Lecture 1 - An Introduction to the Estate Agency Trade

7/30/2019 Lecture 1 - An Introduction to the Estate Agency Trade

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BST21764Estate Agency and Marketing

Lecture 7

The Estate Agency Trade An

Introduction


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BST21764 - Lecture 1 Prepared by Ernest Chan 2

Content

The Real Estate Trade and its socio-economic development

Development of Real Estate Agency

Practice in Hong Kong

Relationship between the Real EstateAgency and other professions and sectors

Role and Functions of Real Estate Agents

The Estate Agents Ordinance (EAO)


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The Real Estate Trade and itssocio-economic development

1945 1952 Thousands of people fled to Mainland

China

Hong Kongs population fell from 1.6million to 500,000

After 1945, many returned to HK

In addition, people from the Mainland

flooded to Hong Kong By 1947, HKs had population reached

1.8 million


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The increase in population set theproperty market on an upward trend.

Previously, occupiers of multi-storey

buildings had been tenants of the ownerof the land.

Gradually it became common forindividual units in these buildings to besold.

In some cases, the existing building wasdemolished.


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As most tenants of residential premiseshad security of tenure, compensationhad to be paid to them under the

Demolished Buildings (Re-developmentof Sites) Ordinance.

The practice of pre-selling units in anuncompleted building slowly begin.

Purchasers paid the purchase price ininstalments.


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In 1952, the Korean War started and theUnited Nations imposed an embargo onChina trade to halt entrepot trade

between HK and China. The economy suffered as a result and

this carried through to the real estatemarket.


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1953 1970 From the end of the Korean War, HK became a

manufacturing centre and various industries,including textiles, electronics, plastics and toys,

were set up. Immigration from the Mainland continued andinvestments were made by Chinese people livingin various parts of South-East Asia

There were housing shortages and the realestate trade enjoyed a boom from 1954 to 1957.

Numerous properties were completed butpurchasing power could not match with the highsupply.


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In 1957, the Government enacted a lawgoverning the sale of uncompleted residentialunits.

Sales of uncompleted residential units stagnatedand a general slump in the real market.

Another market boom occurred from 1959 to1968.

In 1966, units in the then largest housing estate

in HK, Mei Foo Sun Chuen, were sold. This was the start of multi-storey residential

buildings in large estates.


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1971 1984 At the beginning of the 1970s, the

property and stock markets continued to

expand. In 1973, there was a stock market crash,

followed by a property market slump.

Various external factors, such as the

Middle East oil crisis, also affected localmarkets.

From 1976, the markets recovered.


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In 1979, the mainland adopted an open-doorpolicy.

HK benefited from this and some HK industrieswere relocated to the Pearl River delta andGuangdong Province.

These industrial developments also assisted thegrowth of a property market.

By 1991, property prices were at a record highdue to the strong demand for housing andspeculation.

Subsequently, the increase in interest rates andpolitical uncertainty contributed to the loweringof prices.


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1985 1997

Following the Sino-British JointDeclaration, investors confidence was

gradually restored.

From 1987, the property marketexpanded and great profits were made,although there were setbacks in theinterim due to adverse external factors.


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1998 2005

The Asian financial crisis of 1997-8reduced properties prices by up to 60%

over the next few years.

Various other factors including economicrestructuring, deflation, high rates ofunemployment and bankruptcy, and theSARS outbreak, also had a negativeeffect on property prices.


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Problems with negative equity, and mortgageesales characterized the property market.

However, towards the end of 2003, propertyprices resumed their upward trend with pricesfor luxury flats surpassing those reached in 1997.

This recovery continued in 2004 and into earlypart of 2005.

By the end of 2005, successive interest rate

increases had dampened sentiments in themarket and prices softened.


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Development of Real Estate Agency Practicein Hong Kong


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1950s and 1960s

In the 1950s and 1960s, most estateagents were one-person firms which had nostaff or office.

Many of the agreements they drafted werecontradictory and inadequate.

