No guarantee that buyers' views will not be marred despite tightened rule

Court ruling against owner seeking compensation for obstructed outlook raises questions about effectiveness of ordinance meant to protect buyers

PUBLISHED : Saturday, 03 October, 2015, 2:28am
UPDATED : Saturday, 03 October, 2015, 2:28am

The views over Discovery Bay from Yang Dandan's luxury home were spectacular - but ultimately, fleeting. Yang, who was named one of the top 10 female entrepreneurs by Forbes magazine in 2011, paid about HK$17.2 million for the duplex unit at the Chianti development in 2007.

Her prized sea view lasted just 2-1/2 years before it was obstructed by construction of tower blocks in front of her apartment on the well-heeled Lantau Island enclave.

Now, Yang is staring at a hefty legal bill for the failed court action against the project developer of the Chianti project, Hong Kong Resort. High Court Deputy Judge Kent Yee Kai-siu yesterday ruled that the developer did not misrepresent the conditions at the time of Yang's purchase of the unit.

The judge, who made a site visit to the apartment, considered losing the sea view to be a minor matter, noting that only part of the view was blocked. The case was dismissed and so Hong Kong Resort will not be paying the HK$8 million in damages sought by Yang.

The court case had captured the city's attention as individual buyers rarely sue developers. The legal fees required to mount such an action prove too costly for most.

"Individual buyers and vendors are not on a level playing field. That is why the ordinance was introduced," Eugene Fung, director of the Sales of First-hand Residential Properties Authority (SRPA) said, referring to the Residential Properties (First-hand Sales) Ordinance. In effect since April 2013, it governs the dissemination of sales information to prospective buyers, including the use of brochures, price lists and ads.

"It was designed to enhance transparency and fairness, strengthen consumer protection, and provide a level playing field for vendors of first-hand residential properties," said Fung.

Prior to the ordinance, there were no clear standards governing pre-sales marketing materials, leading to allegations from home buyers that some materials were misleading. Images of European wealth and grandeur were commonly used by developers in promoting tiny apartments in high-density districts. They were also criticised for a lack of transparency about the square footage and for visual portrayals that glamorised the surrounding environment.

Industry experts say that since it was introduced the ordinance has generally been effective in helping to protect home buyers.

However, no clear guarantees are in place to ensure views will remain unobstructed as developers complete the project in stages. Others say the ordinance has not prevented some developers from using controversial sales tactics to attract buyers.

The sale of residential development Mont Vert Phase One in Tai Po by Cheung Kong Property Holdings, formerly known as Cheung Kong (Holdings), is a typical example. Last year, Cheung Kong requested prospective buyers to sign a "no view agreement" to gain eligibility for property balloting.

Cheung Kong faced criticism over the selling approach which prohibited purchasers from viewing completed flats.

"We understand that the Cheung Kong issue has drawn the public's concern. The case is complicated and we are following it up," said Fung.

Lee Wing-tat, a former lawmaker and head of policy think tank Land Watch, said it was important that any wrongdoings be prosecuted, otherwise developers would pay little heed to the ordinance."There were quite a number of cases where the government should have taken action. But so far there have been zero prosecutions. Now developers are testing the bottom line of the authority by introducing controversial marketing tactics," Lee said.

The Consumer Council released a critical report last year, saying that the ordinance offered "insufficient deterrence" to malpractice.

The report highlighted that not a single prosecution had been made since the law took effect. As of June 30, the SRPA had received 96 complaints alleging violations of the ordinance. Fung said the SRPA had been taking enforcement action against suspected contraventions of the ordinance. "We investigate every suspected case," he said.

Fung said it was the Prosecutions Division of the Department of Justice which had the authority to decide whether there was sufficient evidence to prosecute.

The department was now considering all cases referred to it and would revert to the SPRA once a final decision is made, Fung said.

"When the time comes, we will see the power of the ordinance," he said, adding that the ordinance had a strong deterrent effect.There are altogether about 120 criminal offences under the ordinance. Offenders can face a fine of up to HK$5 million and seven years in jail.

The ordinance requires advertisements be free from false or misleading information and the sales brochure must set out information which is known to the vendor but is not known to the general public.

The brochure must also include information that is likely to materially affect the enjoyment of a residential property. For instance, the sales brochure must disclose whether the developer or a related holding companies plan to build additional residential developments in the neighbouring area.

Fung said regulations had been amended over time to enhance buyer protections. These include new provisions that require the disclosure of updated data showing home sales on a timely basis. In addition, vendors are required to disclose the number of registrations-of-intent submitted by estate agents.

Still, Fung urged prospective buyers to do their homework before buying. "Do not miss the sales brochure as it is the primary and most authoritative source of information on a development," said Fung.

"Some prospective buyers filed complaints [saying] that they did not know what they had signed. In these cases, we could not help."

He recommended that prospective purchasers pay particular attention to sections labelled "Relevant Information", as well as the "location plan of the development".

In the Hong Kong Resort case, Deputy Judge Yee said the brochure should be considered as a whole and noted that it was clearly printed - albeit in small print - that "all information and photos are for reference only", and that the developer reserved the right to make modifications and changes to the future developments without prior notice.

Thomas Lam, head of valuation and consultancy at Knight Frank, said it can be impossible to guarantee that Hong Kong properties enjoy lasting views because of possible future land reclamation. As a result, the market tended to assign a premium to properties less at risk of having their views obstructed, he said.