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How Should Real Estate Advertisements Respond in Light of New Legislation

Date:2020-04-07 15:43:57

1.    Introduction

Following revision by the 14th Meeting of the 12th Session of the National People's Congress Standing Committee, the Advertising Law of the People's Republic of China (hereinafter the Advertising Law) was enacted on April 24, 2015 and entered into force on September 1 of the same year. The Advertising Law explicitly provides that advertisements must not contain false matters or misleading matters, nor may advertisements deceive or mislead consumers. Publicly disseminating tobacco-related advertisements is similarly prohibited; moreover, it shall not be lawful to use the medium of advertisements relating to other goods or services in order to promote tobacco products.

The “Regulations Concerning Publication of Real Estate Advertisements” (hereinafter the Regulations) was promulgated by the State Administration for Industry and Commerce on December 24, 2015. Comprising 22 articles, it entered into effect on February 1, 2016. The Regulations clearly stipulate that real estate advertisements must be truthful, lawful, scientific, accurate, and may not deceive or mislead consumers. Furthermore, such advertisements may not contain  promises  of  helping  the  prospective  owner  obtain   hukou,     find employment or enroll in education.

In contrast to the previous Advertising Law, the new enactment contains more articles and detail. It is characterized by extensive revamping of existing provisions, greater coverage and more stringent limits on permissible content. The Regulations represent a specific penetration of the Advertising Law into the sphere of real estate advertisements. Faced with a new legal landscape and changing times, we should consider how such advertisements are to be formulated and by what rules they should abide. A primary concern of this article is to introduce provisions of the Advertising Law and Regulations as they pertain to real estate advertisements. This is done via an analysis of key provisions, at the end of which various conclusions on the applicable law are presented.

2.    A Close Reading of Key Provisions

Article 26 of the Advertising Law represents the most significant change to the law regulating real estate advertisements. It enumerates the four items which such advertisements may not contain.

Article 26: Real estate advertisements and the supply of housing must be truthful; representations as to surface area should clearly indicate the surface area of the structure. The following content are considered impermissible:

(一)Promising a price-increase or return on investment

(二)Indicating location based on travel time to a specified object of reference

(三)Content that contravenes national provisions on price management

(四)Misrepresentations as to transport, commercial, cultural or other amenities under construction or planning

Analysis 1: The prohibition on promising an increase in value or return on investment excludes ‘ clear indications on the wisdom of the investment’. For example, statements such as ‘150% return, 7% annual increase on returns, a steady revenue of 50% in 5 years’ are not allowed.

Analysis 2: The location of the property may not be indicated by reference to the travel time to a specified destination. This excludes representations of distance based on time. By way of illustration, ‘5 minutes to the CBD’, ‘3 minutes’ walk to commercial centre’ and ‘3 minutes is all that separates hustle and bustle from tranquility’are not allowed.

Analysis 3: Pricing must conform to national regulations, which require clarity and certainty. Therefore, statements such as ‘initial deposit from 50,000’, ‘average price starting from 8000/square meter’, ‘special price starting from 6000/square meter’, ‘you determine the price’ would clearly fall foul of this stricture.

Analysis 4: No misrepresentations may be made as regards transportation, commercial, cultural, education or other amenities. This is a proscription on puffery. Except instances where the developer has discretion, amenities under construction or planning may not serve as the basis for advertisements. Extreme phraseology, such as ‘national level’, ‘supreme’, ‘unique’, ‘unprecedented’ and ‘omnipotent’ is prohibited.

3.    Ten Bright Red Lines in Real Estate Advertising

a.    Promising an Increase in Value or a Return on Investment

In their advertisements, some real estate companies promise an increase in property value or a return on investment. Examples abound: ‘property adjacent to subway, unlimited potential for increases in value, guaranteed recoup of investment in 3 years’, ‘a 30-year cash cow, more than 36% profit in the first three years, high levels of return,' huge potential for increases in value’,  ‘potential  for  50%  increase  in  value,  minimal  investment,     low threshold, high returns, first-year return of 6%, increasing in yearly increments of 10% and above’.

The above phraseology represents to the public either an increase in the value of the property or the ability to generate a certain rate of returns. Such statements contravene Article 26(1) of the Advertising Law, which provides that “real estate advertisements may not contain the following: a) promises as to increases in the value of the property or a return on investment.” Article 58 of the Advertising Law prescribes an order for ceasing publication of the offending material and a fine.

b.    Advertisements in the Absence of a Pre-Sale Permit

In the course of construction of property, some developers have put out advertisements without obtaining a “Pre-Sale Permit for Commercial Housing”.