Clients were referred to solicitors toprepare formal documentation necessaryfor the sale and purchase of land.

Most sales were for building sites andbuilding rather than units.


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1966

In 1966, the building of Mei Foo SunChuen, the first major hosuing estatein Hong Kong, changed the picture.

Small estate agency companiesbegan to emerge in Mei Foo,specializing in the sale of

uncompleted units in this housingestate.


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1970s

Estate agents flourished in the 1970swith the increase in housing estatesand the development of new towns inthe New Territories.

Agents set up retail shops and severalfirms opened branch offices.


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1980s

The commission system wasintroduced in the early 1980s givingstaff a share of the commissionderived from the transactions theyhandled.

There were a few large companies,

each of which had more than 10branches.


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1980s

They dealt with all parts of themarkets, comprising retail,commercial, industrial, and residentialproperties.

Towards the end of the 1980s,agencies began to computerize their

operations.


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1990s

The early 1990s saw phenomenal growth in the trade,with the largest firms having branches in almost everyhousing estate in HK.

However, the financial crisis of 1997-8 resulted in

consolidation of the trade and the closure of lessefficient companies.

The trade was largely sustained by the sale ofuncompleted units by developers, who engaged estateagents to market and procure buyers for theirproperties.

The developers paid commission for agents services.


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1990s - now

Also in 1997, the Estate Agents Ordinance(EAO) was enacted and the Estate AgentsAuthority (EAA) established.

This brought the first formal regulation ofthe trade, administered by a statutory body.

Changes in the trade produced by thelegislation included the requirements that a

practitioner must: Obtain a licence before he/she can practise in

the trade;


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1990s - now

Use certain prescribed forms when acting in the saleof residential property;

Comply with the provisions of the Estate AgentsOrdinance and subsidiary legislation made under the

Estate Agents Ordinance; and Be subject to disciplinary action in the event of

breach of, non-compliance with, those provisions.


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1990s - now

These measures have gradually led toprofessionalisation of the estateagency trade.

The recovery of the property market atthe end of 2003 has meant that theestate agency trade is flourishing again.

At the end of June 2007, there were 21198 individual licensees.


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Relationship between

the Real Estate Agency and other

professions and sectors


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Parties involved

Government

Solicitors

Banks Developers

Building and construction sector

Property management sector


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Government

Government departments included:-

Land Registry search of land title and propertytransaction

Rating & Valuation Department governmentrent and rates; and CR109 (tenancy agreementfor domestic tenancy)

Building Department Occupation permits

Lands Department Information on landauctions, tenders and other disposals ofproperties


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Government

Housing Department removal of alienationrestrictions for the transfer of units under theHome Ownership Scheme (HOS) and the TenantPurchase Scheme (TPS)

Companies Registry Information about limitedcompanies

Inland Revenue Department (Stamp Office) Stamping of tenancy agreements for sale and

purchase Estate Agents Authority a statutory body and

the regulatory body for the estate agency trade


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Solicitors

The formal sale and purchase (SPA),assignment, and mortgage are generallyprepared by solicitors acting for each party

to a conveyancing transaction. Practitioners should also advise their clients

to seek legal advice from solicitors.

This may mean that a practitioner will have

to liaise with solicitors at various stages ofa property transaction.


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Banks

Most purchasers will require mortgagefinance for the purchase of a property.

The majority of loans are provided by

banks. Practitioners play an important role in

disseminating information relating tomortgages to their clients and introducing

them to banks for mortgages.


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Developers

Prior to the financial crisis of the 1990s,developers usually looked after the sale oftheir own properties.

After the financial crisis, it became commonpractices for developers to appoint estateagents to market uncompleted units,paying substantial commission for their

services. This made developers important clients for

estate agents.


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Building and construction sector

Builders and contractors buildproperties; practitioners sell them.

They all rely heavily on the healthydevelopment of the property market.

In this way, it could be said that theyare inter-dependent in many ways.


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Property management sector

The building manager of a property can giveinformation relating to arrears of management fees,costs of renovation work for a building, the existenceof any building order affecting a building, and otherrelevant matters.

