An interest in land/real estate can either be held under freehold or leasehold ownership. If you acquire a freehold property, you acquire the exclusive right to both the building and the land where the building is erected on. A freehold owner can use and make alterations to the building as it wishes so long as it acts lawfully. On the other hand, if the property is held under leasehold ownership, the acquirer, namely the lessee, only acquires a right to use the property excluding the land beneath it for a limited period of time known as the term. Anything done to the property is governed by the terms of the lease.
In Hong Kong, since 1997, all land has become the property of the People's Republic of China while the government of the Hong Kong Special Administrative Region is responsible for its management, use and development. In other words, every piece of land in Hong Kong (with the sole exception of St. John's Cathedral, the only freehold property in Hong Kong) is leasehold property .
When the government decides to release land for building it usually does this by selling the land (or ‘parcel’ or ‘lot’) at an auction. Legally speaking, the government does not sell the land; it sells the right to occupy it for a term of years. This system gives the Hong Kong Government as the grantor a high degree of control over the way in which land is developed and used through covenants and conditions imposed on the grantee and contained in the lease. Since 1997, the term granted to the lessee has been 50 years from the date of the grant.
In the past, the government as lessor would issue a Government Lease to the purchaser (usually a developer) (as the lessee). Nowadays, instead, the government executes Conditions of Sale/Exchange/Grant/Re-grant/Extension depending on the purpose of grant. These are contracts giving a conditional right to the purchaser which will be converted to a form of legal ownership upon compliance with all the conditions stipulated. After a successful acquisition of the land, the purchaser (who is usually a developer) will recoup his investment in the construction and make a profit before the term runs out. Once a unit is sold or if the entire building as a whole is sold to a property company, the developer ceases to be involved. The purchasers take its place and they will also be able to sell their leasehold interests later or to assign the right to use to new tenants.
In Hong Kong where supply of land is limited, real estate is usually developed in form of a multistorey building. Under this system, the entire land and building is notionally divided into a number of undivided shares which are allocated to different flats. The sale of flat to a purchaser is effected by transferring the relevant undivided shares attached to the flat. Legally speaking, as the division of land into shares is only notional, all the flat owners own the land in common. For practical reasons, exclusive possession of a flat is at the same time guaranteed by execution of a document called a ‘deed of mutual covenant’ involving the developer, the first purchaser and sometimes the management company. Therefore, each flat owner, by assignment, owns a number of undivided shares in the land together with the exclusive right to occupy his/her flat.
Apart from a leasehold interest, a purchaser also enjoys an easement, meaning the non-exclusive right to use another’s land in a particular way for the benefit of the use of one’s own land. This is a proprietary interest which can be granted expressly, impliedly or by statute. Examples are a right of way and a right to park cars on neighbouring land.
In the case of a multi-storey building, the tenants also enjoy the right to use the common parts of the building, which refer to those parts which are not delineated as being for the exclusive use of one tenant in the deed of mutual covenants. Common examples are the corridors and staircase. This right can be expressly specified in the first assignment, Deed of Mutual Covenant and Sub-Deed of Mutual Covenant (if any) or implied by the Building Management Ordinance.
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No. However, foreign investors are equally subject to stamp duty, Special Stamp Duty and in particular Buyer's Stamp Duty. Please refer to the ‘Taxes in Hong Kong’ section for more details.
In addition, the new guideline ‘Prudential Measures for Mortgage Loans on Non-residential Properties’ issued by the Hong Kong Monetary Authority on 19 August 2020 sets out the applicable loan-to-value ratio limits for non-residential property mortgage loans for non-local mortgage applicants (whose primary income is sourced mainly outside Hong Kong). Non-local mortgage applicants (without an outstanding mortgage) are subject to a limitation on the loan-to-value ratio of 40% for residential properties and 40% for commercial and industrial properties. For non-local mortgage applicants (with an outstanding mortgage), the limitation on the loan-to-value ratio is 30% for residential properties and 30% for commercial and industrial properties. Non-local purchasers (without an outstanding mortgage) securing mortgage loans based on net worth rather than income streams are subject to limitations on loan-to-value ratios of 40% regardless of property value for residential properties and 40% for commercial and industrial properties. Non-local purchasers (with an outstanding mortgage) securing mortgage loans based on net worth rather than income streams, they are subject to loan-to-value ratios of 30% for residential properties and 30% for commercial and industrial properties.
