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Legal Update

The Clock is Ticking: Be prepared for the forthcoming legislation to regulate the sale of first-hand residential flats in Hong Kong

20 December 2011
Mayer Brown JSM Legal Update


On 29 November 2011, the Secretary for Transport and Housing released a Consultation Paper to seek the views of members of the public and stakeholders on the proposed legislation to regulate the sale of first-hand residential properties, in the form of a bill entitled the "Residential Properties (First-hand Sales) Bill" (the "Bill").

Although the Consultation Paper has been published for some time, it is still worth highlighting a few important measures proposed by the Bill before the expiration of the consultation period. This report focuses on two controversial issues, namely, the application of the proposed legislation to the sale of completed residential properties, and the imposition of criminal sanction on non-compliance.

Scope of Legislation - Apply to completed flats

Save in three exceptional circumstances, the proposed legislation applies to any residential property in a development in respect of which property no agreement for sale and purchase has been entered into. In other words, the proposed legislation will apply to first-hand uncompleted and completed residential flats, irrespective of whether they are projects developed under old lease conditions, Consent Scheme projects or projects outside the Consent Scheme. (Part 1 Clause 4(1) of the Bill.)

It may not be appropriate for the proposed legislation to also regulate first-hand completed flats because there is no difference in substance between first-hand and second-hand completed flats. In both cases, the flats are already in existence and can be inspected by potential purchasers physically.

Completed flats may be held by an owner for leasing or left vacant due to market condition or other commercial reasons. It may be too onerous to require an owner to comply with the proposed legislation when it sells completed flats, but where the owner has sold the flats to a purchaser, such purchaser will not be subject to the legislation when he re-sells the flats in second-hand market.

Criminal sanctions

The Bill proposes that breach of the measures proposed in the legislation will be subject to criminal sanctions. The Government adopts the principle that even the non-compliance which are minor and regulatory in nature (e.g. a failure to provide building plans for free public inspection, failure to deposit sales brochures with specified authorities within the required timeframe) will also be subject to criminal sanctions. (Part 5 and other provisions in Parts 2, 3, 5 & 6.)

The following principles should be taken into account when imposing criminal liabilities:

  1. All proposed offences should be clearly defined, with no ambiguity.

  2. Imposition of a fine of an amount proportionate to the relevant non-compliance should be sufficient where the non-compliance is minor or regulatory in nature. If civil remedies are proportionate to the relevant non-compliance, then criminal sanction is not necessary.

  3. Presumption of guilt and shifting of the burden of proof to the defence should be avoided.

  4. In determining the penalty levels, it is essential to maintain consistency in our legislation so as to avoid any anomaly in our laws, and the Government should compare similar offences before determining any penalty.

Proposed penalty levels

Further, the proposed penalty levels range from a fine at level 6 (HK$100,000) to HK$5,000,000 plus imprisonment up to a maximum of six months to seven years.

From the wording adopted in the Bill, it seems that the provisions on the penalty levels and sanctions modelled on the provisions of the Securities and Future Ordinance ("SFO"). Since the SFO aims to regulate the highly complex securities and futures industry and the relevant contracts are constituted by highly complicated financial instruments which are not easily understood by laymen, the aim and purpose of the SFO are quite different from those of the proposed legislation. It therefore seems that SFO may not be an appropriate model for determining the penalty levels in the proposed legislation.

In any event, having regard to (a) the nature of conveyancing practice in Hong Kong and (b) the fact that most of the offences proposed in the Bill are minor or regulatory in nature, the penalty levels of a number of offences proposed in the proposed legislation should be lowered, so as to ensure that the penalty levels are proportionate to the legitimate purpose to protect purchasers.


So far, there has been no specific legislation to regulate the sale of first-hand residential properties in Hong Kong. The Government's intention to introduce new legislation to enhance the transparency of the sales arrangements of first-hand residential properties is understandable.

However, it is also important to ensure that the measures proposed by the Government are reasonable and proportionate to the legitimate purpose of the proposal, i.e. to protect purchasers in first-hand residential properties, and that the restrictions imposed are no more than are necessary to accomplish such purpose.

The consultation period has commenced and will last until 28 January 2012. The Consultation Paper can be downloaded from the Transport and Housing Bureau's website:

For inquiries related to this Legal Update, please contact Alan Yip or your usual contacts with our firm.

Learn more about our Hong Kong office and Real Estate practice.

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