Be cautious with non-residential property investments

2017-08-21

As the property investment market has heated up, in addition to traditional residential properties, more people have shifted their focus to non-residential properties in recent years. However, due to the diverse types of non-residential properties (such as car-parking spaces, shops, offices and industrial workshops) and the complexity of these transactions, coupled with the constantly changing sales and marketing approach, those interested in entering the market should be aware of the risks involved and act with extra care and prudence.

“Permitted Use” is one of the key points to note in non-residential property investment. When a building is completed, the Building Authority will issue an “Occupation Permit” which describes the building and the permitted uses of its different parts as shown on the approved building plans kept by the Buildings Department (for example, the different parts of the building may have different permitted uses such as offices, shops, factories or warehouses). An unauthorised change of use without the Building Authority’s approval may render the title of the property defective and subject to re-entry by the Government. Therefore, regardless of whether purchasing for self-use or leasing, potential buyers should carefully check the permitted use of a non-residential property before making any investment decision to avoid unnecessary loss.

In addition, the size of the property is a crucial factor to take into account when making a purchase decision. However, there are various ways to describe a non-residential property in terms of its floor area in the market, such as gross floor area, saleable area, lettable area, internal floor area etc. In fact, there is no standardised or commonly adopted definition for describing the floor area of non-residential properties. Consumers could ask their estate agents for the source of the floor area information provided to them (e.g. the first agreement for sales and purchase or the first assignment of the property, surveyor’s report, sales brochure prepared by the developer, and approved building plans etc). They should also inspect the property, and take measurements themselves, or seek professional advice if needed.

On the other hand, people buying non-residential properties in an uncompleted building or an uncompleted subdivision of any part of a building for investment purposes is becoming more common. However, in many cases, the purchasers do not have the opportunity to view such properties before they enter into an agreement for sale and purchase; and in some cases, they even have to pay the balance of the purchase price before completion of the building construction or the subdivision. Thus, to safeguard their own interests, potential purchasers should carefully study the risks involved and seek legal and/or professional advice before making a purchase decision.

In addition to the above which are just some points-to-note when purchasing non-residential properties, I would like to remind all potential buyers to carefully consider every detail, including but not limited to their own investment objectives, financial capabilities, whether a mortgage loan can be successfully obtained and their acceptable risk level, before making any investment decision. They should also seek advice from professionals if there have any doubts.

In order to provide licensees and their management with detailed guidelines on certain important issues pertaining to the proper practices and measures to adopt in handling transactions of non-residential properties, and to further protect the interests of the public, the Estate Agents Authority has recently published a new practice circular on the sale and purchase or leasing of non-residential properties.

The new circular covers such areas like floor area information, permitted use, provision of property information, cocklofts and mezzanine floors, and uncompleted building or uncompleted subdivision of any part of a building. It will take effect on 1 October 2017 and consumers can read the details on the EAA website (www.eaa.org.hk).

Ruby Hon
Chief Executive Officer
Estate Agents Authority