Introduction

For most people in Hong Kong, purchase of land property is one of the substantial undertakings in life. However, it has been commented that the bargaining power between real estate developers and purchasers is not equal. Against this backdrop, there are increasing calls for a piece of comprehensive legislation to safeguard the interests of purchasers. Upon the recommendations of the Steering Committee on the Regulation of the Sale of First-hand Residential Properties, which was set up under the Transport and Housing Bureau (the “THB”), the THB finally introducedthe Residential Properties (First-hand Sales) Bill into the Legislative Council in March 2012.

The Residential Properties (First-hand Sales) Ordinance, Cap. 621 (the “Ordinance”) was gazetted on 6 July 2012 and will come into operation on a day to be appointed by the Secretary for Transport and Housing by notice published in the Gazette. After the enactment of the Ordinance, all first-hand residential properties, both completed and uncompleted, will be subject to the Ordinance. This article will highlight the major significances of the implementation of the Ordinance. It is noted that the enactment of the Ordinance is a good starting point to initiate public education to consumer protection in purchase of first-hand residential property and, secondly, to develop a more ethical and fairer practice in relation to the sale of first-hand residential property.

Use of Saleable Area

One of the major aspects of the Ordinance is that real estate developers are required to use saleable area (the “SA”)to be the only basis to quote property size and property price per square foot/metre in sales brochures, price lists and advertisements. According to section 8 of the Ordinance, saleable area, in relation to residential property, is defined as the floor area of the residential property including the floor area of every one of a balcony, a utility platform and a verandah to the extent that it forms part of the residential property, but excluding the area of every one of an air-conditioning plant room, a bay window, a cockloft, a flat roof, a garden, a parking space, a roof, a stairhood and a terrace or a yard that forms part of the residential property.

Practice before the Enactment of the Ordinance:
Gross Floor Area

Under regulation 23 (3) (a) of the Building (Planning) Regulation, Cap. 123F, gross floor area (the “GFA”) refers to the area contained within the external walls of the building measured at each floor level, including basement, together with the area of each balcony in the buildingand the thickness of the external walls of the building.

To many real estate developers, the Ordinance imposes a drastic change in the practice of the sale of first-hand residential properties as the Ordinance replaces GFA with SA as the standard to present property size and property price per square foot/metre for first-hand residential properties. Compared with SA, GFA includes those common facilities within the residential development to which property owners would have access, including for example, clubhouse, basement and car park.

Controversies of Using Saleable Area

The shift in practice arouses oppositions from the Real Estate Development Association of Hong Kong (the “REDA”), which was of the view that prohibition of disclosure of GFA-related information was a policy restricting the right of freedom of expression and constituting a discrimination against owners of first-hand residential properties, thus potentially rendering the Ordinance unconstitutional.

In response to this submission, the Government put forward that, despite the fact that property size and property price cannot be calculated on the GFA basis, real estate developers are still able to provide area information on common facilities on the GFA basis in the sale brochures, thereby refuting the misconception of an absolute ban on the disclosure of GFA-related information.

The Government also submitted that it is a common misunderstanding that properties in the second-hand market do not have available measurements in terms of SA. Effective from 10 October 2008 and 2 June 2010 respectively, pursuant to the Lands Department’s Consent Scheme, real estate developers are required to provide details of the property size and property price on the basis of SA. In fact, information on SA of all Hong Kong second-hand residential properties (except village houses) is available in the Rating and Valuation Department with a charge of a nominal service fee at HKD $ 9 for each property.

Prohibition of Misrepresentation and
Dissemination of Misleading information

In order to enhance the monitoring of release of distorted information to mislead purchasers, the Ordinance formally makes the act of misrepresentation and dissemination of false or misleading information an offence. It prohibits the act of disclosing, circulating or disseminating information that is likely to induce another person to purchase any first-hand residential property if the information is false or misleading as to a material fact or is false or misleading through the omission of a material fact. Pursuance to sections 76 and 78 of the Ordinance, offenders can be subject to a maximum penalty of a fine of HKD $5 million and imprisonment for up to seven years.

Conclusion

Before the enactment of the Ordinance, it was a prevailing practice that real estate developers, purchasers and estate agents cited property size and property price per square foot/metre in terms of GFA even though SA for a property was available. The Ordinance is a starting point to initiate public education to shift the public mindset from the standard of GFA to SA.

To facilitate early implementation of the Ordinance, it is further proposed that an enforcement authority be set up promptly under the Housing Branch of the THB to supervise the operation of the Ordinance, receive complaints, undertake investigations and implement public education in the interest of all property purchasers in Hong Kong.