LCQ11: The Residential Properties (First-hand Sales) Ordinance
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     Following is a question by the Hon James To and a written reply by the Acting Secretary for Transport and Housing, Mr Yau Shing-mu, in the Legislative Council today (December 3):

Question:

     The Residential Properties (First-hand Sales) Ordinance (Cap. 621) (the Ordinance) came into effect on April 29, 2013, and the Sales of First-hand Residential Properties Authority (SRPA) is responsible for the implementation of the Ordinance. Last month, the Consumer Council published a Study on the Sales of First-hand Residential Properties (the Study). The Study points out that while the Ordinance has been enforced for one and a half years, the sales process of first-hand residential properties is still currently plagued with various problems, including that sales brochures have voluminous information but lack key information such as property management fees, not all units included in the price lists are for sale thus confusing prospective buyers, multiple "registrations of intent" by the same person is allowed hence inflating the demand, etc. The Study also makes a number of recommendations for improvements. In this connection, will the Government inform this Council:

(1) since the Ordinance came into effect, (i) of the number of complaints received by SRPA relating to the sale of first-hand residential properties, and the number of property developments involved, (ii) of the number of first-hand property developments the sales materials of which have been scrutinised by SRPA, as well as the problems identified and the contraventions of the Ordinance detected as a result; of the relevant recommendations for improvements that SRPA has given to developers and estate agents, as well as the penalties it imposed, and whether such recommendations have been implemented; if such recommendations have not been implemented, of the reasons for that;

(2) since the Ordinance came into effect, of the number of property developments the sales offices of which have been inspected by SRPA in respect of the sale of first-hand residential properties; of the number of inspections in which SRPA staff posed as prospective buyers, as well as the problems identified and the contraventions of the Ordinance detected as a result; of the relevant recommendations for improvements that SRPA has given to developers and estate agents, as well as the penalties it has imposed, and whether such recommendations have been implemented; if such recommendations have not been implemented, of the reasons for that;

(3) since the Ordinance came into effect, among the cases of alleged contraventions of the Ordinance that SRPA has detected, (i) of the number of cases which have been referred to the Estate Agents Authority for follow-up and, among such cases, the total amount of registration fees paid by estate agents on behalf of prospective buyers, as well as the respective numbers of estate agency companies and estate agents involved; (ii) of the number of cases which have been referred to the Department of Justice (DoJ) after SRPA's investigations, the number and names of the first-hand property developments involved and, among such cases, the number of cases that DoJ is considering whether prosecutions should be instituted (broken down by name of the property development and nature of the case); (iii) of the follow-up actions taken for these cases of alleged contraventions, and the reasons why the authorities have so far not instituted any prosecution as well as the difficulties involved;

(4) given that the provisions in the Ordinance regarding the prohibition of false or misleading information were modelled on the relevant provisions in Ordinances such as the Securities and Futures Ordinance (Cap. 571), whether SRPA has made reference to the experience of prosecutions successfully instituted under the relevant Ordinances, with a view to boosting the success rate of the prosecutions concerned; whether the authorities will consider, by making reference to the relevant provisions in Cap. 571, introducing legislation to require developers to publish any information that may affect the prices of residential units, including the statistics on registrations of intent in order to enhance the transparency of the market, as well as empowering SRPA to seek orders from the court to restore the original position, so that those buyers who have suffered losses from the purchase of residential units due to false or misleading information may either restore their original positions or receive compensations, in order to step up the deterrent effect against bad sales practices; and

(5) whether it has assessed the feasibility of the recommendations made by the Study (including measures such as to ensure that all units included in the price lists must be available for sales concurrently, to step up inspections against the offences of inflating the number of registrations of intent, and to schedule the sessions on balloting and property selection on different days, etc.), and whether it will consider making amendments to the Ordinance in order to implement these recommendations, so as to protect consumers' interests more effectively?

Reply:

President,

     The Residential Properties (First-hand Sales) Ordinance (the Ordinance) came into full implementation on April 29, 2013. The objectives of the Ordinance are to enhance the transparency and fairness in the sales of first-hand residential properties, strengthen consumer protection, and provide a level playing field for vendors of first-hand residential properties.

     The Ordinance sets out detailed requirements in relation to the sales brochures, price lists, show flats, viewing of first-hand completed residential properties, registers of transactions, information to be provided in the documents containing the sales arrangements, advertisements, and the mandatory provisions for the Preliminary Agreement for Sale and Purchase (PASP) and the Agreement for Sale and Purchase (ASP) for first-hand residential properties. It also provides for prohibitions against misrepresentation or the dissemination of false or misleading information by any person in promoting the sales of first-hand residential properties.

     Contraventions of the relevant provisions in the Ordinance are criminal offences. There are altogether 120 criminal offences under the Ordinance. Depending on the contraventions involved, offenders are liable on conviction to a maximum penalty of a fine of $5,000,000 and/or an imprisonment for 7 years.

