Last month, the Hong Kong Monetary Authority (HKMA), for the first time in more than a decade, raised the applicable loan-to-value ratio cap for mortgage loans on non-residential properties from 40 per cent to 50 per cent, in a bid to boost the city’s moribund property market weighed down by a recession and coronavirus pandemic.
Getting a sufficient amount of mortgage loan is one of the many crucial factors that affects the decision of an individual, for both residential and non-residential properties.
When handling property transactions, property agents are required to provide accurate information on mortgage loans to clients. Many potential purchasers, particularly those who are not from Hong Kong, are not familiar with the guidelines and regulations of the government or the HKMA on mortgage loans. Therefore, estate agents should never hastily assure their clients of the terms of a loan but instead advise them to consult directly with banks, finance companies or other professionals for the most up to date mortgage information.
I would like to take this opportunity to share a non-compliant case of an agent making a misrepresentation on mortgage information regarding a non-residential property.
An agent arranged for a prospective buyer to inspect an industrial property. The client, who is not a Hong Kong resident, asked the broker if she could get a mortgage loan from a bank in Hong Kong.
The estate agent said she could obtain a mortgage loan of 80 per cent of the property price. Before entering into the provisional agreement for sale and purchase, the agent even reconfirmed with the client regarding the interest rate, the 20 per cent down payment and the loan amount she could get.
Subsequently, the buyer visited several banks in Hong Kong to make inquiries for the mortgage loan, with many banks refusing to provide her with a loan for purchasing the industrial property. However, one bank told her that as her main source of income was from outside Hong Kong, they could only grant her a loan of 30 per cent of the property price. She eventually cancelled the transaction and lodged a complaint with the Estate Agents Authority (EAA) against the agent involved.
The EAA disciplinary committee was of the view that the estate agent made a misrepresentation on mortgage information to his client without being fully conversant with HKMA’s rules and regulations.
According to the guidelines issued by the HKMA applicable then, the maximum debt-servicing ratio for commercial and industrial properties where applicants’ income is mainly derived from outside Hong Kong was 30 per cent of the property price.
Hence, the estate agent was in breach of the code of ethics issued by the EAA, which states that “estate agents and salespersons should keep themselves informed of any laws, government regulations, essential facts and developments in the real estate market in order to be in a position to advise their clients in a responsible manner.”
Having considered the nature and gravity of the case, and the disciplinary record of the estate agent, the EAA decided to reprimand him, impose a fine of HK$2,000 (US$258) and attach a condition to his licence, requiring him to obtain 12 points under the EAA’s continuing professional development scheme within 12 months.
It does not matter whether a property is residential or non-residential in nature, estate agents must not give any assurance to their clients that certain terms or certain amount of a mortgage loan could be successfully obtained. Instead, they should remind potential purchasers to make direct inquiries and seek financial advice from professional bankers.
As for consumers, to protect one’s interest and avoid loss from forfeiture of deposit(s) arising from the cancellation of a transaction, they should thoroughly review their own financial situation and repayment ability before making a decision to buy.