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Following is a question by the Hon Wong Kwok-kin and a written reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (May 13):
Question:
Currently, owners of flats under the Home Ownership Scheme and the Private Sector Participation Scheme (HOS/PSPS) must not sell, let, mortgage or remortgage, or in any way alienate or part with possession of their flats before paying a premium or obtaining approval from the Director of Housing, or else they contravene section 27A of the Housing Ordinance (Cap. 283) (section 27A). On the other hand, it was reported last month that as the land title records of thousands of HOS/PSPS flats with unpaid premium contained entries of encumbrances in loan agreements with finance companies, the relevant owners were alleged to have illegally remortgaged their flats. In this connection, will the Government inform this Council:
(1) of the number of applications received by the Housing Department from owners of HOS/PSPS flats with unpaid premium for remortgaging their flats and, among them, the number of approved cases, in each of the past five years;
(2) of the respective numbers of cases involving alleged contraventions of section 27A into which investigations were conducted and in which prosecutions were instituted by the authorities, as well as the number of convictions, in the past five years;
(3) whether, in the light of the aforesaid report, the authorities will take the initiative to conduct investigations; if they will, of the details and the timetable; if not, of the reasons for that;
(4) given that in recent years, some HOS/PSPS flat owners have pointed out that quite a number of finance companies have launched loan schemes exclusively for HOS/PSPS flats with unpaid premium, thus misleading them into believing that remortgaging their flats is not illegal, how the authorities will step up publicity and law enforcement efforts to remind HOS/PSPS flat owners of the risks involved; and
(5) whether the authorities and the relevant financial regulators have monitored the risks posed by mortgages of subsidised flats with unpaid premium, as well as the liabilities of the owners concerned, and assessed the impacts of the relevant situation on the overall property market; if not, whether the authorities will formulate measures to monitor and assess the relevant situation?
Reply:
President,
With inputs from the Financial Services and the Treasury Bureau, my consolidated reply to the questions raised by the Hon Wong Kwok-kin is as follows.
Home Ownership Scheme (HOS) is subsidised housing offered by the Hong Kong Housing Authority (HA) to eligible applicants at selling prices below market value. To ensure the proper use of public resources, HA imposes alienation restriction on subsidised sale flats (including HOS flats). As stipulated in the Schedule to the Housing Ordinance (the Ordinance), HOS flats are subject to alienation restriction; and unless owners have met the specific requirement (such as payment of premium or obtaining the approval of the Director of Housing, etc.), they are prohibited from selling, letting, mortgaging or in any way alienating or parting with possession of their flats.
Currently, if subsidised sale flat owners want to refinance their flats without paying the premium, prior approval must be obtained from the Director of Housing who may, in giving his approval, impose such terms and conditions as he thinks fit. The terms and conditions must be complied with when the flat is refinanced. Refinancing will only be allowed in cases of financial hardship in which an immediate sum of money is needed to meet any personal or family expenses arising out of unforeseen circumstances. Possible grounds for approval include medical expenses, education expenses for family members, funeral expenses, a lump sum payment or payment of maintenance to one's spouse as a result of divorce or separation, and in cases of financial hardship arising from business activities. Refinancing applications on other grounds (such as personal financial problems) will be considered on a case-by-case basis. The maximum amount of refinancing loan permissible will be limited to the difference between 80 per cent of the sale price assessed by the Director of Housing as at the date of the application for refinancing and the amount of any outstanding mortgage loan. In the past five years (i.e. 2010-11 to 2014-15), there were a total of 1 771 refinancing cases approved by the Director of Housing for flats with premium not yet paid (including HOS and Tenants Purchase Scheme, etc.).
The Housing Department (HD) reviews the approval procedures for refinancing applications from time to time to streamline procedures and to facilitate applicants. For instance, subsequent to an earlier review, for applications received on or after September 1, 2014, as long as the applicant's solicitor has ensured that the legal charge will contain the terms and provisions as required by the HD in accordance with the terms and conditions specified in the consent letter when preparing the legal charge, it is not necessary for applicants to submit the draft legal charge to the Legal Service Sub-division of the HD for approval. This new arrangement helps shorten the time required for processing the refinancing applications and save the approval charges. The HD will continue to review the approval procedures for refinancing applications when appropriate with the objective to further shorten and streamline procedures to address the emergency needs of the applicants. Information on refinancing of HOS flats and the application procedures are available to the public on the HD's website. For enquiries on such matters, HOS flat owners can also contact the respective Estate Management Offices.
