Ka Wai Property Agency Co., Ltd.

Expert in Village

Is Village House a Small House? Is Village House not necessarily a Small House?

Small House and Village House are different conceptually. We may say that a Small House is also a Village House, while Village House is not necessarily a Small House. It is important to clarify the differences as the ordinance concerning both houses are different and may affect the legality of such property transaction.

There are various kinds of building land in the New Territories:

Old Schedule Lot: It refers to certain lands being granted by the Block Government Lease in 1905 as building land. Most of these building lands located within the area of some traditional villages and an approval for reconstruction must be sought from the local Lands Department. No conditions of restricting sales and purchase/alienation is included in such lot, hence there is no need for Land Premium Payment.
Government Lot: It refers to the lots being auctioned by the Old District Office (now Lands Department) after 1905. In general, it will restrict that the building shall not exceed two storeys and there is no need for Land Premium Payment. However, since all Government Leases kept by the government were either destroyed or lost during the Second World War, property built on such lands might suffer from title defective.
New Grant Lot: It generally refers to the land in the New Territories being granted by the government in terms of individual contract after the 60s. All terms and conditions are listed out in the concerning Land Grant. If the grantee applies the land as a male descendent of indigenous residents of the New Territories in accordance to the Small House Policy in 1972, a list of strict terms restricting the sales and purchase/alienation of the property will be found in the Grant. It is required that after the completion of works, the grantee must apply for Land Premium Payment and seek written consent from the District Lands Officer before selling and alienating such Village Houses (i.e. Small Houses).
Lot and Building License: It refers to the government’s approval of the land owner building house within the private area of his/her old schedule lot. Similarly, there are numerous development restrictions in the building license, e.g. location of building, number of storeys, building height, covered area and the use of building. After development, the owner must first apply for the Certificate of Compliance before selling and alienating the property. The old Building License (issued before 1972) does not include the restriction of Land Premium Payment, the owner may sell and alienate the property after acquiring the Certificate of Compliance.

Most Building Licenses issued after 1972 are granted according to the Small House Policy, like the new grants of other small houses, a series of conditions restricting the sale and purchase/alienation of property can be found. The grantee must apply for Land Premium Payment and seek written consent from the District Lands Officer before selling and alienating such Village Houses (i.e. Small Houses).

How to differentiate Village House and Small House?

The answer can only be found in Government Lease. The following two circumstances allow the building of a Small House:

The Government granting suitable Crown Land in forms of New Grant Lot (rarely happened in recent years due to the limitation of Crown Land);
Indigenous residents select suitable farm lots and apply for building license (the most common form at the moment);
Remarks: the pre-sale of uncompleted Small Houses must not be done in the name of Indigenous residents, as it is a violation to the Building License and the government may resume the land in question.

Background of Small Houses

The government established the Small House Policy in 1972, allowing male indigenous residents of the New Territories a lifelong right to acquire lots to build houses at concessionary land price for self occupation, which is also known as ‘concessionary right’. Small houses are one of the many small village houses in the New Territories.
‧	The Lands Department is responsible for the supervision of small houses’ exterior and area.
‧	After the completion of works, owners may move in to the small house after acquiring the certificate of compliance from the government.
‧	If the small house is built at an earlier stage and is a self-occupation property of the resident, it can be sold after premium payment.
‧	Some developers may purchase small houses from male descendants and sign the Letter of Authorization and a will with them. The developer will also sign a Letter of Intent with the buyer to assure that the male descendants will sell out the property at fixed price. The developer will collect the deposit from the buyer in order to settle the premium payment. After paying the premium, the developer will sign the agreement and grant with the buyer as the authorized representative.
There are 2 types of small houses:
‧	Male decedents may apply for the ’Free Building License’ from the Lands Department.
‧	Developers may apply for ‘Private Treaty Grant’ from the Lands Department by paying the Concessionary Premium, i.e. a price 30-40% lower than the market price

Common Regulations on the Purchase of Small Houses

Lands in the New Territories – Demarcation District (D.D.) and LOT

I.　 Restriction of Gross Area

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The building should cover an area not exceeding 700 sq. ft.

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The building should not consist more than 3 storeys and its height should not exceed 27 feet

II.　Block Government Lease

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Specifications of the Demarcation District will be included in one Block Government Lease, while details of each lot will be specified in the appendix respectively. Appendix information include:

1. Lot Numbers	2. Grant Duration	3. Name of the Grantee
4. Lot Usage	5. Area	6. Government Rent

III.　 Building License

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Farmland owners may build small houses in an assigned area of his/her lot. Restrictions of development and related terms are specified in the license.

IV.　 3 Certificate of Exemption

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The new Buildings Ordinance (Application to the New Territories) Ordinance has established a series of regulations on small village buildings. Owners should apply for 3 Certificates of Exemption for building works, drainage works and site preparation from the Lands Department. Any property being built without acquiring the Certificate of Exemption will be regarded as unlawful building.

V.　 Certificate of Compliance

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Under the New Grant, it is indicated that the grantee shall not alienate and mortgage the property without the compliance of the Lands Department. Thus the grantee will apply for the Certificate of Compliance immediately after the completion of development in order to fulfill the requirements of the New Grant.

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Most small buildings in the New Territories are exempted from the above constraints and are available for occupation without the Occupation Permit. In general, buyers and banks will only accept the Certificate of Compliance as the official document certifying the legality and completion date of the property.

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Under particular circumstances, the owner may apply for Certificate of Compliance several years after the completion of work. Hence, the property age cannot be determined by such certificate alone.

VII.　Premium Payment

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In general, restrictions on sale/purchase or alienation of the small house will be specified in the Government Grant. Only after the recipient of the Certificate of Compliance and paying the premium to the Lands Department that such terms can be deleted. Otherwise, no formal sale or purchase is allowed. Any sale/purchase or forms of alienation of the property before the premium payment will be a violation to the Government Grant and the Lands Department is entitled to confiscate the lot in questions.

