What buyers of uncompleted properties overseas from Hong Kong should do to protect their interests

2022-08-02

  • Buying uncompleted properties overseas comes with inherent risks and buyers should seek professional advice before taking any decision
  • The Estate Agents Authority has embarked on several campaigns, introduced slogans and launched promotional videos to raise awareness

Purchasing property outside Hong Kong has become increasingly popular among Hongkongers in recent years. Whether the purchase is for investment or emigration, to safeguard their own interests, buyers should study all related information and seek independent professional advice before making a decision.

They should also be mindful that issues relating to uncompleted properties outside Hong Kong (UPOH) are particularly complex and there is no guarantee that a developer’s promise of investment returns would be honoured. What’s more, property concepts differ between jurisdictions; what is legal in one could be illegal in another.

Buyers should remember that they may need to shoulder more risks associated with UPOH, such as construction delays or the developer’s failure to complete the project because of insufficient funds or even bankruptcy. In such a situation, buyers would have to seek legal advice and negotiate with the developer regarding their loss.

On this front, the Estate Agents Authority (EAA) has spared no effort in reminding consumers to be extremely careful when buying UPOH. Recently we introduced a new educational campaign with an easy-to-remember slogan: “To buy or not to buy non-local off-plan properties outside Hong Kong? Assess the risks before you buy!”

The EAA has written to all property agencies, inviting them to join hands with the EAA to educate their clients on the subject by adopting this slogan in all their promotional materials and videos for non-local properties.

In addition, the EAA has also produced four animation videos on the subject and promoted them on YouTube. The videos highlight scenarios that are similar to the cases that the EAA has received in the past.

Here I would like to share one of the scenarios titled “Guaranteed return really guaranteed?”

Mr A bought a shop in an uncompleted shopping centre project in the mainland and concurrently signed a “rent-back agreement” with the management company. He was promised that the management company would handle the lease of the shop on his behalf and remit the rent regularly.

However, after a few months he stopped receiving the rent. Mr A later found out that not only had the management company closed down but also the construction work had not even started.

The above scenario reflects one of the most common drawbacks when purchasing UPOH. To minimise risk, buyers are advised to conduct their own research on the developer’s background, financial strength and track record, while taking note that the degree of regulation of developers could vary vastly between jurisdictions.

Even though the promise of an investment return may look attractive, buyers should ascertain if such a promise or “rent-back agreement” is prohibited in some jurisdictions.

Apart from the scenario mentioned above, buyers should note that there are still many aspects that they should carefully consider before buying property outside Hong Kong.

For example, investors should note that the prospects of rental return may differ from what is promoted and they should pay attention to the property transaction data record of the local market for a more accurate assessment of the rental market.

Other issues like the liquidity of the local property market, exchange rate fluctuation, resale cost, tax, fees as well as restrictions should also be taken into consideration. There could be restrictions on investors or non-residents’ capital imposed by the local government.

As there are multiple complicated issues associated with buying UPOH, which could differ between jurisdictions, the EAA has devoted a lot of effort on consumer education about this subject. It has launched online promotions, contributed opinion pieces to media organisations and organised public seminars to forewarn prospective buyers.

Complicated messages are broken down into easy-to-absorb pieces in various formats such as videos and booklets and disseminated across various platforms. Consumers can also visit the EAA’s designated webpage on the subject for more practical tips on what they should pay attention to before buying non-local properties.

Lastly, do not forget to seek your own professional advice before making any purchase decision.