SALE AND PURCHASE
Real estate ownership
Forms of real estate ownership
Almost all Hong Kong land is Government-owned. There is no privately-owned freehold land in Hong Kong (except St. John's Cathedral). Individuals or corporations in Hong Kong are typically granted leasehold interests in the land.
The principal legal interests in land include: (a) Legal charge over land, i.e. mortgage interest; (b) Equitable interest in the form of being the beneficiary of a trust, whether such a trust was intentionally created by a settlor, or arose by operation of the law in the form of a resulting or constructive trust; and (c) Easements.
Generally, there are no legal restrictions as to who can own Hong Kong property.
Major property legislation
The Conveyancing and Property Ordinance (Cap. 219) (CPO) which regulates the ownership, proof of title, transfer, and mortgaging of properties in Hong Kong is the main legislation. Apart from the above, other governing legislation include:
- The Land Registration Ordinance (Cap. 128) which regulates the documents registration system in Hong Kong;
- The Landlord and Tenant (Consolidation) Ordinance (Cap. 7) which regulates the relationship between lessors and lessees;
- The Government Leases Ordinance (Cap. 40) which regulates the regime of leasing land from the Hong Kong government;
- The Residential Properties (First-hand Sales) Ordinance (Cap. 621) which regulates and imposes requirements on the practices and arrangements relating to sale of first-hand residential properties in Hong Kong; and
- The Stamp Duty Ordinance (Cap. 117) which governs the stamp duty payable on, inter alia, transfer of properties in Hong Kong.
Transfer of real estate ownership
After preliminary negotiations occur and both parties settle on a price, a "provisional agreement", which is legally binding between the purchaser and vendor, is drafted and entered into. It must be complied with and, if not replaced within the stipulated time (typically 14 days after the signing of the provisional agreement, to be extended by mutual agreement by the parties) by a formal sale and purchase agreement, may be relied on to govern the rest of the transaction or to sue for compensation for breach of contract. An initial deposit is usually paid on signing.
Such a provisional agreement usually contains the following terms:
(a) Address of the property; (b) Price of the property; (c) Details of the parties; (d) Amount of the initial deposit (industry practice being 1% to 5%) to be paid on the signing of the provisional agreement; (e) Amount of the further deposit (industry practice being 10% inclusive of the initial deposit) to be paid on the signing of the formal sale and purchase agreement; (f) When the formal sale and purchase agreement is to be signed; (g) The completion date (on which the vendor disposes of the legal title of property to the purchaser); (h) The balance price that is to be paid by the purchaser of the property by the completion date; (i) The condition and/or occupancy status subject to which the premises is to be sold to the purchaser; (j) The apportionment of legal expenses and stamp duty between the parties; (k) The legal representation of the purchaser and the vendor;
(l) The amount of commission payable to the estate agent by the purchaser and/or vendor; and (m) Liability for breach of agreement.
The vendor's solicitors will then draft a formal sale and purchase agreement based on the basic terms in the provisional agreement supplemented with more elaborated provisions on title of the property and other obligations and responsibilities of the parties whether before or after completion. Once both parties agree to the form and content, it will be executed and submitted for stamping at the Stamp Office and thereafter registered at the Land Registry.
On the date of completion, the purchaser will hand over the balance of the purchase price in exchange for a duly executed document of transfer (otherwise known as deed of assignment). All title deeds and means of access to the property (e.g. keys) are delivered to the purchaser, unless the property is bought via a mortgage in which case the title deeds will be furnished to the purchaser's mortgagee for retention until the mortgage is discharged in the future.
The assignment will also be stamped and registered at the Land Registry.
There is no prescribed form of transfer in Hong Kong. The typical legal document involves a provisional sale and purchase agreement, a formal sale and purchase agreement and a deed of assignment which must all be in writing, duly signed and attested, stamped (save and except that a provisional sale and purchase agreement needs not be stamped if it is superseded by a formal sale and purchase agreement executed within 14 days from the date of the provisional agreement) and registered at the Land Registry.
Title to real estate in Hong Kong is by a system of deeds registration (as opposed to title registration). This means that all instruments affecting real estate are registered with the Land Registry. Together these instruments make up the title. There is no single document of title, and electronic conveyancing is not available.
The Land Register is the public register of title. It shows the ownership particulars of each property and any encumbrances or instruments affecting the property registered against the property such as legal charges, releases, agreements for sale and purchase, and court orders.
The Land Register is managed by the Land Registry and can be accessed online here.
The following documents are registrable in the Land Registry:
(a) Conveyances (deeds of assignment); (b) Legal charges; (c) Releases; (d) Agreements for sale and purchase; (e) Court orders affecting land interests; (f) Leases; and (g) Other instruments in writing affecting land interests.
If a document contains confidential information, the parties may choose to register a memorandum of the document. The memorandum will include only the details of the matters that need to be registered to protect priority without disclosing the confidential information.
Asset vs share transfer for commercial real estate
Asset transfers involve the transfer of ownership of the property itself. On the other hand, share transfers involve buying and selling of shares in a company (either incorporated in Hong Kong or offshore, or in structures involving both) that holds properties.
Transfers are commonly effected by way of share transfer as well as asset transfer in Hong Kong.
Share transfers are becoming more common as the stamp duty payable on the sale and purchase of shares is currently equivalent to 0.2% of the higher of the consideration and the fair market value of the shares being transferred, as against up to 30% stamp duty applicable in the case of asset transfer. (Please refer to Section on Taxes)
Considerations for foreign ownership of non-residential real estate
There are no specific requirements or restrictions on non-resident entities and individuals to own or lease real estate (including shares in companies holding properties) in Hong Kong.
Foreigners are allowed to directly purchase real estate assets in the private market. Non-Hong Kong permanent residents are subject to payments of higher rates of ad valorem stamp duty (AVD) and buyer's stamp duty (BSD).
According to the Basic Law, no foreign exchange control policies will be applied in Hong Kong.