Protect buyers in Hong Kong but don't mollycoddle them
A few months ago I described the amazing procedures I had to go through to open an account with a local Hong Kong bank. It was a lengthy process involving a lot of form-filling and even tape-recorded interviews. It seemed to me that, after the public outcry over banks' methods of selling investment products, we might have gone too far in protecting bank customers.
That is certainly not the case where the property market is concerned. Many people believe that buyers in Hong Kong need more protection from misleading information from sellers. But how far would we want to go?
I was recently involved in a property transaction in California, and I was surprised by the amount of buyer protection built into the system. The seller has to sign a lead-based paint hazards disclosure form, and a form to confirm water heater and smoke detector compliance. He has to initial an advisory concerning geologic hazards, soil stability, fungi, formaldehyde, wood-destroying pests, flood hazards, earthquake zones and much more, including the potential dangers of owning a home near a golf course.
Sellers also have to tick a huge list of boxes to disclose any type of problem with the property. This includes not only the structure and appliances but past damage from natural disasters, problems with pets or livestock, flooding, tree diseases and conflicts with other property owners. It then goes into a wide range of neighbourhood issues like noise, traffic, aircraft, restaurants and parties.
These are affidavits required by the state realtors' association. The city - San Francisco - has some more forms for you to fill in. These include storage tank disclosure, parking and storage disclosure, energy and water conservation compliance, a questionnaire similar to the state realtors' one about potential problems, and even a disclosure of methamphetamine contamination - in other words, were the premises ever used to manufacture illegal drugs?
Much of this paperwork I have described - and I am skipping quite a bit of the details - is about protecting the estate agents from getting sued by a buyer who did not check the property carefully enough. The US is notorious for litigation, and all this paperwork is simply to ensure that if someone does not check the property and its surroundings, they can still sue someone if something goes wrong, but it will not be the agent. The rest of the bureaucracy was the result of government regulation aimed at reducing a wide range of health and environmental risks.
A litigation culture encourages people to blame others when things go wrong. In Hong Kong, unless you are buying investment products from a retail bank, you probably get less protection than in some other places. Sales of brand-new (indeed unfinished) apartments are a particular problem. But, in the secondary market, most buyers and sellers would probably prefer our current system to what they have in California. People here take it for granted that they need to inspect a flat properly. And let's be clear: customer protection in the US adds to the costs of all concerned.
The other side of the coin is that Hong Kong home owners are free to renovate their flats and let them out to whomever they want. In American cities, you may need permission from a home owners' association or co-op before you can do these things - which many of us in Hong Kong would consider an infringement of our freedom. So, which do we prefer?
In Hong Kong, our culture is, on the whole, far more 'buyer beware' than in other places. But if the public response to banks' selling techniques is any guide, it is likely that, in the years ahead, we will hear more demands for higher levels of consumer protection.
I support that in principle, and in many cases (like real estate) it may be justified. But we should be careful not to accidentally build up protection to the point where it starts to reduce our flexibility and freedom of choice. There are numerous examples overseas, as I have found.
Bernard Chan is a former member of the executive and legislative councils