Loophole in rules for new-home sales

PUBLISHED : Wednesday, 30 November, 2011, 12:00am
UPDATED : Wednesday, 30 November, 2011, 12:00am


Proposals to regulate the sale of new flats by legislation leave a loophole for developers.

A draft bill, released yesterday for a two-month public consultation, is intended to better protect buyers of new homes against dishonest developers and increase the transparency of the sale process. But an exemption for flats sold en bloc in a single transaction leaves the way open for developers to avoid the rules, critics said.

Surveyor Lawrence Poon Wing-cheung, a member of a steering committee that worked on the bill, said a developer could, for example, divide a project into two lots of flats and sell them under two contracts to a subsidiary which could then sell them as second-hand flats.

'In this case, the developer will still issue a price list and do everything else [required by the new law] for the sale to its subsidiary. But once the subsidiary resells the flats to real individual buyers, it will no longer need to follow the rules,' he said.

Secretary for Transport and Housing Eva Cheng said this possibility was covered by the law. 'We know there have been cases in which a developer first sold a project to a fund,' Cheng said. 'But this kind of transaction will not gain full exemptions. At the retail level, the new vendor will still have to obey the law.'

However, barrister Margaret Ng Ngoi-yee said the bill is not clear enough. It states only that if homes are sold to one person under one agreement for sale and purchase, the agreement 'is not to be regarded as having been entered into' and the properties will fall under the law.

'The draft is not very clearly written,' said Ng, the Civic Party lawmaker who represents the legal sector. 'The grey area could lead to lawsuits. The government must make the future bill clearer to reflect their policy intention.'

The measures set out in the draft bill, contained in a 190-page consultation document, are generally unchanged from the package of items discussed earlier at a committee stage. It sets out penalties including a maximum punishment of seven years' jail and a HK$5 million fine for developers - everyone from company directors to secretaries - who provide false or misleading information to buyers.

The draft bill lists requirements for, and forbids misrepresentation in, price lists, sales brochures, advertisements and show flats. It also forbids developers from quoting 'gross floor area' to describe flat sizes because it includes common areas and can be confusing. It calls for property transactions to be disclosed online within 24 hours of a deal being completed.

'We understand buying a property is an important decision and a long-term investment for many people. Their rights ought to be protected,' Cheng said. 'The government agreed the current administrative measures are not sufficient and there is a general consensus on a need to regulate the sale by legislation.'

Stewart Leung Chi-kin, chairman of the Real Estate Developers Association, said its members 'already had a general consensus' on the proposal and would submit its views during the consultation.

Justin Chiu Kwok-hung, executive director of developer Cheung Kong, said he supported the measures as they could improve transparency.

The Consumer Council and the Institute of Architects also welcomed the proposal. A bill taking into account feedback from the consultation will be tabled to Legco by March.