Buyers beware: investors of real estate assets beyond Hong Kong should be aware of risks, rules and complications

2021-09-07

  • Consumers should study all related information before making a purchase and be extremely vigilant to protect their own interests
  • Consumers should have greater protection if they appoint licensed estate agents when purchasing non-local properties

Purchasing properties situated outside Hong Kong, particularly uncompleted ones, is complicated and full of risks.

Consumers should study all related information before making a purchase decision and be extremely vigilant when investing in these properties so as to protect their own interests.

In Hong Kong, there is no legal requirement that the transactions of real estate properties, wherever situated, must be handled by licensed estate agents.

In view of the increasing number of Hong Kong investors purchasing non-local properties through licensed estate agents in recent years, the Estate Agents Authority (“EAA”) issued a Practice Circular (No. 17-03) a few years back setting out relevant guidelines on the sale of uncompleted properties situated outside Hong Kong (“UPOH”) for licensed estate agents to observe, in the hope to offer some protection to consumers.

The guidelines include requiring licensed estate agents to obtain a due diligence report on the vendor and the related UPOH, and a legal opinion issued by a lawyer practising in the place where the property is situated on whether there is any form of restrictions imposed on foreign purchasers; and to observe requirements for the issuance of advertisements and provision of sales information related to the UPOH.

Licensed estate agents must comply with these guidelines or they may be subject to disciplinary action by the EAA.

Here I would like to share a case in which a few licensed estate agencies were found to have breached these guidelines.

The EAA received an anonymous complaint about an online advertisement regarding an UPOH. During the investigation, EAA staff discovered four estate agencies had issued online advertisements related to the same UPOH, all of which failed to comply with the relevant guidelines of the EAA.

It was also found that the four estate agencies failed to perform due diligence on the relevant vendor and/or the development before issuing the advertisements or promotional materials.

The EAA Disciplinary Committee was of the view that the four estate agency companies were in breach of Practice Circular No. 17-03(CR) as they had failed to perform due diligence on the vendor and/or the development before participating in the promotional activities for the UPOH and also failed to state clearly the following in the advertisement:

1. the development permit or approval numbers, and name of the relevant authority which issued the permit or approval;

2. whether or not purchasers are acquiring an interest in the land, the building to be erected thereon, and/or a right to use and occupy the properties in the building; and

3. a prominent statement reminding purchasers that purchasing UPOH is complicated and contains risk.

The Disciplinary Committee found that all four companies were in breach of paragraph 3.2.1 of the Code of Ethics, which stipulates: “Estate agents and salespersons should be fully conversant with the Estate Agents Ordinance, its subsidiary legislation, this Code of Ethics, and other guidelines issued by the EAA.”

Having considered the nature and gravity of the case, which included other technical breaches by two of the companies, and the disciplinary records of all four estate agency companies, the Disciplinary Committee decided to reprimand all four companies and impose fines on each of them from HK$54,500 to HK$56,000 respectively.

Generally speaking, consumers should have greater protection if they appoint licensed estate agents when purchasing non-local properties because these licensed agents must follow all the EAA guidelines and provide the required documents to the purchasers.

However, consumers must note that the EAA’s functions do not include representing or assisting purchasers to recover any losses suffered from the transactions, whether against the licensed agents or the property owners.

As a matter of fact, even if the licensed agents have complied with all the EAA’s guidelines, there is no guarantee that non-local developers are able to complete the construction of the UPOH. If such unfortunate event happens, consumers would need to go after the non-local developers themselves and seek their own legal advice as to whether they could recover damages from the persons at fault.

To remind consumers of the risks and points-to-note when purchasing non-local properties, the EAA has recently launched a new TV and radio Announcement in the Public Interest (“API”).

There is also a special webpage set up by the EAA that contains related articles, video highlights of public seminars, commonly seen risks and some useful links about purchasing properties in different regions outside Hong Kong.