On 1 September 2010 the Legal Advisory and Conveyancing Office ("LACO") issued a Circular Memorandum ("CM") No.63 in respect of Lands Department Consent Scheme - Measures to curb speculative activities. The following measures will apply to all consents to sell uncompleted residential units issued on or after 13 August 2010.
Forfeiture of deposit
10%, instead of 5%, of the purchase price will be forfeited if the purchaser under a preliminary agreement for sale and purchase ("PSAP") does not sign the formal agreement for sale and purchase ("ASP") or if the ASP is later cancelled at the request of the purchaser. 10% of the purchase price is required to be paid as deposit on signing the PSAP and in case of default by the purchaser under the ASP, such deposit (i.e. 10% of the purchase price) will be forfeited to the vendor (see revised clause 11(3) (for agreed cancellation), clause 16(2) (a) (for default of purchaser) and revised item (i) of Schedule 5 of the form of ASP).
No nomination, subsale or any transfer of the benefit of the ASP
No nomination, subsale or any transfer of the benefit of the ASP by the purchaser before completion of the sale and purchase and execution of the Assignment to the purchaser is permitted (see revised Clause 11(1) of the form of ASP).
Consequently, the following forms have been revised and enclosed under LACO CM No.63:
- the form of ASP for residential units;
- Annex I to LACO CM No.62 (sales brochure requirements); and
- the report on stakeholder account's monies and progress of sales in the form at Appendix III to LACO CM No.54.
The standard form of undertaking (by the developer and the purchaser in respect of any en bloc sale) at Annex V to LACO CM No.62 is also cancelled.
Copies of LACO CM No.63 and its attachments can be downloaded from the following website: www.landsd.gov.hk
The new measures are intended to curb speculative activities, particularly as the purchasers can no longer nominate, sub-sell or transfer the benefit of the ASP to any third party ("Restriction on Transfer").
However, since the completion date could be as long as, say, 20 months from the date of the ASP, the new measures would add substantial financial risks to genuine home buyers. The banks may tighten the availability of home loans and, in the event of a downturn in the property market, the banks' valuation of the property at below the purchase price may make it impossible for the purchaser to obtain sufficient finance to complete the purchase. To mitigate such risks, the purchaser may wish to pay off the entire purchase price to the developer by taking out an equitable mortgage on the property soon after the ASP is signed. This option, however, is available only if it is agreeable to the developer.
In view of the Restriction on Transfer, a purchaser should make up his mind when he commits to the purchase as to who the ultimate registered owner(s) of the residential unit will be. Once the ASP is signed, no addition to or removal of any of the name(s) of the owner(s) is allowed. This is so even where the persons involved are close family members of the purchaser.
It remains to be seen how effective the new measures will be in curbing speculative activities. The new measures are inapplicable to completed developments or uncompleted developments sold under the Non-Consent Scheme.
Since the announcement of the Financial Secretary on 13th August 2010, a number of pre-sale consent applications had been held up pending the publication of the new measures. With the publication of LACO CM No.63, it is expected that these pre-sale consent applications can now move forward.
For inquiries related to this Legal Update, please contact:
Raymond Wong (firstname.lastname@example.org)