     The Ordinance is the result of a year's discussion in the Steering Committee on the Regulation of the Sale of First-hand Residential Properties by Legislation (the Steering Committee) set up under the Transport and Housing Bureau, followed by a two-month public consultation exercise, and thorough discussion and scrutiny in the Legislative Council (LegCo). The Consumer Council (CC), the trade and relevant stakeholders have actively participated in the discussion.

     The Ordinance has made considerable achievement since its implementation. For example, vendors can only present the area and price per square foot and per square metre of a first-hand residential property in terms of saleable area; vendors who wish to make available a show flat for a residential property have to make available an unmodified show flat of that residential property as a prerequisite for making available a modified show flat of that residential property; vendors are required to make available the sales brochure for a period of at least 7 days immediately before a date of sale; vendors are required to make available the price list(s) and the document(s) containing the sales arrangements for a period of at least 3 days immediately before a date of sale; and vendors will have to wait for 3 days for amendments to the price lists and sales arrangements to take effect.

     As at November 24, 2014, vendors have offered to sell about 23 000 first-hand residential properties in 131 residential developments.

     My reply to the five parts of the question raised by the Hon James To is as follows:

(1) and (2) As at November 24, 2014, the Sales of First-hand Residential Properties Authority (the SRPA) has received 101 complaint cases. 75 of the cases are related to the Ordinance, and the remaining 26 cases are not related to the Ordinance. The 75 cases which are related to the Ordinance involve the sales of 40 first-hand residential developments. The targets of the complaints include vendors, estate agents and parties who have a role to play in the sales of first-hand residential properties.

     The SRPA examines all the sales brochures (including the revised sales brochures), price lists, documents containing the sales arrangements, registers of transactions and designated websites which are made available to the public by vendors, and printed advertisements of first-hand residential properties in major newspapers. Besides, the SRPA inspects all of the sales offices and show flats of first-hand residential properties.

     As at November 24, 2014, the SRPA has examined about 660 sales brochures (including the revised sales brochures), about 1 500 price lists, about 850 documents containing the sales arrangements, and about 4 800 printed advertisements. Also, the SRPA has conducted 2 000 inspections on the registers of transactions and 5 200 inspections on the websites designated by vendors. The SRPA has conducted about 1 600 inspections on the sales offices and show flats, and some of them were conducted jointly with the Estate Agents Authority (EAA).

     The SRPA spares no effort in implementing the Ordinance and carrying out investigations on persons suspected of having contravened the Ordinance. The SRPA will carry out investigations on suspected contraventions of the Ordinance detected during compliance checks/inspections and those arising from complaints or media enquiries. The SRPA looks into cases which are suspected of contravening the Ordinance seriously. The SRPA has been referring investigation reports on suspected contraventions to the Prosecutions Division of the Department of Justice (DoJ) for consideration.

     Generally speaking, during the investigation of suspected contraventions of the Ordinance, the SRPA would write to the vendors for explanations for the suspected contraventions. Under most of the circumstances, vendors had taken prompt actions to rectify or improve the situations concerned upon knowing that the issues had caught SRPA's attention or were under SRPA's investigations, regardless of whether the vendors concerned agreed there might be contravention of the Ordinance.

     The SRPA attaches great importance to the question of whether the sales arrangements set by the vendors are in line with the principles of fairness and transparency. For sales arrangements which do not contravene the Ordinance but may possibly cause order problem and affect purchaser's interest, the SRPA will advise the vendors concerned on improvement measures and issue guidelines to the trade. Under most of the circumstances, vendors have accepted the advice of the SRPA and have improved the sales arrangements.

     The SRPA has been keeping a watchful eye on the inflated number of registrations of intent in the sales of first-hand residential properties. The SRPA has been reminding prospective purchasers that the register of transactions for a development is the most reliable source of information which members of the public can get hold of the daily sales situation of a development. Prospective purchasers should be cautious in making reference to hearsay information from vendors or the market regarding the number of registrations of intent received before the date of sale. They should not take the figures as an indicator of the sales volume of a development.

     For cases involving estate agents, the SRPA will, apart from conducting investigations on whether the concerned estate agents have contravened the Ordinance, refer the cases to the EAA for follow up action.

     For situations which are suspected of having contravened the Ordinance or which are undesirable and which will possibly affect prospective purchasers' interest seriously, the SRPA will, while carrying out investigations, alert prospective purchasers of the situations through media channels in the first instance. As at November 24, 2014, the SRPA has issued reminders to the public on 13 occasions in respect of the sales of individual first-hand residential developments/phases.

