Hong Kong is home to a mature property market, and the process of selling a house or apartment is quite straight forward and structured. We at Engel & Voelker’s have thus listed out the essential steps involved in the process to guide you along the way.
Appointing a real estate agent
There are various methods to sell a property in Hong Kong. The first step is engaging a licensed Hong Kong real estate agency. The market decides the price of the property and the real estate agent brings the market to you, for he/she knows the market and then works to get you the best price possible. However, not all Hong Kong real estate agents are alike and if one promises to sell your property at the highest price it doesn’t necessarily mean he/she is ‘the best.’ The agent may be just angling for your listing and may, in fact, price your property out of range resulting in loss of valuable sales time for you, as the vendor.
At Engel & Voelkers Hong Kong, we pride ourselves as being very in tune with the constantly changing Hong Kong property conditions. All our agents are licensed, experienced and knowledgeable pros with excellent sales records. They can represent and guide you in your negotiations with a prospective buyer most efficiently through an exclusive contract.
Signing an Estate Agency Agreement
The Estate Agents Ordinance states that a real estate agent in Hong Kong is required to sign an estate agency agreement with a prospective client if he/she is being appointed to buy, sell or even lease a particular property. This agreement is a legally binding document that usually states the validity period of the agreement, the agency relationship (whether the agency being appointed is exclusive or the agreement is non-exclusive) and the amount of commission to be paid. The prescribed form to be signed by an estate agent and the seller of a property in Hong Kong is Form 3 – Estate Agency Agreement for Sale of Residential Properties in Hong Kong.
This is a legally binding document, & is prescribed by the Estate Agency Authority & is a mandatory form to be filled in as per Hong Kong law and the Estate Agents Ordinance, in addition to specifying the validity period of the agreement also lists the duties of the agent. Information about showings, advertising and sub-listing is also listed in Form 3 in order to avoid future misunderstandings and even litigation. A strict adherence of the above-mentioned terms helps make the process eminently transparent and clear. We at Engel & Voelkers have our clients’ best interests at heart, and we try and make every effort to make the conditions of the Estate Agency agreement abundantly clear to you before we go ahead with the transaction.
Information about the property
According to the guidelines of the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation, a real estate agent needs to provide the seller (vendor) of a property with Form 1 – the Property Information form. You, as the seller, need to provide your agent with relevant information to fill out this form. This information relates to details about ownership of the property, encumbrances against the property, floor area of the property, the year of completion and even user restrictions of the property.
Form 1 additionally includes a section known as the Vendor’s Statement. In this section, you (the seller) are advised to disclose to the purchaser if there are any existing claims against your property, such as:
- If there exists any government order to the removal or
- unauthorized structures or building work or
- if they are any unpaid property management dues or
- if there is any pending repair work to be done or
- there exist any latent defects in the property that are not easily discernible in a property inspection.
You also need to disclose information about any mortgage amount due on the property or if there is a current tenancy on the property and if at there exists any litigation against the property concerned.
In Hong Kong, buyers also like to know if the property is ‘haunted’ or if it is ‘dirty,’ which means if an unfortunate death, murder or suicide has occurred in the said property. A real estate agent can check for any of this in the Land Registry records if these encumbrances have been registered though it is preferable to disclose any such untoward information in order to avoid problems later on in the sale process.
Appointing a solicitor
While the buyer and you can share the same real estate agent, you both need to appoint your own respective solicitors to work out the modalities of a real estate transaction.
Accepting a purchase offer
Most buyers of real estate in Hong Kong (like elsewhere) enjoy haggling and bargaining over the price of the property. Once you and the prospective buyer have agreed on a price, and you both have discussed the relevant details of the transaction, your solicitor will draw up a provisional Sale and Purchase agreement. Your real estate agent at this point will also supply the buyer with a land search document which will indicate any encumbrances against the property that are registered with the Land Registry. Our agents at Engel & Voelkers are trained never to miss this vital step of the process as they aim to be fair and impartial to all parties concerned. The Provisional Sale and Purchase agreement has to be approved by the prospective buyer’s solicitor who will also verify the title of the property under consideration with the Land Registry department. Once the title has cleared, and the property inspected, you and the prospective buyer will proceed to sign the provisional Sale and Purchase agreement, a legally binding document. At the signing of this agreement, the prospective buyer needs to hand over a 5% initial deposit to you or your solicitor.
If the buyer decides not to go ahead with the transaction at this point, he/she stands to lose his/her initial deposit. Further, the buyer will also have to pay fees for both real estate agents involved in the transaction.
Signing the Formal Sale and Purchase Agreement
After the Provisional Sale and Purchase agreement has been signed, the two parties involved in the deal need to sign the Formal Sale and Purchase agreement within fourteen days. The prospective buyer’s solicitor usually drafts this document, which then your solicitor needs to approve. At the signing of this document, the buyer submits an additional 5% of the purchase amount to you or your solicitor.
A real estate purchase transaction needs to be completed within six weeks of the signing of the provisional Sale and Purchase agreement. At the closing, the buyer has to tender the balance amount of the purchase price. At this point solicitors for both parties concerned determine other costs involved like mortgages, management fees and government rates. The Internal Revenue Department stipulates that profits derived by from the sale of a property in Hong Kong are subject to Profits Tax and must be declared to the government.