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SCMP Reporter

PROMOTERS, including real estate agents and developers, who are selling a property that includes a buy-back clause, have to disclose who is guaranteeing the investment and the risk involved in such a purchase, according to guidelines released by the Securities and Futures Commission (SFC).

  The regulatory body yesterday unveiled a set of guidelines specifying that estate agents and promoters involved in the sale of so-called investment properties are required to comply with the Protection of Investor Ordinance (PIO).

  The SFC said it was issuing the guidelines following the prosecution of an estate agent who failed to have an investment property scheme cleared by the SFC.

  Following the prosecution, estate agents said they were surprised and puzzled by the ruling, with many claiming they had not realised that the PIO applied to property deals.

  According to the SFC guidelines, promoters of investment schemes will have to get prior authorisation from the SFC before the investment property is offered to the public.

  While transactions involving the sale and purchase of property do not normally constitute an investment arrangement, deals that include a buy-back guarantee are regarded as an investment arrangement, the SFC said.

  'Where an offer is enhanced by a buy-back guarantee at a premium to the purchase price or other supplemental feature the purpose of which is to promise a profit, [then] this will normally be regarded as an investment arrangement.'   Under the guidelines, the promoter must satisfy the SFC 'that the advertised guarantee is a valid obligation of an acceptable financial institution'.

  The acceptability of the financial institution would be reviewed on a case by case basis.

  Recently, Ong's Properties (China) Consultants was fined $122,200 for omitting to clear an advertisement that included a buy-back guarantee.

  The SFC cautioned that while rental guarantees do not normally constitute an investment arrangement, promoters should be careful that the guaranteed return 'is not so excessive that it could be regarded as a promise of profit beyond the ordinary course of business in renting a property.' 



SFC sets strict guidelines on buy-back guarantees