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All 3 storeys of the house must be included in the calculation of premium. Storey-based premium calculation is not allowed.

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All small houses built on private lands are not permitted to alienate within 5 years. Owners must pay the premium to the Lands Department before alienation if the property has to be sold before the deadline.

VIII　There are 2 types of premium payments of small houses

‧	Free Building License	>The premium shall be calculated at concessionary rate. The difference against the market price shall be paid when applying for Consent to Assign.
‧	Private Treaty Grant	The premium shall be calculated as the land price before the building of houses. The difference against the land price shall be paid when applying for Consent to Assign.

IX　Uncompleted Small Houses

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It refers to any uncompleted small houses which have yet been granted the certificate of compliance

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No premium is allowed to pay for any uncompleted small houses which have yet received the certificate of compliance

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The purchase of small houses without paying the premium is not protected by law and the buyer will not own the land title

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If the property is built by a particular developer, buyers may not be able to retrieve the deposit in cases of delay or incompletion.

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Mortgage of uncompleted small houses will not be accepted by banks

X　Others

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Certain lots of village houses may attach to slopes. Buyer should check if the responsibility of slope maintenance is borne by the government, private party or both. According to the Building Regulations, if a slope is found to be ‘dangerous’ or ‘potentially dangerous’ in nature, the owner or responsible parties shall carry out the maintenance.

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If the village house is sold together with a garden, the buyer should verify to see if its entitlement is covered by the grant or within the restrictions of government Tenancy Agreement Regulation. If restricted, the garden is prohibited to be sold together with the property.

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If the village house is sold together with a rooftop, the buyer should verify to see whether its entitlement is separately included in the grant or shared with another party. The entitlement of rooftops can be verified in general searches.

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Generally speaking, village houses should be valuated by the bank or surveyor in order to determine its market price before transaction. Both transaction parties should hire their own solicitors to enquire about the grant and other documents. After verifying the terms of sale/purchase restriction in the grant, the parties may sign the sale and purchase agreement and settle the deposit.

Village houses have become a popular choice among homeowners because of its rural location. Away from the hustle and bustle of the city, residents may enjoy the tranquility of the Nature and a peace of mind. The highly usable partition, low building density in the neighborhood and the freedom to keep their own pets are but a few advantages of village houses. However, the purchase of village houses differs from any other properties. The following are some common problems for reference:

	Common Problems	Points to Note
1.	Ambiguous Entitlement – buyers must verify the entitlement of the village house to ensure that the transaction is being done with the genuine owner and that the address of the house falls within the lot area assigned by the government.	Buyers may request the selling party to submit the lease or grant issued by the government. In the case that rooftop, garden and other buildings are included in the village house, one should verify whether such construction is unlawful and covered by the lease.
2.	The assignment of land and village houses is restricted, e.g. the requirement of premium payment etc. According to the law, no village house shall be assigned in the market freely without paying the premium	Buyers should read the lease or Land Grant carefully to verify whether any terms of restrictions are provided in the documents.
3.	The Village House is in violation of terms of development specified in the lease, new grant or building license	The buyer or the legal representative shall search at the Land Registry and request the selling party to submit all relevant documents before signing the sale and purchase agreement.
4.	The Village House fails to apply for exemption because the completed property exceeds the area of the lot or mildly violates the relevant regulations.	Buyers may verify whether the property is provided with effective government documents, e.g. Certificate of Compliance, Assignment, title deed of a subdivided flat and Certificate of Exemption. By doing so one could ensure that the granting and building process, building structure are lawful and safe so that he/she may alienate it freely in the future.
5.	Ambiguous rights of road usage use or lacking a path leading to the house	Buyers may enquire the Lands Department through the property agency or surveyor
6.	Building a Village House before obtaining approval of the government bodies	Avoid purchasing uncompleted village houses
7.	Uncompleted development of Village House	Buyers can inspect the completed village house in person and such purchase would be more secure. Hence buyers should avoid participating in the pre-sale of uncompleted village house.
8.	The bank refuses to offer full mortgage	Most banks remain conservative in valuating village houses. Even if a full valuation is offered, the bank may not a mortgage of 70% of the property price (normally a 50-60% mortgage will be offered). Therefore, before purchasing a village house and signing a provisional agreement, buyers should obtain a valuation of the property from the bank and enquire about the highest possible mortgage rate.

Others

1.	Plants and trees and commonly found around village houses and insects tend to breed in such areas. Also, most residents of village houses will keep their own pets, thus families with children shall pay extra attention to this aspect.
2.	If the village house is located in the low-lying areas or nearby the slope, one should be aware of the maintenance and safety of the neighboring drainage and slopes. Floods and landslides may occur in rain seasons.
3.	Residents should check to see if the drinking water in the property is provided by the nearby wells or the public standpipe. Well water may not be 100% safe even after boiling.
4.	Most village houses are located in the rural area and less accessible. Buyers should assess the commuting time and costs carefully. Village houses located in remote areas may fail to receive signals of mobile phones, free television and Cable TV.
5.	The process and procedure of village house transaction differs from most properties. To fully protect one’s rights, the buyer must first seek professional legal advice and hire a lawyer experienced in the sale and purchase of village houses to go through the lease carefully before making a purchase.

Homeowners may also refer to the Lands Department’s pamphlet ‘The Purchase of a Village House in the New Territories’ or enquire the Lands Department directly through the following means: Address: 20/F North Point Government Offices, 333 Java Road, North Point, Hong Kong

Tel: 2525 6694
Fax: 2868 4707
Website: http://www.landsd.gov.hk/tc/about/welcome.htm