Panel on Housing (Papers) 20 Oct 1999

For information
on 20th October 1999

Legislative Council Panel on Housing

Estate Agents Authority

Introduction

This paper purports to provide the Panel on Housing of the Legislative Council with an information update on the Estate Agents Authority ("EAA"). In the first part of this paper the role, functions and work of the Authority are delineated, while the second part is concerned with the Authority's proposal for a reduction in licence fees.

Part One: The Role and the Work of the Estate Agents Authority

The Role of the Estate Agents Authority

2. According to the EAO, the EAA is tasked with the regulation of the trade, the raising of service and professional standards, and the provision of training opportunities. Since its inception the Estate Agents Authority has exercised great care in keeping these three major functions in good balance.

3. The Estate Agency Authority is a self-financing statutory body. It is financed mainly by the trade itself in the form of licence fees. The Authority has an appointed membership which is highly representative. In recent months, when business opportunities are scarce owing to the downturn in the property market, together with the implementation of the Estate Agents (General Duties and Hong Kong Residential Properties) Regulation ("Practice Regulation") close at hand, estates agents are worried about the future.

4. The Estate Agents Authority plays a number of roles. On the one hand, it provides practical support and assistance to the estate agency trade. On the other hand, it handles consumers' complaints on estate agents and regulates their practice, providing consumer protection.

5. In apportioning task and resources, the EAA has taken into consideration the expectations of both the trade and the community, and has worked hard to achieve a well-balanced workplan that takes care of the needs of both sides. It provides training to enhance the trade's professional standard and, at the same time, incorporates educational elements in its enforcement and complaint handling activities. The ultimate goal is, of course, to assist practitioners to practise according to law. The Authority is also mindful of its responsibility to the general public, and the importance of community education. The Authority is convinced that, when consumers have become conversant with their rights and responsibilities, and when estate agents conduct their business in accordance with the legal requirements, then there will certainly be much fewer cases of complaint.

The Work of the Estate Agents Authority

Regulations and Practice Directions

6. Preparation of regulations and its concomitant consultative works continued throughout the year, resulting in the passing by the Legislative Council of the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation and the Estate Agents (Determination of Commission Disputes) Regulation in June 1999. Both Regulations will come into operation from 1st November 1999. In the meantime the EAA has organised series of training activities for the trade, and an extensive range of training aids have also been produced for in-house training at various estate agency firms.

7. The first set of Practice Directions was issued upon the coming into effect of the Licensing Regulation to facilitate practitioners' understanding and observance of the statutory requirements. In anticipation of the implementation of the Practice Regulation, a new set of Practice Directions has been prepared incorporating regulations regarding practice for the easy reference of the practitioners.

Training and Examination

8. Since inception, the EAA has organized numerous seminars/ workshops on topics including the Practice Regulation and the standard forms, property information search, and the sale and purchase of flats under the schemes of the Hong Kong Housing Authority. There were over 9,000 attendees from the trade at these events. EAA members and staff also attended a number of seminars organized by the trade associations and estate agency establishments on practice matters, which attracted an estimated audience of over 7,000. Most of the seminars and talks have been recorded on videotape and regularly re-run at the EAA Resource Centre, so that trade practitioners who missed the live sessions may still access these training opportunities.

9. Various training materials have been prepared for use by members of the trade, including manuals for trainers, a reference guide on estate agency law and practice, and a self-study guide to help candidates prepare for the qualifying examinations. In addition to printed materials, audio-visual and digital training aids are also available to meet the needs of estate agents, trainers, and the general public.

10. Over 6,000 candidates sat for the second qualifying examinations held in July 1999. About a third of the candidates were not practising the estate agency trade at the time of the examination and the average pass rate was 55%.

