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BST21764Estate Agency and Marketing
Lecture 7
The Estate Agency Trade An
Introduction
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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 Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Real Estate Trade and itssocio-economic development
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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The Estate Agents Ordinance (EAO)
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The Estate Agents Ordinance (EAO)
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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The Estate Agents Ordinance (EAO)
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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The Estate Agents Ordinance (EAO)
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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The Estate Agents Ordinance (EAO)
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