I. Key Focus
The real estate industry leads the development of manufacturing and service industry. Therefore, it is an important economic sentiment indicator, and its development is highly emphasized. Since real estate targets are immovable, regional, durable, and of value preservation and high value, the information, price estimation, and regulations on real estate are not well known by the general public. As a result, the real estate market is information asymmetric, in which the seller enjoys advantageous information and has price influence. The ordinary consumers are not as experienced in real estate transaction. In addition, the limited resources on real estate market information, complicated trading process, and specialized regulations all increase the trading risk. Therefore, the safety of real estate transaction is an important policy concern.
To create a benign environment for real estate transactions, design a comprehensive trading system, and reduce disputes, the FTC promulgated guidelines and policy statements on real estate operation and transactions. The regulations were based on FTC's experience since 2001, the development of international competition laws, and legislations/law enforcement experiences from different countries. This study explores the competition policy and law enforcement on real estate industry, as well as examines real estate regulations based on the Fair Trade Act. In this project, FTC decisions were analyzed statistically to summarize major violations to the Fair Trade Act regarding real estate transactions, in order to estimate the benefits and limitations of the competition mechanism.
The study is divided into five chapters. Chapter I is the introduction to our motive and objective. Chapter II briefly analyzes the market structure and competition in real estate industry. Chapter III is the development of real estate regulations. We compare the regulatory scope of Fair Trade Act and regulations governed by the competent authority on real estate operations. Chapter IV analyzes violations to the Fair Trade Act on real estate transactions. It is an illustration to types of violations to the Fair Trade Act in the real estate industry. Chapter V presents the conclusion based on the above analysis. Suggestions were proposed based on the competition mechanism and limitations to law enforcement so thatthe order and competition in real estate market can be maintained.
II. Methodology
We collect cases related to the real estate since the FTC was established. In addition, we collect and analyze literature and statistical data to summarize the types of Fair Trade Act violations in the real estate industry. Then, we study the behaviors in real estate industry and the application of Fair Trade Act in this industry.
III. Conclusion
The following are the conclusions drawn from our study on the characteristics of real estate and the benefits/restrictions on the competition policy.
(1) Industry Characteristics
Real estate transactions involve complex trading procedure and regulations, and relevant information is often incomplete. Consequently, the information is asymmetric and may lead to potential disputes. Real estate is of high value, as compared to other products, and the transaction often involves millions of dollars. Most consumers only have once or twice real estate transaction in their lifetime and lack special knowledge. This also increases the potential of disputes. For example, a broker may take advantage of information asymmetry and omit the difference and the substitutive relationship between a negotiation fee contract and the Ministry of the Interior's version of "offer letter." If the broker charges the negotiation fee without informing the buyer that it may choose the Ministry of Interior's version of "offer letter" and the difference and substitutive relationship between the two, it is a violation of Article 24 of the Fair Trade Act. Moreover, if a consumer does not know his rights and obligations when signing relevant contracts as well as the difference between the "Standard Form Contract for Real Estate Transaction" and the "Items to be Included or not in the Standard Form Contract" promulgated by the Ministry of Interior, more disputes my arise in the future.
(2) Benefits and Impacts of the Competition Policy
Based on previous FTC decisions, real estate disputes or unfair competition are mostly pre-sale housing disputes. After the FTC issued the Guidelines on Sales of Pre-sale Housing and the Standard Contract Form was promulgated by the Ministry of Interior and the Consumer Protection Commission, real estate developers follow the regulations in their transactions and there are fewer violations to Article 24 of the Fair Trade Act. However, we also discovered the existences of "single project companies." Such construction companies are established for the purpose of a single construction project and the company soon shots down or closes when the project is completed.Under this situation, houser buyers' rights will be seriously damaged in case there are future disputes. Therefore, the government shall pay close attention to such instances. The capital scale, value or profits of construction product, and special technologies required for real estate developers are higher than other industries, and the intense market competition for real estate indistru also leads to ever-changing marketing scheme. Hence, it is important to improve the special administration on real estate industry.
Regarding advertisements and price difference in real estate brokers, the FTC and the Ministry of Interior coordinate each other in their regulatory tasks. According to Article 19 of the Real Estate Broking Management Act, a broker agency or a broker shall not receive any price difference or other repayment. Also, under this Act, a broker agency should only receive the standard repayment out of the real fixed price or rental price specified by the central regulatory agency. As a result, the Ministry of Interior set the standard repayment for real estate brokers. The original intent of this Act is to guide the industry into fair competition. However, brokers always want to maximize profits and often charge the cap of the standard fee. Brokers even allege that they complies with government regulation sometimes, which creates staggered competition that is harmful to consumers. The regulatory authority shall pay close attention to the impacts of this Act upon free completion and consumer rights in the long run.
