BACK

POLICY PAPER

MORE PAPERS

Consultation Document - Report of the Working Group on Regulation of Estate Agents

10th October, 1994

The Secretary
Working Group on Regulation of Estate Agents,
Planning, Environment and Lands Branch,
21/F.,Murray Building,
Central,
Hong Kong.

Dear Sir,

CONSULTATIVE DOCUMENT - REPORT OF THE WORKING GROUP ON REGULATION OF ESTATE AGENTS

We are writing with our comments on the above Report.

In general we are supportive of the main thrust of the Report. There are serious shortcomings in the practices of many estate agents at present. A system of statutory supervision, carried out by a dedicated regulatory body but within a free market framework, is needed to address those shortcomings. We welcome the general recommendations of the Report and believe that they will contribute significantly to the broader upgrading of professional standards that we see as essential to maintaining the territory's competitiveness in the coming years.

We have the following specific comments.

1. We are concerned that the proposed regulatory body - of around 18 persons with a budget of HK$8 million per year - will be too small to effectively regulate an industry with 4,730 establishments and 15,500 people. In particular, the regulator should have the capability to investigate allegations against estate agents, and also to actively perform spot checks on its own initiative. It is not sufficient to rely on police investigation. The police will not always have available personnel with the relevant expertise. They will also tend to give lower priority to the kind of civil disputes that are likely to form the subject of complaints about estate agents. To be effective, the regulatory body must have its own investigation personnel. We expect that the requisite number of personnel and the annual budget should be four to five times larger than proposed. Given the very large revenues enjoyed by the profession in recent years we believe that it would not be difficult to fund such an authority.
   
   
2. With regard to the composition of the regulatory body (section 8.2), we have strong reservations about the apparent bias towards persons connected with the trade, eg as exemplified by the sentence, "Estate agents should be sufficiently represented on the authority." Although the Report is nor clear, it appears that the proposed regulatory authority would have some kind of governing council -consisting of estate agents, other property professionals and other persons - which would make key decisions and to whom the executive staff of the authority would report. If this is the intention we strongly recommend that it be reconsidered. Self regulation by practitioners does not work well in Hong Kong - as the Report itself implies (Section 5.5 to 5.7). We would prefer to dispense with such governing Council, if intended, and allow the executive personnel of the authority to pursue enquiries, review evidence and make judgement themselves, subject to a proper appeal process. This is broadly the procedure in the Securities and Futures Commission and the Hong Kong Monetary Authority, both of which are effective regulators. Alternatively, the judicial functions could be performed by a separate tribunal convened from time to time. There should be channels for communication with and input from practitioners, possibly via some form of advisory committee. It is crucial to public confidence that the authority is, and is seen to be, independent of the persons it is seeking to regulate.
   
   
3. We agree with the proposal for interim measures pending legislation. However, in view of such interim period it is not necessary for further "flexibility" in enforcing the law once it is enacted - as envisaged, eg, in sections 7.6 and 9.4. Giving discretionary extensions of time to individual estate agents to comply with the law would send a message that the authority was not serious in enforcement. Experience of similar discretionary extensions in other regulated industries in Hong Kong suggests that the individuals benefitting from the extensions tend to regard them as permanent and make no effort to comply, and that their behaviour has an adverse effect on compliance by others.
   
   
4. In a number of places throughout the report the view is expressed that regulatory requirements must not be made too onerous for fear of deterring entry to the profession or putting existing estate agents out of work. We are concerned that this may reflect special pleading by the profession itself, and urge that any such tendency be vigorously resisted. The priority should be on protecting the public from malpractice. If estate agents are engaging in malpractice they should be put out of work. The concern that there might not be enough estate agents available to serve the public is greatly exaggerated. We believe that if anything there is an excess rather than a shortage of estate agents in the territory.
   
   
5. The issue of floor area is extremely sensitive in Hong Kong's cramped conditions and is regularly the subject of abuse by developers and estate agents. We therefore recommend that a single definition of floor area be adopted, preferably saleable floor area (section 11.5), perhaps based on the recommendation of the Law Reform Committee.
   
   
6. We recommend that exams be introduced as a requirement for holding an licences. The exams for the respective licences can be tiered in terms of difficulty, and there can be provision for waiver of part or all of an exam on grounds of experience or equivalent qualifications. The exam syllabus should be designed with input practitioners. Such exams need not be a significant deterrent or barrier to entry, and should be welcomed by estate agents as adding to their credibility. The examination system developed by the Stock Exchange of Hong Kong for the various functions within the securities industry could provide a general model for reference.
   
   
7. The buyer and seller should be free to make agreements with more than one agent.
   
   
8. As proposed by the Report, commission rates should be determined by market forces.
   
   
9. Consideration should be given a simple, easily logo for licensed estate agents to display on their premises.
   
   
10. We recommend that consideration be given to terminating the current monopoly of solicitors over conveyancing work. The introduction of the regulatory system proposed in the Report should give an opportunity to allow estate agents, or other appropriately qualified persons, to perform conveyancing services.

We hope that the above recommendations will be taken into consideration in finalising the proposals set out in the Report.

Yours faithfully,

George Cautherley
Vice Chairman