     On public education, the SRPA has published the "Notes to Purchasers of First-hand Residential Properties" to remind prospective purchasers of the issues they should pay particular attention to when purchasing first-hand residential properties. Also, the SRPA has published a leaflet to set out in layman terms the major requirements of the Ordinance on vendors. There are frequently asked questions and answers in the SRPA's website. Announcements of Public Interest (API) on the implementation of the Ordinance are broadcasted on TV and radio channels, and on various other media channels. The SRPA launched a new TV and radio API in August this year to remind prospective purchasers to think carefully before signing a PASP.

(3) Of the cases of suspected contraventions of the Ordinance detected during compliance checks/inspections and those arising from complaints or media enquiries, most of them are about sales brochures, registers of transactions, printed advertisements, misrepresentation and the dissemination of false or misleading information. Persons suspected of having contravened the Ordinance include vendors, estate agents and parties which have a role to play in the sales of first-hand residential properties.

     As stated above, for cases involving estate agents, the SRPA will, apart from conducting investigations on whether the concerned estate agents have contravened the Ordinance, refer the cases to the EAA for follow up action.

     It takes time to conduct investigations and collect evidence. The SRPA has been referring investigation reports on suspected contraventions to the Prosecutions Division of the DoJ for consideration. It is not the proper time to disclose the details at this stage.

(4) The Administration has indeed made reference to the Securities & Futures Ordinance (SFO) when drafting the relevant sections of the Ordinance on misrepresentation and the dissemination of false or misleading information. That said, situations relating to the transactions of securities and futures are not exactly the same as those in first-hand residential properties. The regulatory regime for securities and futures may not be totally applicable to first-hand residential properties.

     There are provisions under the Ordinance which stipulate that if a person makes a misrepresentation by which another person is induced to purchase a first-hand residential property, the person who makes the misrepresentation is liable to pay compensation by way of damages to the other person for any pecuniary loss that the other person has sustained as a result of the reliance by the other person on the misrepresentation, regardless of whether or not the person who makes the misrepresentation also incurs any other liability, and notwithstanding that the person has not been charged with or convicted of an offence by reason of a contravention of the provisions on misrepresentation under the Ordinance.

     The proposal for requiring vendors of first-hand residential properties to provide in the sales brochures information which is likely to materially affect the price of a residential property, in addition to provide information which is known to the vendor but is not known to the general public and which is likely to materially affect the enjoyment of the residential property, has been discussed at great length when the Bills Committee on Residential Properties (First-hand Sales) Bill (the Bills Committee) of LegCo scrutinised the Bill.

     The proposal for making reference to the SFO and adding new provisions to the Ordinance to enable the SRPA to apply to the Court of First Instance to make court order(s) to restore the parties to any transaction to the position, in which they were before the transaction was entered into; or declare a transaction to be void, involves complicated issues and has to be considered carefully.

(5) The SRPA will consider in details the findings and recommendations of the study conducted by the CC on the sales of first-hand residential properties (the Report).

     In fact, some of the recommendations in the Report are not entirely new to the Administration. Issues such as the lead time for purchasers of first-hand residential properties to sign an ASP after signing the PASP, the amount to be forfeited if a purchaser fails to sign an ASP within the prescribed period of time, and whether it is legally possible to require vendors to offer to sell all of the residential properties the prices of which have been set out in the price lists in one go, were discussed at great length within the Steering Committee, during the public consultation exercise, and/or when the Bill was scrutinised by the Bills Committee of LegCo.

     The Ordinance strikes a balance between enhancing transparency and fairness in the sales of first-hand residential properties, and allowing vendors the flexibility in making business decisions and disposing of their properties lawfully. The existing provisions in the Ordinance are the result of the deliberations among different stakeholders along the spirit of consensus building while respecting differences. Taking into consideration there was wide support among the public in general for strengthening the protection to property purchasers, the Administration had incorporated suggestions which were conducive to protecting the interest of the purchasers of first-hand residential properties into the Bill as far as practicable.

     There is call for legislative amendments to the Ordinance to rectify sales arrangements which are not totally desirable, such as vendors not offering to sell all of the residential properties the prices of which have been set out in the price lists in one go, vendors making use of the registration system to create the situation of receiving a sheer number of cashier orders; and whether there is reasonable time between the balloting session and the property selection session for prospective purchasers to learn about the balloting results and go to the venue for property selection. The Ordinance has only been implemented for more than one year. More experience is required before conducting a review. We should not rush in proposing legislative amendments. At this stage, we consider it will be quicker to yield results through discussion between the SRPA and the trade and the issue of guidelines than through legislative amendments.

     There are various other recommendations in the CC's Report, such as strengthening compliance checks/inspections by the SRPA, enhancing the transparency of the sales arrangements, and raising public awareness on the SRPA and its work.  They are in line with SRPA's objectives.  The SRPA will follow up those recommendations actively.

Ends/Wednesday, December 3, 2014
Issued at HKT 12:49

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