The quality of property management affects the valueof properties, and therefore purchasers generally lookfor properties with good management.

Property management and the personnel involved inproperty management are thus relevant to the estate

agency trade.


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Role and Functionsof

Real Estate Agents


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Roles and Functions

The services performed by practitioners include:

Marketing a property;

Introducing a property to a client;

Introducing to a client persons who wish to buy or

sell or let a property; Arranging viewing and inspection of a property

Obtaining and supplying information about a propertyto a client;

Negotiating the terms of sale or purchase of tenancy;

and Drafting and arranging the signing of a preliminary

agreement for sale and purchase or a preliminarytenancy agreement.


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Roles and Functions Newly builtunits

In the case of newly built units, the usualsale is to a walk-in client who has notbeen introduced to the unit by apractitioner but who is interested in theunit having seen the developersadvertisements.

The purchaser may only view the show flat,having received property information,

usually supplied by the developer, andwhich is the same for all units in thedevelopment.


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Roles and Functions Newly builtunits

There is little or no room for negotiation ofthe terms of sale, and usually the Sale &Purchase Agreement (SPA) cannot be

amended. However, if practitioners act for both the

developer and the purchaser, they will beperforming the full services of estate

agents ass in the secondary market.


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Roles and Functions Secondarymarket

In the secondary market,practitioners perform all the usualservices of estate agents.

After receiving instructions fromvendor-clients and landlord-clients,the agent has to market and procure

purchasers and tenants for theproperties.


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Roles and Functions Secondarymarket

The agents then: Has to choose suitable properties for

consideration by a purchaser-client and atenant-client;

Arranges for viewing and inspection;

Obtains and supplies information about theproperties to both vendor and purchaser orlandlord and tenant;

Relays the proposed terms of sale and purchaseand letting to the parties in the course of

negotiations between the parties; and Drafts and arranges the signing of preliminary

agreements for sale and purchase or preliminarytenancy agreement.


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Prior to the enactment of the EAO in 1997,there was no legislation regulating theoperation of estate agents.

A person could operate an estate agencymerely by obtaining a business registrationcertificate.

By the early 1990s, the unethical andunlawful conduct and practices of many

estate agents led to many complaints tothe Consumer Council.


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These included estate agents:

Acting for both parties without theirclients consent;

Acting for both parties without informingeither of the amount of commissionreceived from the other;

Selling properties as confirmors to clientswith disclosing the agents interest in thetransaction;


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Mispresenting details of informationabout the property;

Failing to protect clients interests;

Not carrying out instructions;

Requiring clients to enter into unfairestate agency agreements; and

Generally offering services of low quality.


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In response to the communitys growing concern, theGovernment appointed a Working Group on theRegulation of Estate Agents in November 1993 toexamine the trade and its practices.

The Work Group in 1994 recommended theintroduction of a licensing system to regulate thetrade and the establishment of an independent,statutory, the Estate Agents Authority (EAA), tooversee and implement the regulatory/licensingsystem.

The EAO was passed by the Legislative Council on 21May 1997, and the EAA established on 1 November1997.


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Professionalism of Estate AgencyTrade Community Expectations

Buying a property involves a largeamount of money and is likely to beone of the most important purchases

made by an individual in Hong Kong.

For these reasons, consumersinterests require protection.

Both the vendor and the purchaserwould expect an estate agent:


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Professionalism of Estate AgencyTrade Community Expectations

To have sufficient knowledge of the law, and otherrelevant matters relating to property transactions;

To supply clients with correct and accurate propertyinformation;

To protect the interests of clients in carrying out theirinstructions with due care and due diligence; and

Not to exert undue influence or coercion, and to giveclients sufficient time and freedom to make decisionsabout a purchase.

In addition, a client would expect to have a right to be

heard, to complain, and to seek redress in the eventof unsatisfactory service being provided.


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The End

Documents

Lecture 1 - An Introduction to the Estate Agency Trade