People look at advertisements displayed at a property agency in Hong Kong on May 31, 2020. (ROY LIU / BLOOMBERG)

Competition Commission Executive Director (Legal Services) Lester Lee said that the commission’s leniency policy can play a role in deterring possible price-fixing cartel behavior in the future.

“The essence of the leniency policy is that companies involved in collusion must quickly provide assistance to the commission. If two colluding companies apply to the commission for leniency on the same day, the commission will consider the order in which they have applied for leniency. The commission will also consider the importance of the information provided by the company,” Lee said on a local radio show on Wednesday.

According to the Competition Commission’s investigation, the senior management of Midland and Centaline met six times between October and December 2022 to discuss how to improve the business environment, and ways to reduce costs 

“If a company is the only single ringleader in the cartel case, or has coerced other parties to engage in cartel conduct, it cannot apply for leniency,” Lee said.

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The Competition Commission on Tuesday announced the commencement of proceedings in the Competition Tribunal, accusing one undertaking (Midland Holdings and its real estate agents Midland Realty International and Hong Kong Property Services collectively referred to as “Midland”), and five individuals (Midland senior executives) — who are allegedly involved in fixing the minimum net commission rate for the sale of firsthand residential properties in Hong Kong at 2 percent— of collusive pricing and violating the First Conduct Rule of the Competition Ordinance.

Centaline Property Agency and Ricacorp Properties (referred to collectively as “Centaline”) have signed a leniency agreement with the commission. In exchange for the Competition Commission not starting any legal proceedings against Centaline and its officers or employees, the real estate agent has agreed to provide substantial and continuous assistance to investigations and proceedings that may reduce the commission’s burden of proof.

In addition, Centaline must keep all aspects of the leniency application and the leniency process confidential. It must also adopt a corporate compliance program. The real estate agent may also receive an infringement notice issued by the Competition Commission, requiring it to admit liability for its alleged contravention of the First Conduct Rule.

“If the rebate levels are coordinated among the real estate agents, the buyers will receive less in rebates, which means they will have to pay higher prices for purchasing the properties,” the executive director added.

According to the Competition Commission’s investigation, the senior management of Midland and Centaline met six times between October and December 2022 to discuss how to improve the business environment, and ways to reduce costs. At the sixth meeting in December last year, they reached an agreement to fix the minimum net commission rate for the sale of firsthand residential properties in Hong Kong at 2 percent. 

In late December, Midland and Centaline each issued internal memos, which were almost identical in wording, directing their agents to observe the 2 percent rate starting Jan 1, 2023, unless the agents had secured a director’s approval not to do so.

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The commission has reasonable cause to believe that such an agreement amounts to serious anticompetitive conduct in the form of price-fixing, and/or exchange of competitively sensitive information, in contravention of the First Conduct Rule.

In a corporate statement posted on the Hong Kong Stock Exchange on Tuesday, Midland Holdings said, “the company places high importance on the matter and has always attached great importance to regulatory compliance in all aspects of its operations and will vigorously defend its position,” and stressed that “it reserves the right to challenge different aspects of the proceedings if and as appropriate.”

Midland noted that other property agencies were believed to have participated in the alleged contravention, but the Competition Commission has exempted those parties from the proceedings, the statement added.