Complaints

11. It is only through a mechanism whereby complaints are effectively handled that consumer rights can be properly protected. From January to September 1999, over 600 complaints comprising more than 900 allegations were received. Of these cases most were self-referrals from the complainants, while others were referred by the Consumer Council, members of the Legislative Council and Provisional District Boards, and the media. After careful study or investigation, disciplinary action will be meted out where cases so warranted. Letters of advice will also be served on the agents concerned for educational purpose. During the same period, the Authority was in receipt of close to 2,000 enquiries concerning the conduct and standard of service of estate agents.

Compliance

12. In the first nine months of 1999, over 500 places of estate agency business were visited as well as the sales sites of a number of new developments. EAA staff members also took occasion of these inspections to explain the new legislation to trade practitioners, and to answer their queries. Where compliance with EAO's requirements are found not in order, admonition or warning is issued and re-visits are made to ensure compliance. During the course of inspection, it has been found that some care-takers of buildings were engaged in estate agency work without licence. The Authority has issued warning to such persons and referred some of the cases to the Police. In an effort to bring the message of the new licensing requirement home to caretakers, letters enclosing EAA's pamphlets and posters were sent to over a hundred property management companies and over 3,000 owners' corporations.

13. In an effort to facilitate the trade's compliance with the property information requirement, the Land Registry has extended its computer search hours. The Buildings Department has also significantly shortened the time for obtaining copies of Occupation Permits. The Rating and Valuation Department has cooperated with the EAA in the production of a CD-ROM which facilitates agents' access to its Info-Hotline.

14. Foreseeing a sharp increase in the demand for practical advice upon the implementation of the Practice Regulation, the EAA has established, in addition to the existing telephone enquiry lines, a hotline dedicated to answering enquiries on the new Regulation. From October 1999, a series of community talks will be given in large housing estates to introduce the new regulations to the community.

Determination of Commission Disputes

15. From November 1999, the EAA will provide a mechanism for the determination of commission disputes as an alternative to legal action. A leaflet and a brochure outlining the determination mechanism are now being distributed to the trade and the public, and rules for the registration of determinations and the appeal mechanism have been proposed for submission to the Department of Justice for the drafting of the necessary subsidiary legislation.

Publicity and Community Education

16. The EAA has made extensive efforts to promote the EAO and its subsidiary legislation to the trade and the community at large. It has run series of articles explaining the new regulations to the public in major newspapers and, to further raise public awareness, the EAA has, through the Information Services Department, broadcast Announcements in the Public Interest on various radio channels. In addition the Authority will, in conjunction with the Consumer Council, organise a quiz show on the essentials of the Practice Regulation on Radio 2 of Radio Television Hong Kong in the first two weeks of November.

17. The pamphlet Guide to Property Transactions and the poster Practice According to Law, Protection to All have been produced to help citizens learn about estate agents' new practice regulations and caution them to matters that merit special attention in a property transaction. Outreach work forms another important aspect of the Authority's effort in community education. EAA personnel visit District Offices and advisory centres of the Consumer Council from time to time to answer citizens' questions on the Practice Regulation, and on other subjects related to the service of estate agents.

18. Since its opening in August 1999, the Resource Centre has had about 2,500 users for various purposes, including the search of the computerised register of licensees, the use of reference books and other publications on the estate agency trade, and the viewing of the video recordings of the EAA's public lectures on the Practice Regulation. Self-study guides are available in the Centre to facilitate agents who wish to enhance their professional knowledge.

Part Two: Licence Fees

Background

19. The existing licence fee schedule was devised by the EAA during mid-1998 in preparation for the First Licensing Exercise and was based on manpower projection prepared with the assistance of the trade. The actual number of applicants for the licence exceeded projection and this explains why there is a cumulative surplus in the Authority's accounts.

