It was a pleasure meeting you and your family again at the dinner yesterday. You told me that you were planning to buy an off-plan shop and acondominium in London, which can be used as an investment and a temporary home for your son who will go there to study soon. We did not have much time discussing this topic over the dinner table, but as the Chairman of the Estate Agents Authority, I would like to share some advice with you so that you would not commit mistakes others have made.
In recent years, the trend of Hong Kong people purchasing non-local properties is on the rise. The risk they face is high especially when purchasing uncompleted properties situated outside Hong Kong.
There is a pattern for bad property investment experiences. First, the property concerned is uncompleted. Secondly, the purchase transaction is closed on remote basis with inadequate due diligence done by the buyer. Thirdly, attractive incentives or investment returns are offered by the foreign developer. When these three factors come together, it is highly likely that the investment would turn sour.
Of the 65 complaint files opened by the Authority this year, most of them were related to uncompleted properties Some of them were about misrepresentation on the location of the properties or the identity of the developer, while some were about misrepresentation on the rental return of the properties.
Most consumers don’t realise that there is currently no relevant legislation or regulations governing the sale of non-local properties in Hong Kong. Selling properties situated outside Hong Kong is not under the purview of the Estate Agents Authority. A person or companyengaging in estate agency work exclusively in relation to properties situated outside Hong Kong is exempted from the requirement ofobtaining a licence from the Estate Agents Authority.
The risk however could be alleviated if a licensed estate agent is involved in the transaction. This is because he is required to comply with the Estate Agents Ordinance, its subsidiary legislation, Code of Ethics and otherguidelines issued by the Estate Agents Authority or else he may be subject to disciplinary actions by the Authority.
According to a practice circular issued by the Authority in 2017, estate agents are required to obtain a report issued by a reliable authority confirming the vendor’s source of funds or financial arrangement and to provide key information of the development such as the location, tenure, current ownership, subsisting encumbrances etc.
Besides, estate agents must obtain a legal opinion to ascertain whether there are restrictions on foreign ownership before they participate in the sale or the promotional activities and provide a copy of the same to the purchaser, together with a written warning statement and a sales information sheet, before they enter into any agreement with the purchaser.
Moreover, estate agents must verify the accuracy of the information contained in the advertisements and obtain the vendor’s express endorsement in writing before issuance. They must also advise purchasers to seek independent professional advice on the types and amounts of taxes and mortgage terms regarding their own case.
In spite of the above guidelines, consumers should note that the functions of the Estate Agents Authority is to regulate the practice and conduct of licensed estate agents, and discipline those non-compliant ones. It is not the Authority’s function to assist consumers in recovering their loss suffered from propertytransactions. Even if sanction in the form of a fine is imposed by the Authority on non-compliant licensees, the fine will go to the government and not the consumers. Consumers should be wary that they need to negotiate with the developers direct or seek independent legal advice by themselves in pursuing any loss against any parties.
Thus, consumers are strongly advised to do their own homework and consider thoroughly the risks they face before making a purchasedecision. They must consider various factors such as location of the property, property details, payment terms, financing arrangements, and purpose of their investment etc. Consumers may visit the website at smart.eaa.org.hk or obtain a copy of the booklet titled “Purchasing Non-local Properties Be SMART” from the Authority to learn more information about purchasing properties situated outside Hong Kong.
Though licensed estate agents are better regulated than unlicensed ones, consumer should still bear in mind that even if the transaction is handled by licensed estate agents who fulfill all the relevant guidelines in their practice, there could still be potential risks in buying properties situated outside Hong Kong, particularly the uncompleted ones.
For example, the developer may fail to complete the construction of the properties on schedule or may even fail to complete it at all. Making a trip to inspect the site and consult local professional is perhaps costly and time consuming, but it is a major investment decision worthy of the hasslesinvolved.
Another popular category of complaints is about rental return. A developer's promise of investment return is skeptical. How can itrealistically forecast the return before the development is completed, occupied, or even in operation? If the developer guarantees an attractive return, it is either taking a major business risk or is not serious with the offer.Choosing to believe the guarantee at face valueis again a risky decision.
The Estate Agents Authority has handled a real case of similar nature. A complainant purchased a shop in an uncompleted shopping mall in the Mainland and concurrently signed a “rent-back agreement” with the management company. According to the agreement, the management company would handle the leasing of the shop for the purchaser and pay him interest and rent regularly. After receiving a few rental payments,the management company stopped its payment. The purchaser then went to the shopping mall site to find out that the management company had closed down and the construction work had not yet started. A lesson learned from this case isthat consumers should consider carefully whether the guaranteed return offered is legally protected and could genuinely be honoured.
In conclusion, purchasing uncompleted properties situated outside Hong Kong is complicated and risky. There is no guarantee thatuncompleted properties would be completed in time or even completed at all. The utmost importance is to make correct decisions because taking legal actions to recover losses iscomplicated as it concerns laws of different jurisdictions. Hence, apart from relying on the professional service provided by licensed estate agents, consumers should consult their own legal advisor for their own protection.