(3) An Analysis on the Trend of Real Estate Transactions
Recently, the growing popularity of the internet introduces distribution and marketing channels for real estate industry different from the past channels. More and more people consume and collect data and price information on the internet and thus on-line marketing and advertisement have become an emerging mode of consumption. Brokers have developed relevant on-line systems, in which multiple real estate brokers or commissioners share the information system and create a joint-sales website. Cases ready for sale are posted on-line. As a result, other brokers also have access to sales targets from different companies and can solicit buyers. The use of the internet is a trend for future real estate transactions.
With the economic development, the increase in national income and the advancement in education, consumers are more concerned of their rights. The passage of Fair Trade Act, Consumer Protection Act, and the Real Estate Broking Management Act gives consumers more protection and imposes responsibility and obligations on the enterprises.
IV. Suggestions
The following are our suggestions on the regulatory scheme for real estate industry in order to maintain the order of real estate market, eliminate consumer disputes, and build a good competition culture.
(1) Set Specific and Comprehensive Competition Regulations
Currently, the FTC regulations on real estate transactions include the "Fair Trade Commission Guidelines on Sales of Pre-sale Housing," "Fair Trade Commission Guidelines on Real Estate Brokerage," "Fair Trade Commission Guidelines on the Joint-sales among Real Estate Brokers," and "Fair Trade Commission Guidelines on Cases of Real Estate in Advertising." The Ministry of Interior promulgated the "Real Estate Broking Management Act" and issued the "Standard Form Contract for Pre-sale Housing," "Standard Form Contract for Existing Home Transactions," "Items to be Included and not in the Standard Form Contract for Existing Home Transactions," and the "Items to be Included and not in the Standard Form Contract for Real Estate Brokerage." To keep up with the industry development and maintain competitions, relevant real estate regulations are constantly reviewed and amended to meet the trends of real estate industry development. The Ministry of Interior sets the "fee standards" pursuant to the Real Estate Broking Management Act, which shall be regularly reviewed by the regulatory authority based on the reality of market competition, in order to balance industry competition and consumer rights.
(2) Improve the Transparency of Trading Information to Reduce Disputes
The information asymmetry among buyer and seller is the major reason for real estate disputes. Therefore, the government shall integrate relevant real estate information, enhance the transparency, and disclose relevant trading information. For example, the real estate data controlled by the public sector, its registration and transaction allow buyers and sellers to better evaluate a real estate transaction. The announcement of law violations and disputes serves as a reminder to consumers. The complaint and service program allows consumers to supervise potential violations.
The government shall also convince and push real estate companies to comply with laws and regulations, and to disclose complete trading information based on self-regulation in order to offer consumers high-quality housing and wide-ranging services. As a result, the transaction can be based on public information and transparent information, which effectively reduces the numbers of trading disputes. Moreover, house buyers may sue real estate companies for compensation pursuant to Article 31 of the Fair Trade Act and the court may impose a compensation not exceeding three times the damage pursuant to Article 32 of the same Act. According to the Civil Code, the buyer has the option to rescind the contract or to ask for a reduction of the price for the product defect. A house buyer may choose the civil proceedure for relief according to the above Fair Trade Act or Civil Code. It deters unlawful enterprises from transferring costs of an administrative fine to house buyers.(3) Track the Development of Internet Marketing to Maintain Market Competition
The internet has an increasing impact on house purchase. The internet interface is an innovation to the real estate market. Websites control the business development and the website with physical links makes enterprises more competitive. In other words, internet marketing has become the mainstream. The public and the FTC are most concerned about how to prevent competition restraints resulting from the joint-sale system after the internet marketing has become the mainstream. To prevent competition restraints and unfair competitions, although the FTC already promulgated the "Fair Trade Commission Guidelines on the Joint-sales among Real Estate Brokers," we still need to pay close attention to the development and competition dynamics of on-line real estate market, in order to maintain market order and protect consumer rights.
(4) Reinforce Corporate Supervision to Ensure Public Interests
Since real estate has a permanent value, if a "single-project company" applies untrue advertisements for the sandwich design, it may constitute a violation of construction regulations in the future and cast a concern on public safety or even seriously damage the public welfare. Therefore, the regulatory authority shall make sure the good administration of newly-established construction companies and scrutinize the issuance of construction permit and use license, in order to the numbers of reduce disputes in construction projects. The FTC will also impose heavy penalties on such violations to the Fair Trade Act. If the unlawful behavior contains fraud, the case will be sent to the prosecutor and police system for further investigations.