Hong Kong property agents face ethical duty advising clients on bank valuation, mortgage financing margin


  • Property agents must be very prudent when providing any information to clients on mortgages or bank valuations
  • Misrepresentation or failure to keep up with market developments could fall foul of industry’s code of ethics

Property transactions in Hong Kong’s primary and secondary markets have been declining due to the coronavirus pandemic, and the prospect of a near-term revival is not promising.

As property prices often fluctuate in an unstable market environment, so too do a bank’s property valuation and in turn the amount of an eligible mortgage loan.

While some buyers of first-hand residential properties would choose to pay the purchase price upon completion of the property development at a future date, they should be aware of the risk if the value of the property drops below the purchase price by that time. If the banks tighten their mortgage approvals, purchasers may have to come up with a larger amount of the balance to complete the transaction.

Since the amount of a mortgage loan being approved may be affected by many factors, property agents must be very prudent when providing any information on mortgages or bank valuations.

They must not provide any inaccurate or misleading information to potential purchasers. They must also not give any assurance that a certain amount of mortgage loan or terms could be successfully obtained.

Instead, they should remind potential purchasers to review their own financial situation and repayment ability in advance, and advise them to consult directly with banks or professionals on the mortgage plans and their valuation of the properties.

I would like to share a non-compliant case regarding misrepresentation on the valuation of a property and mortgage offer.

A property agent arranged for a couple to inspect a property and enter into a provisional agreement for sale and purchase at a price of HK$3.96 million. Before entering into the agreement, the property agent told the couple that the bank’s valuation of the property was HK$4.1 million and they could obtain a mortgage loan up to 80 per cent of the purchase price.

However, it turned out that several banks valued the property at HK$3.35 million to HK$3.42 million only. Moreover, the mortgage loan amount they could offer was merely up to 50 per cent, because the property was not intended for self-use. Aggrieved, the couple cancelled the transaction and lodged a complaint with the Estate Agents Authority (“EAA”).

The EAA Disciplinary Committee found that the property agent had made a misrepresentation to his clients on the valuation of the property. Thus, he was in breach of paragraph 3.4.1 of the Code of Ethics, which stipulates that “property agents and salespersons should protect and promote the interests of their clients.”

In addition, he also failed to keep himself informed of the maximum loan-to-value ratio before advising his clients on the amount of mortgage loan that they would be offered.

Hence, he was also in breach of paragraph 3.2.2 of the Code of Ethics which stipulates that “property agents and salespersons should keep themselves informed of any laws, government regulations, essential facts and developments in the real estate market.”

The Committee reprimanded the property agent, fined him HK$4,000 and attached conditions to his licence requiring him to obtain 24 points under the EAA’s Continuing Professional Development Scheme in 24 months.

Fluctuation in property prices may affect a bank’s valuation and the amount of mortgage loan being approved. If purchasers choose to pay the balance of the price upon completion in the future, banks may only approve their mortgage application based on the valuation at that time.

If the property price has dropped by then, the mortgage loan that they are able to obtain may be lower than previously expected. They may have to fork out a larger amount of the balance to complete the deal.

Hence, I would like to remind homebuyers to consider various factors, such as the terms for repayment, interest rate from different banks and their own current and future repayment ability, before committing to the purchase.