During the Second Reading debate on the Appropriation Bill 2010 (i.e. Budget 2010 – 2011) at the Legislative Council on 21 April 2010, the Financial Secretary, John Tsang, proposed 9 additional measures (the “9 Additional Measures”) on selling uncompleted first-hand private residential properties.

On the same day, the Secretary for Transport and Housing, Eva Cheng, announced 12 enhancement measures (the “12 Enhancement Measures”) on regulating show flats.

In response to the above proposals, the Real Estate Developers Association of Hong Kong (the “REDA”) published the Guidelines for Sales Description of Uncompleted Residential Properties (the “Guidelines”) on 1 June 2010 in order to enhance the transparency of information concerning the sale of uncompleted first-hand private residential properties.

This article aims to provide a summary on the 9 Additional Measures and 12 Enhancement Measures.

The 9 Additional Measures proposed by the Financial Secretary

1.            Developers should duly observe the REDA's guidelines in selling all uncompleted and completed first-hand private residential properties;

2.       Developers should indicate, at the same time when making public the transaction information under the existing "five-day disclosure rule" on transactions, those transactions which involve members of the Board, and their immediate family members (remarks: for transactions involving members of a developer’s Board and their immediate family members, they have to be disclosed within five working days after the signing of a preliminary sale and purchase agreement);

3.      Show flats, if provided, have to comply with a list of requirements, including the requirement that there should be at least one show flat showing the same conditions of the actual flat to be handed over to buyers upon completion in respect of internal partitions, fittings and finishes, and complimentary appliances;

4.           More units should be included in the first price list. For small-scale development (i.e. involving less than 100 units), the minimum number of units to be included will be 30 units or 30% of the total number of units available for sale, whichever is the higher. For large-scale development ( i.e. involving 100 or more units), the minimum number of units to be included will be 50 units or 50% of the total number of units available for sale, whichever is the higher;

5.            The requirement for making public the sales brochures should be advanced from the existing 24 hours prior to the commencement of sale to 7 days prior to the commencement of sale;

6.     Developers should make public the price list at least 3 days in advance of the commencement of sale when selling any number of units to whichever parties;

7.       Promotional materials of the development should clearly provide the name of the district where the development is located and the address of the development;

8.             Developers should concurrently upload the sales brochures and all the price lists onto their websites; and

9.        Developers should provide on-site unit(s) at the development for the public to visit when selling completed first-hand residential properties.

The 12 Enhancement Measures

1.            The size/dimensions of the show flat(s) should be identical to the size/dimensions as specified/described in the relevant approved building plan(s) and sales brochure(s).

2.        Floor plan(s)/diagrams showing all the principal dimensions of the flats with scale should be displayed in a prominent location in the show flat(s).

3.               Enclosing or boundary walls should be provided in the show flat(s).

4.            There should be at least one show flat showing the conditions of the actual flat to be handed over to buyers upon completion (i.e. the unmodified show flat).

5.              For show flat(s) with the non-structural internal walls/partitions removed, there should be a solid line on the floor showing conspicuously the exact position and width of the respective non-structural internal walls/partitions.

6.            All bay windows, air-condition plant room, balcony and utility platform located inside the unit, if any, should be featured in the show flat(s).

7.              Ceiling should be provided in the show flat(s). The height of the show flat(s) should be identical to or not higher than the height as specified/described in the relevant approved building plan(s) and sales brochure(s). If the height of the show flat(s) is lower than the height of the actual flats due to the physical constraint, a notice of conspicuous size stating the height difference should be displayed in a prominent location in the show flat(s).

8.            Main entrance doors should be provided. If other doors are not provided in the show flat(s), door frames should still be provided.

9.          The interior fittings and finishes provided in the show flat(s) should be identical to those specified/described in the Agreement for Sale and Purchase and the sales brochure(s).

10.         Items which are shown in the show flat(s) and will be provided in the actual flat(s) upon handing over to buyers (e.g. electrical appliances) should be specified clearly.

11.         A certificate signed by the authorized persons certifying that the external parameters of the show flats are identical to those of the unit upon completion should be deposited with REDA for record purpose. REDA should let prospective flat buyers inspect the certificate upon request.Developers should allow visitors to take measurements, photos and make videos inside show flats.

Commentary

The REDA compiled the Guidelines according to the 9 Additional Measures proposed by the Government by large. However, some modifications were proposed by the REDA and the 9 Additional Measures are not strictly applicable to all uncompleted first-hand private residential properties.

First, it should be noted that Additional Measure 4 (requirement of minimum number of units to be included in the first price list) shall not apply to the sale of “houses” so categorized in the Deeds of Mutual Covenant.

In addition, only the Additional Measure 2 (five day disclosure rule) shall apply to the following types of uncompleted first-hand private residential properties, but not the rest of the Additional Measures:

1. uncompleted first-hand private residential property sold to a single purchaser on an “en bloc” basis under a single transaction (i.e. selling any whole block in a development of a specific phase of development to a single purchaser under a single deal);
2. uncompleted first-hand private development is categorized in the Deed of Mutual Covenant as ‘houses’ which are sold to a single purchaser on an “en bloc” basis under a single transaction (i.e. selling all the houses in a development to a single purchaser under a single deal); and
3. uncompleted first-hand private residential properties, including “houses”, sold by way of public auction or public tender (i.e. selling any individual unit/house in a development to any individual or company by way of public auction or public tender).

However, the REDA made it clear in the Guidelines that if the units sold on an “en-bloc” basis are later put on sale to individual buyers in the market, the vendor should observe all the 9 Additional Measures so far as they are applicable. The REDA requires the “en bloc sale” buyer to sign an undertaking regarding this.