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The following is a translation of the speech made by the Secretary for Housing, Planning and Lands, Mr Michael Suen, in response to the motion moved by the Honourable Martin Lee on "Regulating the Transactions of New Private Residential Properties" in the Legislative Council today (June 7):
President:
I would like to thank Members for their opinions on the topic of regulating first-hand residential property transactions.
Some Members have drawn a comparison between the property market and the securities market, and consider that Government should establish a statutory regime to specifically regulate property transactions. In my reply earlier to a Legislative Council question on a similar topic, I already pointed out that the two markets are different and should not be compared in the same light.
The securities market is of a global nature. As an international financial centre, Hong Kong needs to ensure that the regulatory standards for the local securities market is on a par with other major financial centres. Also, given the many different types of stocks and futures, and the fact that the amount of investment involved may vary considerably, the extent of the securities market's impact is far deeper and broader than that of the property market. Hence, it is necessary to establish a stringent statutory regime to regulate activities in the securities market.
There is generally no international common practice on whether or how the property market needs to be regulated. Different jurisdictions would employ different mechanisms appropriate to their own circumstances. In Hong Kong, property transactions are no different from other commercial transactions such as sale and purchase of cars in that they are all are carried out in the spirit of the contract, rather than being subject to market-specific statutory control. Any dispute from a transaction may be dealt with through civil litigation, and if fraudulent acts are involved, criminal prosecution action may be taken in accordance with relevant legislation. We believe existing arrangements suit the needs of the local property market.
The property market in Hong Kong is thriving under free market forces. It has always been Government's policy objective to strike an appropriate balance between protecting consumers' interests and maintaining a free business environment. At present, the Real Estate Developers' Association of Hong Kong (REDA) already has a set of guidelines for developers to follow when they sell uncompleted residential properties. Furthermore, the Consumer Council takes steps to enhance consumer education and remind home buyers of the things they need to pay attention to when they purchase properties. The Estate Agents Authority (EAA) has also stepped up enforcement action and taken measures to raise the calibre of estate agents. This three-pronged approach has greater flexibility and can better cater for the needs of the local property market compared with the option of regulating the property market by means of legislation.
I have the following views on the three suggestions mentioned in the motion:
First, regarding information provided in sales brochures, REDA has, since the introduction of a regime of self-regulation in October 2001, asked its members to provide essential information in sales brochures of local uncompleted residential properties. There were reports last year saying that private sale arrangements lacked transparency and that the accuracy of released sales figures was in question. In the light of these concerns, Government urged REDA to review the matter. REDA responded positively and issued a more detailed set of guidelines on 24 June 2005 asking developers to improve the transparency of sale of uncompleted residential units and the accuracy of sales figures disclosed.
Under REDA's current guidelines, developers are already being asked to provide essential information in sales brochures, including most of the information mentioned in the motion, such as location plan, floor plans, information on prominent fittings and finishes, floor areas, dimensions of parking spaces, salient terms of the land lease and the Deed of Mutual Convenant, anticipated completion date of the buildings and facilities, information on management fees, etc. If applicable, sales brochures also need to set out owners' obligations with regard to slope maintenance and to feature a plan showing the slopes. As regards the defect liability period, REDA has recently undertaken to ask its members to include such information in sales brochures so that property buyers can have more comprehensive information.
Concerning such information as price lists, number of units on offer, mortgage and payment plans, and miscellaneous expenses involved in a property transaction as mentioned in the motion, it is developer's commercial practice to make adjustments having regard to the sales situation and market circumstances, and make available updated information to prospective purchasers. If such information was required to be printed in the text of sales brochures, developers would no longer have flexibility in selling residential units. Free operation of property transactions would be impeded. This is not an advisable step to take.
In a nutshell, REDA's guidelines allow more flexibility than does legislation because guidelines can be updated from time to time to meet changing market circumstances and consumer expectations. Members of the public, including consumers and the media, are constantly watching how developers regulate themselves. If individual developers are found to have failed to comply with REDA's guidelines, their business reputation would be tarnished once the incidents are reported by the media. This is an incentive for developers to follow REDA's guidelines.
In addition, if a developer is in breach of provisions prescribed in Lands Department's Consent Scheme for sale of uncompleted residential units, Lands Department could take enforcement action depending on the extent of the breach. For instance, Lands Department may issue warnings and ask the developer concerned to correct the information. Lands Department may suspend, or even withdraw, its consent to discontinue the sale, and require the developer to allow buyers not to complete the Agreement for Sale and Purchase (ASP) and to refund the buyers the money paid plus interest.
Hence, we can see that the current mechanism has its deterrent effect. At the moment, the Administration will not consider enacting legislation to regulate sale of uncompleted residential properties, but will continue to meet with REDA, the Consumer Council and EAA on a regular basis to explore ways to make further improvements and to ensure that REDA's guidelines can really meet the needs of consumers and the real estate sector.
Second, regarding disclosure of inaccurate sales figures, the motion makes a comparison between the property market and the securities market and suggests that Government should establish a statutory regime specifically to regulate property transactions to prohibit such improper acts as insider dealing, false trading, price rigging and disclosure of false or misleading information. Earlier, I already pointed out the differences between the two markets. The two markets cannot be compared in the same light.
There have been recent reports about disclosure of inaccurate sales figures. The Administration has conveyed its concerns to REDA and asked REDA to review existing practice. REDA has agreed to urge developers to ensure that they release accurate information about sales situation and to standardize the definition of "sale" to refer to the signing of a Preliminary ASP. The new measures will facilitate dissemination of clearer information about sales for buyers' reference.
I wish to emphasize that laws against misrepresentation and fraudulent acts already exist, and persons involved in such acts may have to bear criminal or civil liabilities. A purchaser has the right to seek litigation and claim damages if he considers that inaccurate information is involved in the course of a property transaction and that he has been induced to sign an ASP as a result of misrepresentation.
Third, I have just heard different views about the idea of introducing a statutory cooling-off period for first-hand private residential transactions. I believe the community would too have divided views on this suggestion. Individual buyers may not necessarily consider that a mandatory cooling-off period would be to their benefit, depending on whether there are drastic fluctuations in the property market. As a matter of fact, should both parties to a transaction agree to adopt a cooling-off period, they are free to set out the agreed details of such a period in the Preliminary ASP. This can be done without a mandatory cooling-off period prescribed by legislation. Generally speaking, a buyer can, under the current mechanism, choose not to complete the transaction within a certain period after signing a Preliminary ASP and forfeit the deposit paid. This is what market players commonly refer to as the non-"must buy must sell" arrangement. To some extent, it is already similar to a cooling-off period.
Based on the above considerations, we believe it is not a suitable time now to introduce a mandatory cooling-off period by way of legislation.
At the end of the day, introducing a mandatory cooling-off period and hindering the free operation of the property market would not be the most effective means of consumer protection. Rather, consumers need to be educated to refrain from making hasty or rash decisions to purchase residential properties. In this regard, the Consumer Council and EAA will jointly publish a checklist this month. The checklist will be inserted in sales brochures and will list out the things which purchasers of first-hand residential properties should pay particular attention to. The checklist will remind consumers to think very carefully before buying residential properties. Consumer education would help prospective buyers make wiser choices.
Thank you, President.
Ends/Wednesday, June 7, 2006
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