces legal action over alleged price-fixing on sales commission

Hong Kong's antitrust watchdog is taking legal action against three companies under property giant Midland and five of its directors for allegedly fixing sales commission of first-hand residential properties with rivals Centaline Property Agency and Ricacorp Properties.

According to the official statement by Competition Commission, the watchdog said between December 2022 and March 2023, Midland and its competitors Centaline Property Agency and Ricacorp Properties agreed to fix the minimum net commission rate for the sale of firsthand residential properties in Hong Kong at 2%, which effectively fixes or restricts the maximum level of rebate their frontline agents could offer to the purchasers of such properties.

Given that rebate is an element that affects the price that a purchaser will ultimately pay for the relevant property, the watchdog believed such arrangements amount to serious anticompetitive conduct in the form of price fixing, and exchange of competitively sensitive information, which breaches the First Conduct Rule of the Competition Ordinance.

Five executives have also been identified as defendants of the case, including Angela Wong Ching Yi, deputy chairman and managing director of Midland Holdings; Po Siu Ming, chief executive officer (Residential – Hong Kong & Macau) and director of Midland Realty; Lee Chung Yin, director of Hong Kong district of Midland Realty; Cheong Tsz Chuen, chief operation officer of Kowloon and New Territories of Midland Realty, and Ma Tai Yeung, chief executive officer of Hong Kong Property.

The Commission is seeking a declaration that Midland has contravened the First Conduct Rule, and the five defendants have been involved in the contravention; an order for pecuniary penalties to be imposed on them and director disqualification orders against the five defendants.

The case was discovered earlier this year, when the watchdog found that the senior management of Midland and Centaline met six times between October and December 2022 to discuss how to improve business environments and ways to reduce costs.

At the sixth meetup in December 2022, they reached an agreement to fix the minimum net commission rate for the sale of firsthand residential properties in Hong Kong at 2%. In late December, Midland and Centaline each issued an internal memo in almost identical wording, directing their agents to observe the 2% rate starting 1 January 2023.

The Commission has then opened a probe into the incident and offered a leniency agreement to Centaline and its subsidiary Ricacorp Properties when they have fully cooperated with and provided substantial assistance to the investigation.

“The industry[...]must understand that no matter how many decades a certain custom has been adopted, a breach of the regulations is still a breach of the regulations,” said Samuel Chan Ka Yan (pictured centred), chairman of the commission.

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Rasul Butt , chief executive officer of the Commission, said, “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. Intermediaries such as real estate agencies have a vital role in facilitating the buying and selling of properties and by tackling a cartel formed between leading real estate agencies."

The Commission aims to drive home the message that prices of residential properties, and any element that affects the prices that purchasers will ultimately pay for the properties, should be determined by market forces and be free from manipulation by industry players, he added.

"This is no different from any transaction involving other goods and services and which are similarly subject to competition law. Through today’s enforcement action, the 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," he added.

MARKETING-INTERACTIVE has reached out to Midland for a statement.

According to the watchdog, the First Conduct Rule of the Competition Ordinance prohibits businesses from making or giving effect to an agreement or a decision of an association, and engaging in a concerted practice, with the purpose of harming competition in Hong Kong.

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