Section 17B of the Ordinance on "void alienations" stipulates that under certain circumstances, "the purported mortgage, other charge, assignment or other alienation, together with any agreement so to mortgage, charge, assign or otherwise alienate, shall be void". Section 27A of the Ordinance further stipulates that where a person, whether as lender, borrower or otherwise purports to alienate land or enter into relevant agreement which is void under section 17B, the person commits an offence and is liable to the maximum fine of $500,000 and to imprisonment for one year. For loan agreement, not every loan agreement involving subsidised sale flats of HA will invoke the alienation restriction stipulated under sections 17B and 27A of the Ordinance. In general, only loan agreements which involve using the HOS flats with premium not yet paid as securities will invoke section 17B and contravene section 27A. Therefore, there is no hard and fast rule in determining whether a loan agreement signed between the owner of a HOS flat with premium not yet paid and finance company has contravened the Ordinance. It is necessary to look into the actual circumstances of individual cases.
According to the HD's past experience in scrutinising the loan agreements concerned, only in relation to some of them did HD consider that there was evidence to prove the same might have constituted a contravention of the Ordinance. For those loan agreements which the HD considered might have constituted a contravention of the Ordinance, the court might consider otherwise afterwards. Under the prevailing mechanism, in addition to applications for refinancing, the HD will examine the relevant land search records when processing applications for premium assessment and transfer of ownership. In the past five years (i.e. 2010-11 to 2014-15), the HD has checked more than 4 500 land search records on average each year. Should it be found in the search records that a loan or mortgage record has been registered in connection with a flat with unpaid premium, and that the loan or mortgage may involve mortgaging an HOS flat without the approval of the Director of Housing, the HD will consider whether to institute prosecution. When considering these cases, HD will look into the actual circumstances of each case, in particular, whether the loan document contains any contractual terms or wording that may constitute a contravention of the Ordinance. Upon obtaining sufficient evidence, the HD will institute prosecution against the suspected person under section 27A of the Ordinance.
The HD, from time to time, finds that owners of HOS flats with unpaid premium have entered into loan agreements with finance companies in the form of personal loans and there is insufficient evidence in the agreement provisions to prove that the loans are secured by the HOS flats and thus constitute a contravention of section 27A of the Ordinance. When necessary, HD will seek advice from the Department of Justice on whether all elements of the offence are available and whether there is sufficient evidence for instituting prosecution in individual cases. In the past five years (i.e. 2010-11 to 2014-15), a total of 27 persons, who were suspected of creating mortgages on subsidised flats with unpaid premium without the prior approval of the Director of Housing, were prosecuted for violation of section 27A of the Ordinance. Amongst these cases, 11 persons were convicted, three persons were acquitted, and the charges against two persons were withdrawn. The remaining 11 cases are still being processed.
On the other hand, under section 30(1) of the Money Lenders Ordinance, a person (including finance companies) shall not, by any false, misleading or deceptive statement, representation or promise, or by any dishonest concealment of material facts, fraudulently induce or attempt to induce any person to borrow money from a money lender. Offenders are liable to a fine of $10,000 and six months' imprisonment.
In addition, the Hong Kong Monetary Authority (HKMA), as a banking regulator, is also aware that some finance companies provide personal loans to owners of HOS flats with unpaid premium. The HKMA requires banks engaging in mortgage lending to review borrowers' financial conditions from time to time. If banks find that a borrower's financial conditions have changed, including obtaining further mortgage financing from other financial institutions, they should review the borrower's repayment ability and take suitable measures to manage the increased risks. In cases where the borrower has encountered financial difficulties, banks should take the initiative to communicate with the borrowers, with a view to reaching a mutually acceptable repayment arrangement.
Meanwhile, as an organisation dedicated to improving financial knowledge and capability of the public in Hong Kong, the Investor Education Centre (IEC) has well noted the financial and debt management issues faced by the public as well as their knowledge and capability gaps. The topic of debt management and borrowing has been one of the IEC's core education focuses. In view of recent reports on borrowers' using property as collaterals to apply for loans, the IEC will enhance education initiatives on borrowing and debt management in the coming months, including media columns, website, e-newsletter, education campaign on IEC Calculators and outreach seminars etc.
The Government will continue to monitor the latest development of the property market and the evolving external environment. The Government will not hesitate to introduce measures when necessary, in order to maintain the healthy and stable development of the property market.
Ends/Wednesday, May 13, 2015
Issued at HKT 14:31
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