Property

Rules To Sell By

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Regulating the real estate industry in Hong Kong is, under the very best of circumstances, just a little bit easier than pulling teeth. Though bound by contract law, Hong Kong’s property titans — developers, agents, property managers — often operate, as standard practice, in ways that would baffle most professionals overseas. Salespeople don’t need to be licensed if they work for a licensed agent, and penalties for failing to uphold basic professional standards such as disclosing a conflict of interest or providing Land Registry reports for example are punished with a slap on the wrist, if at all. 

However, with prices skyrocketing and primary sales along with them, the Residential Properties (First-hand Sales) Ordinance came into effect in 2013 to force developers to clarify what they were selling, flat sizes, building facilities to expect and so on. The Ordinance now has its own authority. Another side effect of rising prices is a spike in the number of Hongkongers looking to invest in hot markets like London, Tokyo or Berlin, or preparing for retirement by purchasing in Thailand, Australia or Canada. According to research by IP Global last year, the number of Hongkongers considering an overseas property investment in the near future doubled over 2016. As such, the statutory Estate Agents Authority (EAA) decided it was time to lay down some rules for off-plan overseas sales. 

Why Now? 
The EAA circular comes at a time when Hong Kong has become a part of a strategic sales plan for overseas developers — many of whom need overseas down payments to complete financing. In early 2017, the Securities and Futures Commission (SFC) began investigating defaulted property sales projects that could cost Hong Kong investors up to $500 million. Manchester’s  Angelgate by Pinnacle Alliance was accused of being a scam, though Pinnacle has stated it simply needs more funding. In 2016, Sotheby’s International Realty shuttered its office, citing concerns over legalities involving its local partner. Those were simply the most high profile cases of possible fraud in recent years. 

As a matter of course, and under the Estate Agents Ordinance (EAO), agents in Hong Kong are not required to have a local license to sell property that is outside the SAR, and must only state on marketing materials that they are not licensed to sell Hong Kong property in Hong Kong. The EAA, like anyone that pays attention, noted the rise in overseas purchases by Hongkongers, and reacted based on the fact that purchasing overseas is not as easy as it may seem at first glance. “In light of increasing public concern about Hong Kong people buying overseas properties and some of these properties offered for sale are handled by licensed estate agents, the EAA issued a practice circular on the sale of uncompleted properties situated outside Hong Kong (“UPOH”), with a view to enhance the professional standard of the licensed estate agents so as to provide consumers with greater protection,” said a spokesperson in the Corporate Communications Section for the EAA, typically remaining unidentified. 

Despite a desire to protect consumers, the EAA has little to no legal authority, and like the Royal Institution of Chartered Surveyors (RICS), it is an industry body made for self-regulation and promotion of best practices industry wide. Hong Kong buyers must remain sceptical. That said, “Since the practice of licensed estate agents is regulated by the EAA, the EAA aimed at providing guidelines to its licensees on the appropriate practices and measures to be adopted when handling the sale of UPOH,” the EAA said. 


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What Does it Mean?
For the most part, not too much will change. The practice circular — essentially a reminder — states that licensees are required to obtain a due diligence report on the vendor or visiting developer, as well as the related UPOH. They must also obtain legal opinion issued by a lawyer practising in UPOH’s home jurisdiction, and there are also new guidelines regarding advertising and sales information sheets. The EAA is also stressing that consumers should look deeper into the properties themselves, visit the location to get a better handle on what they’re buying and seek professional help on tax codes and leasing rules, among a host of others. Additionally, the EAA is seeking to remind consumers that licensed agents must comply with the EAO and the EAA’s Code of Ethics when handling off-plan overseas property as well — and unlicensed salespersons do not. “Consumers would have greater protection by engaging licensed estate agents to handle the transactions of UPOH,” said the EAA. The circular takes effect April 1, 2018.

Nonetheless, if a disreputable developer does come to town, there’s little that can legally be done about the unethical agents that work with them. Under most circumstances, reputable overseas developers send fully licensed agents to Hong Kong and work in partnership with local agents and agencies that are properly qualified, accredited and will take action in the event of misconduct: Centaline, Ricacorp, JLL, Knight Frank, Savills and so on. 

Ultimately, good agents don’t find the circular imposing. In a statement, Mandy Wong, Head of International Residential at JLL said, “We welcome the EAA in providing the guidelines and think this will help buyers when they look at buying overseas properties. They can have all necessary information on the project, which can ensure their investment. JLL always carries out all necessary due diligence on properties that we are selling so as to make sure buyers are buying quality products. Overall, the guidelines help the industry to go on to much healthier development.”