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No.
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Contracts are primarily governed by the general common law inherited from the English system. There are also additional statutory provisions relating to real estate transactions, including the Conveyancing and Property Ordinance, (Cap. 219 of the Laws of Hong Kong) Land Registration Ordinance (Cap. 128 of the Laws of Hong Kong) and related regulations.
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No.
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As between the Government and the purchaser (usually a developer), a contract called "Conditions of Sale" or "Conditions of Exchange" (as the case may be) is executed. This has the effect of giving the purchaser a mere conditional right. Upon actual compliance with all the positive conditions in the contract, this right will be converted into a form of legal ownership and the purchaser becomes the holder of the legal title.
In a common sale and purchase transaction, a transfer is executed by a formal document called a "deed" which passes the legal rights over and interests in the land from the vendor to the purchaser. The sale and purchase agreement and the assignment together with a record in the prescribed form called a "memorial" is registered at the Land Registry.
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Under the Land Registration Ordinance, registrable documents include those instruments which:
Once registered, the transfer of title is recorded with details of ownership of the land and certain title documents which are made available to the public.
A purchaser must register all instruments effecting a transfer within one month after the time of execution in order to preserve priority so that the transfer takes effect as at the date of execution. Such registration will ensure that the purchaser has priority over any subsequent encumbrances registered against the land by any third party such as charging orders and mortgages . This is a reliable government run system, however, registration affects only priority and does not produce or effect title.
The Land Titles Ordinance (Cap. 585 of the Laws of Hong Kong), which is still being discussed in the legislature, will introduce a system of title registration and title insurance in Hong Kong. However, it is not clear when this will become effective.
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A typical sale and purchase transaction relating to a residential property involves:
The purchaser goes to view the flat. Usually no legal advisors are involved at this stage.
Once it is agreed between the vendor and purchaser that the transaction should proceed (price, etc has been agreed), they will enter into the following written agreement(s).
This is usually short and simple and is normally prepared by the estate agent and executed by the vendor, purchaser and estate agent. The usual terms include:
The formal agreement contains more detailed terms of the transaction based on the provisional agreement. It is usually prepared by the vendor’s solicitor and approved by the purchaser’s solicitor. The parties would sign this agreement after taking legal advice on the terms and the transaction.
The vendor and the purchaser are required to be separately represented by lawyers unless in certain circumstances, such as where the parties are related by blood or the consideration for the land does not exceed HK$1,000,000 or uncompleted development. The solicitors acting for the purchaser can also act for the mortgagee (if any) so long as there are no conflicts of interests or a significant risk that a significant conflict will arise.
The vendor's solicitor prepares and sends the draft formal agreement to the purchaser's solicitor for approval. There may be subsequent negotiations about the draft terms. Once the terms are agreed, the vendor's solicitor prepares a clean copy for engrossment and sends it (in duplicate) to the purchaser's solicitor.
The purchaser's solicitor sends the agreement (signed by the purchaser) and the duplicate, together with the deposit, to the vendor's solicitor.
The vendor's solicitor then arranges for the vendor to sign the agreement and the duplicate and date them. The vendor's solicitor keeps the signed duplicate and sends the signed original to the purchaser's solicitor.
The purchaser's solicitor will first submit the signed formal agreement to the Stamp Duty office for stamping and subsequently lodge the stamped formal agreement in the Land Registry for registration.
The document of transfer (known as an assignment), must be prepared for the vendor to transfer its interest in the property to the purchaser upon completion.
The purchaser's solicitor prepares the assignment and sends the draft to the vendor's solicitor for approval.
