Explainer | From construction delays to fraud, risks abound for Hongkongers buying overseas property, agents warn
- Hongkongers lodged 61 complaints against overseas property firms for failing to complete the project on time or reneging on rental return promises
- Consumers who buy property outside Hong Kong should take extra precautions and be extremely wary of the possible risks they may face, the EAA says
With business back to normal after Covid-19 restrictions were shelved, Hongkongers are looking to invest in property abroad.
But risks such as construction delays, developers going bust or outright fraud mean it is easy to be burned in the process, agents warn. Numerous past cases have seen people’s overseas property dreams turn to nightmares.
There were 61 complaints involving seven property projects in mainland China and one in the UK in 2022, according to data provided by the Estate Agents Authority (EAA). They were related to developers failing to complete the construction according to the original schedule or failing to provide guaranteed rental returns.
In the previous year, seven cases of overseas property fraud totalling HK$25.48 million (US$3.2 million) were reported to the police, involving cases in mainland China, Europe and countries in Southeast Asia.
The culprits claimed to be property agents, and introduced luxurious properties to victims for investments. Victims did not visit the property site before making purchases, and only realised later that these projects never existed or did not match the descriptions provided by the fraudsters, the police said.
Consumers who buy property outside Hong Kong should take extra precautions and be wary of the possible risks they may face, particularly when they are buying “off-plan”, or yet to be constructed, properties, according to the EAA.
The statutory body requires agents to provide information about off-plan projects as agents cannot guarantee developers will honour their promises on rental returns.
“Buyers should remember that they may need to shoulder greater risks associated with purchasing uncompleted overseas properties, such as construction delays or the developers’ failure to complete the project because of insufficient funding or insolvency,” said Ruby Hon Yuen-ping, chief executive officer of the EAA.
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Hongkongers may also face additional difficulties trying to recoup losses or file complaints as laws and judicial procedures vary from country to country.
“In such a situation, buyers would have to seek their own independent legal advice and negotiate with the developers directly regarding their losses,” she said.
Many off-site projects may promise transport and other amenities that will be built in the area, but they cannot guarantee whether these concepts will materialise.
Ernest Yung, director of Shing Hei Property, which specialises in the Greater Bay Area, said buyers should do their research about the market value of their property and not believe in discounts that are too good to be true.
“Sometimes developers will give discounts to those that join viewing tours, and for apartments on lower floors or with a less desirable view, but buyers should expect to pay a reasonable price for decent apartments.”
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Fanny Chan, the head of UK property at international real estate agency Raeon International, recommends that buyers buy new properties instead of cheaper, second-hand ones.
Older buildings in the UK often face issues like condensation, mould and soundproofing.
“As there are many old buildings in the UK, some have a land lease of around 110 years left,” she said. “Most lenders will not lend on properties with a lease under 100 years, making it difficult to mortgage and sell.”
With the government raising requirements on energy efficiency, buyers of older properties should be aware of the additional costs of upgrading their windows, boilers and ventilation systems to be in line with the guidelines.
By 2028, homes that do not meet the minimum energy requirements cannot be rented out.
Many countries have safety nets in place to protect the interests of buyers.
For properties in mainland China, Shing Hei’s Yung recommends choosing developers that have attained government permits for land use, presale, construction and quality-warranty certificates.
Raeon’s Chan said the UK has loss-of-deposit insurance, which reimburses the buyers’ deposits if the developer liquidates.
A 10-year new-build warranty taken out by the developer, designed to protect the buyer of new projects against the cost of repairing structural defects, is also in place in the UK.
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Crystal Yao, Raeon’s project director for Canada, said that most developments in Vancouver and Toronto, areas popular with Hongkongers, are usually off-plan projects.
Although the delivery period for off-plan projects in Canada may be longer than in other countries, Yao said that is due to the strict regulations and checks by authorities for every step of the development process.
“The buyer’s deposit is stored in a lawyer’s trust fund, and if the developer liquidates or files for bankruptcy, they have to pay back the buyer the down payment together with interest,” she said.
Above all else, prospective investors should always visit the site of the property in person, be it a finished building, a construction site or a showroom, according to the experts.
“A lot of minor details can only be observed if you visit the place in person,” said Chan.
“Factors like the vibe of the neighbourhood, the occupancy rate of the development, nearby amenities, safety and noise levels can only be experienced by spending time there.”