I hope you will find the above tips useful in making your property purchase decisions. Property investment can be rewarding and therefore it is absolutely worthy of your efforts,diligence, and serious consideration. No matter how much you trust your agent and how reputable the developer is, I strongly suggest that you take a trip to inspect the properties you have in mind before you sign your name above the dotted line.
Fellow citizens of Hong Kong
As we all know, Hong Kong as well as most parts of the world are facing a pandemic that has an enormous negative impact on our social and economic life. At this juncture, we don’t have any accurate way to predict what would happen in the coming months. Two months ago we were worried about whether the COVID-19 would become pandemic. Yet, the scale of pandemic as we see now is not what we could imagine two months ago. What we can do now is to tackle the social and economic crisis up front and build the resilience of our society, in particular, our employment market, so that when the time comes where social and economic activities can resume no matter how gradually or rapidly, our society can bounce back as soon as possible.
Unemployment has edged up bit by bit since the latter part of 2019. Statistics and daily news about business closures are telling us that unemployment is going up rapidly. While we should see what can be done to help those unemployed, the more important and urgent task is to see how we can “stop bleeding”, which essentially means job retention. The Employment Support Scheme with a budget of over $80 billion is designed exactly for that purpose. Through providing time-limited financial support, the whole idea of this Scheme is to preserve jobs by enabling the employers to keep their employees in employment for the coming months, and also when business resumes employers can immediately grab the opportunities.
The central idea of the Employment Support Scheme is to provide wage subsidy that is equivalent to 50% of the wages of the employees up to a wage cap of $18,000 per month. The subsidy is given to the employer so that they can keep their staff for the coming 6 months. The employers will be required to have no redundancy or layoffs during the months that they receive wage subsidies from the government.
In Hong Kong, we do not have a pay-as-you-go income tax system. Neither do we have a social insurance system nor a central provident fund to cover everyone in our work-force. That means we do not have any existing system covering every employer and employee in Hong Kong that we can devise a wage subsidy scheme that covers everyone. Any system that meant to cover everyone in our workforce must be mandatory in nature and that will take time for us to have the relevant legislation in place and subsequently the system built.
However, schemes under the Mandatory Provident Fund (MPF) and the other Occupational Retirement Schemes provide a framework that we can develop a wage subsidy scheme to cover the great majority of the workforce. This is definitely not sufficient. In particular, we have identified three sectors that do not have good coverage in the provident fund systems. They are the catering industry, the construction industry and the passenger transport sector. Under the Anti-epidemic Fund, we have three sector-specific schemes to assist the employers and the employees in these sectors.
Many freelance workers or those in the so-called slash economy do not make contributions to the MPF. Though we have over 200 thousand self-employed persons having an account in the MPF system, they do not pay MPF regularly. While we will provide a one-off wage subsidy to those self-employed persons who have made MPF contributions within the past 15 months, we also have three separate but mutually exclusive schemes operated under the Home Affairs Bureau, the Education Bureau, and the Social Welfare Department, providing the same one-off wage subsidy to those freelance workers who provide arts and sports training. The one-off wage subsidy is $7,500.
Though all the schemes I mentioned above still cannot cover everyone in the workforce, this is the best we can do in making use of existing systems so that we can launch this round of Anti-epidemic Fund in the shortest possible time to help our employers and employees to survive the challenges that are with us now. Any new systems to be built from scratch will not be able to provide the necessary timely support that employers and employees desperately need.
As mentioned earlier, unemployment is increasing in a disturbing rate. The basic unemployment protection system in Hong Kong relies on two legs. One is the Severance Payment or Long Service Payment payable by the employers, which is equivalent to 2/3 of the monthly salary times the number of years of service with the employer. The other is the Comprehensive Social Security Assistance (CSSA) scheme. The CSSA provides a level of income support to families for their basic level of living in the context of Hong Kong. CSSA provides the safety net to any family not having sufficient means, including those who are unemployed. Apart from the income test, CSSA also has an asset test. For the purpose of providing extra help to those unemployed during this difficult time, the government will double the existing asset limit for able-bodies for a limited period of 6 months, allowing more families with people unemployed to become eligible to receive CSSA. We estimated that about 40,000 families will be benefited from this enhancement.
Unfortunately, over the years there is a social stigma towards the CSSA system. People in desperation may be deterred from applying for CSSA simply because of the stigma. This is the time for us to de-stigmatise the CSSA system. It is the safety net for citizens of Hong Kong. It is the responsibility of an affluent society like Hong Kong to provide the basic level of living to those who cannot afford to do so on their own. This is the time, this difficult time, that this safety net should perform its basic function.
We are doing our best to support Hong Kong in this epidemic fight. Let’s weather the storm and brave the challenges together.