On completion, the purchaser hands over:
The assignment must be stamped as having had the appropriate stamp duty paid and registered in the Land Registry by the purchaser's solicitor. A mortgage by a limited company must also be lodged with the Companies Registry for filing and registration. After stamping and registration, the title deeds are sent to the purchaser's mortgagee (if any) for retention as security. If there is no mortgage, the original title deeds are retained by the purchaser.
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Yes. Purchasers should rely on their own investigation of title, searches, site inspection and survey. The purchaser's lawyer will review the title information provided by the vendor's lawyer (including all title deeds and related documents) and will carry out a set of searches, including a search in the Land Registry to check for any adverse entries such as charges over the land and other encumbrances. If there are any problems on title, the purchaser's solicitors will raise formal queries which the vendor's solicitors are obliged to answer satisfactorily in order to prove good title. Otherwise, the purchaser can refuse to proceed with the purchase.
Last modified 19 Jul 2023
Consent is required from anyone who has lent money to the vendor and has a security interest in the property being sold unless the mortgage is to be paid off at completion (which is, in fact, the most common situation).
In the case of residential property, the purchaser generally also needs consent from any other occupiers with a proprietary interest and confirmation that they will move out. If the property is sold subject to a tenancy, the parties may wish to enter into a 'novation' agreement to transfer the existing tenancy agreement to the new owner.
In the case of property development, consent from the government is required if the developer wishes to sell the flats whilst they are in course of construction in order to finance the project.
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Yes. The contract must be in writing and signed by each party. It must contain all the terms of the sale, including details of the land to be sold and the price, as well as the date when the transfer will take place and the documents to be entered into on that date. The contract must be signed by both the purchaser and the vendor. The contract is then exchanged, with the lawyers sending the documents signed by their clients to each other.
A typical contract sets out the date when the transfer will take place and the documents to be entered into on that date. It must contain all the important terms of the sale, including the:
The contract must be signed by both the purchaser and the vendor. The contract is then exchanged, with the lawyers sending the documents signed by their clients to each other. The contract may also contain provisions regarding how the property will be managed between exchange and completion, and how any income will be allocated between the purchaser and the vendor, particularly where completion will be some time in the future or if the sale concerns an investment property (such as a sale subject to tenancy).
Contracts invariably contain provisions relating to insurance and what would happen if the property is damaged before completion.
In real estate transactions, payment of 3% to 5% of the purchase price as an initial deposit upon signing of a provisional agreement and 10% of the purchase price as a further deposit inclusive of the payment of the initial deposit upon signing of the agreement for sale and purchase is usual.
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No warranties are given by law and warranties related to the state and condition of the building are very rare.
Since warranties are not compulsory they can be varied to suit the parties involved in the transaction.
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If the transaction has been induced by fraud, or misrepresentation amounting to fraud, or by mutual mistake of a fundamental character, the contract will become void upon the innocent party taking action in court, or defending his failure to act. The court will order a retransfer back to the vendor of the land sold, and repayment to the purchaser of the purchase money with interest from the date of payment. The purchaser may also be entitled to the costs, charges and expenses incidental to the purchase and transfer, including the costs of due diligence, and the costs of the action to set aside the transfer.
Where the misrepresentation is innocent, the execution of the transfer is not a bar to it being reversed, but the court may in its discretion award damages instead of reversing the transfer.
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Town planning (zoning), construction and environmental laws may apply and should be investigated with the assistance of lawyers. As part of its due diligence, a purchaser should confirm that the property is being used in compliance with the use authorized by the occupation permit issued by the Buildings Department and that the property is not subject to any notices of violation issued by any authority.
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The person causing the pollution is primarily responsible for its clean-up. But if that person cannot be found or pursued, then environmental legislation allows local authorities to approach the current owners and/or occupiers of the land.
Buyers should therefore take careful note of any environmental issues identified in the survey and should seek to apportion liability for these or adjust the price of the property accordingly.