20. The policy of the EAA is to budget for a break-even in each financial year and in the long term. In formulating its budget the most difficult thing is the estimate of income as the number of licensees cannot be predetermined with accuracy. The EAA has primarily relied on information provided by the trade. In the event the number of licence-holders is either over-or under-estimated, it will give rise to either a deficit or a surplus. As the estimated number of licence-holders in respect of the 1999/2000 year has been over-conservative, there is a surplus of approximately $40 million which is booked in the accounts of the EAA at the end of the financial year. Taking into account the unamortised portion of the pre-operational expenditure of the EAA, the real surplus would be in the order of $25 million. It is established that, from a prudent point of view, the EAA would need 25% of the annual expenditure of the next year as its target reserve, and this will approximate to $15 million. Accordingly, in considering any reduction of licence fees, the EAA will need to agree to run down its cumulative surplus over a number of year.

21. As the EAA has only started its operation for one year and its expenditure may increase, its Licensing Committee decided on 31 August not to change the fee levels. Strong reactions from the trade ensued. The EAA subsequently considered a proposal at a full board meeting on 9 September to reduce licence fees by 10 per cent. The recommendation was voted and passed by the meeting. In mid-September, the EAA sought the approval of the Secretary for Housing to its decision before the revised fee levels were submitted to the Legislative Council for negative vetting.

A Proposal to Reduce Licence Fees for 20%

22. On 27 September, the Secretary for Housing received direct representations from the office-bearers of five estate agency trade associations and two LegCo Members. They expressed strong views on various issues including licence fees which should be reduced by 50%. The Secretary for Housing undertook to pass their views to the EAA through the Chairman. The Secretary for Housing wrote in the letter, "In view of the very strong reaction from these LegCo Members and the trade, I am sure that the EAA will wish to meet the five trade associations at an early date. The EAA may also wish to examine the whole issue of the operations of the EAA again, in particular, how the accumulated surplus is to be used, the level of licence fees for the coming year, communication between the trade and the EAA, progress on the Central Information Data Bank and other issues." The EAA held a special meeting on 14 October during which a majority of Members voted to reduce licence fees by 20 per cent.

23. The income of the EAA, as noted before, is chiefly dependent on the number of licensees. However, the trade is well known for the high mobility of its members. In the circumstances the general view is that there will be considerable manpower attrition in the trade due to poor business and increase in operation costs after November, and the EAA has offset it with the projected inflow of new entrants to give a net attrition of 20% by the beginning of 2000. This figure may be subject to further attrition by about 10% at the end of the three-year grace period (i.e., 31st December 2001), by which time some practitioners may leave the trade owing to failure at the qualifying examinations.

24. In preparing its budget, the EAA exercised great restraint and made appropriate provisions for financial stringency including the freezing of staff establishment at the 1999/2000 level, employment contracts of specified duration, from two to three years, to provide for greater flexibility in headcount control, and the general application of the "added value" principle.

25. Financial projections have been prepared for five years and are at the Annex. On the basis of these projections, the reduction in fees will cause a depletion of the cumulative surplus. With a 20% reduction in licence fees, it is expected that this surplus will be depleted by about 50% in two years' time, and the Authority's cumulative surplus can still be kept at about 25% of the following year's expenditure. According to these projections, the cumulative surplus will deplete in its entirety by the 2004/05 financial year.

26. In order that the Authority will have the resources to discharge its various statutory duties and that it will not be unduly affected by the decrease in income caused by licence fee reduction, the EAA will review the allocation of its resources from time to time to ensure a high standard of cost effectiveness. It will continue to pursue training for the trade and community education, the handling of complaints, and to prepare for the establishment of the Central Property Databank. In addition, provision will be made for possible litigation expenses arising from enforcement activities.

27. When the large-scale licence renewal exercise completes in January 2000, the EAA will be able to have more definite figures with regard to the number of practitioners of the estate agency trade. Review will then be made as the stability of fees will depend very much on the stability in the size of the trade population. If necessary, the Authority may consider applying to the Housing Bureau and the LegCo for adjustment of licence fees in order to keep its accounts balanced.

Estate Agents Authority
October 1999