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The purchaser can check the government lease related to the parcel of real estate to check the permitted user of the land. An occupation permit is required for any construction on land and it includes information on the authorized use of the building. If a purchaser is planning to change the use of the real estate beyond the permitted uses, it will need to seek approval from the Building Authority. The purchaser should also check the Outline Zoning Plan (or Development Permission Area Plan for land in the New Territories – those parts of Hong Kong other than Hong Kong Island and Kowloon) for any restriction on intended users and to apply for planning permission if needed. It has been held that when there are contradictions between government leases and Outline Zoning Plans, compliance with either one is not sufficient since the government and the Town Planning Board are independent entities. Therefore, a cautious purchaser should seek for permission if there are any contradictions.
Last modified 19 Jul 2023
In the case of a substantial proposed development local authorities will usually require the developer to enter into a development agreement. In exchange for planning permission, the developer must comply with certain obligations, including, for example, making a payment or carrying out public works.
As well as imposing a payment under the development agreement, the local authority will usually require the developer to pay all of its fees. Other statutory bodies, for example, water authorities, may also require development agreements.
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Local authorities and certain other bodies have powers of compulsory purchase where the acquisition of land is necessary for a proposed development. Compensation is available based on the value and possibly the development potential of the land acquired. If the owner carries on a business on the land acquired, compensation for loss of that business may also be awarded.
Procedures for compulsory purchase can be protracted, but most cases are concluded by negotiation between the acquiring authority and the real estate owner.
Owners of more than 90% of the undivided shares in a lot may in some circumstances make an application to the Lands Tribunal for an order to sell all the undivided shares in the lot for the purposes of redevelopment (or, alternatively, the Chief Executive may specify a lower percentage, in any event not lower than 80%). Such an order will be made if redevelopment is justified due to the age or state of repair of the building and the majority of the owners have taken reasonable steps but failed to acquire all of the undivided shares through negotiation on fair and reasonable terms.
If the decision to compulsorily re-acquire is made by the government, effectively there is no possibility of resisting it. It has been held that affected owners do not even have a right to make representations by way of objection to the decision. However, since the decision is a public decision, the affected owners can challenge it by way of judicial review on limited grounds: illegality, procedural impropriety and irrationality. Again, the prospect of success is low.
The government may commence statutory eviction proceedings by serving a clearance notice. There is no obligation on the part of the government to rehouse the affected owners as long as compensation has been awarded in accordance with statutes.
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Please refer Tax of acquisitions for further information.
Last modified 19 Jul 2023
With effect from 1 August 2021, the sale or purchase of any Hong Kong stock is charged at a rate which varies with the amount or value of the consideration as follows (although an exemption may apply to a transfer of Hong Kong stock between companies with at least a 90% common shareholding if certain conditions are satisfied):
| Nature of document | Rate |
| Contract note for sale or purchase of any Hong Kong stock | 0.1% of the amount of the price or of its value on every sold note and every bought note |
| Transfer operating as a voluntary disposition between individuals | HK$5 + 0.2% of the value of the stock |
| Transfer of any other kind | HK$5 |
If the property is to be let and rent is collected then property tax is payable. The exact amount payable is calculated at a percentage of the 'Net Assessable Value'. This percentage has been set at 15% from 2008/09 onwards. The Net Assessable Value is calculated by taking the annual rental income less irrecoverable rent, rates and a statutory allowance for repairs and outgoings.
Corporations can elect not to pay property tax but profits tax instead (at 16.5%) on net profits derived from rental income.
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Do buyers usually carry out due diligence?
Yes. Purchasers should rely on their own investigation of title, searches, site inspection and survey. The purchaser's lawyer will review the title information provided by the vendor's lawyer (including all title deeds and related documents) and will carry out a set of searches, including a search in the Land Registry to check for any adverse entries such as charges over the land and other encumbrances. If there are any problems on title, the purchaser's solicitors will raise formal queries which the vendor's solicitors are obliged to answer satisfactorily in order to prove good title. Otherwise, the purchaser can refuse to proceed with the purchase.
Last modified 19 Jul 2023