Such a situation contravenes Article 5 of the Regulations: “in none of the following situations may advertisements be published: .... 4) pre-sale properties without the requisite license”. Article 21 of thereof prescribes an order for ceasing publication of the offending material and a fine.

c.    Failure to Disclose the Pre-Sale Licence Number in Advertisements

Certain property developers omit the Pre-Sale Licence Number in advertisements, which are designed to entice consumers into purchasing the property. This contravenes Article 7(3) of the Regulations: “advertisements for the sale or pre-sale of real estate must clearly indicate the following: ... 3) the number of the Pre-Sale or Sale Licence.” Article 21 thereof prescribes and order for ceasing publication of the offending material and a fine.

d.    Using Travel Time to Specified Destination as an Indicator of Location Some    property    developers    use    the    following    phraseology    in    their advertisements: “1 minute to bus station or 10 minutes to southern train station (under construction), 20 minutes to Wuyu Airport by car”, “5 minutes to Subway Line 3, Xiuxiang Dadao Station”.

Such instances simultaneously violate Article 26 of the Advertising Law and Article 4 of the Regulations, which both provide that “real estate advertisements.... may not include the following: ... 2) using travel time to a specified destination as an indicator of the property's location." Article 58 of the Advertising Law prescribes an order for ceasing publication of the offending material and a fine.

e.    Misrepresentations as to Amenities Under Planning or Construction

Some real estate  advertisements include the phrase  ‘Subway Line    No.2’without indicating that it is still under construction.

This contravenes Article 26 of the Advertising Law and Article 4 of the Regulations, which both provide that “real estate advertisements... must not contain the following: ... 4) misrepresentations as to transportation, commercial, cultural, education or other amenities under planning or construction.”Article 58 of the Advertising Law prescribes an order for ceasing publication of the materials and a fine.

f.    The Use of Hyperbole

Some real estate projects use the following phraseology “world-class, lush forest and waters, scholarly city”, “world-class royal forest, international-class amenities, 9A chattels and furnishing.”

This contravenes Article 9 of the Advertising Law, which provides that “advertisements may not contain:... 3) hyperbole such as ‘national-level’, ‘supreme’ or ‘impeccable’.” Article 57 of the Advertising Law prescribes an order for ceasing publication of the offending material and a fine.

g.    Failure to Include Citations

Some advertisements contain formulations such as “50% of office buildings with an area greater than 300 square meters come from our company”.

Absent a reference to the evidential source, this advertisement violates Article 11 of the Advertising Law, which provides that “statistics, figures, survey results, citations and quotes used to prove the content of advertisements must be truthful and accurate, accompanied with an indication of their source.” Article 59 of the Advertising Law prescribes an order for ceasing publication of the offending material and a fine.

h.    Publishing Illegal Advertisements Online

Advertisements for properties listed for sale on various platforms such as the Internet, TV, radio, newspapers and magazines are impermissible for infringing any of a number of the above strictures. Phraseology encountered include “instant increase in value”, “instant collection on rent”, “earn big bucks with this purchase”, “outstanding rates of return”, “an investment opportunity not to be missed”, “adjacent villas, scarce resources, infinite scope for increasing in value”, “if you want to make money, better to buy  a house of gold than a brick of gold, “the high-speed rail sounds, gold   rushes in, auspicious storefront need not fear for want of rent, rent will flood in”, “10 minutes to Nanning East Station”or “30 minutes to Wanxian City”.

The above advertisements contravene the Regulations, with penalties including an order for ceasing publication of the offending material and a fine.

i.    Publishing False or Illegal Advertisements

Certain real estate advertisements include false or misleading content that deceive or mislead the consumer. Examples include: using the Commodity Housing Pre-Sale Licence Number of another property as the developer's own, when his property has not obtained one; making false declarations that the property contains massive amounts of green space with amenities such as kindergartens and schools which, after purchase, the consumer discovers not to be the case; representing that the property has been selected as 'One of the Top 10 Properties with Growth Potential Nationwide' when the selection is made without approval from the relevant government department; advertising an intial 90,000 yuan deposit for a three-bedroom house, when in reality the 40 square meter property can be divided into three miniature rooms during renovation.

This contravenes Article 28 of the Advertising Law. In response, and in accordance with Article 55 of the Advertising Law, the State Administration for Industry and Commerce will order publication of the offending material to cease and impose a fine.

j.    Content touching upon feng shui or other superstition

Some advertisements state that "since ancient times, people have made feng shui a pre-requisite for choosing their domicile. This property is a focal point for auspicious flows of energy." Such pronouncements violate the prohibition contained in Article 8 of the Regulations against “real estate advertisements may not contain superstitious matter relating to feng shui or divination. Any representation as to the property must conform to public mores." Article 21 thereof provides for an order of ceasing publication of the offending material and a fine.

3. Conclusion

The real estate advertisements of yesteryear were once a fertile hotbed of deceit. Although such trickery sparked much public anger, it is incontrovertible that advertisements remain the primary way for people to understand a product. In light of the public reliance on advertisements, the Advertising Law has been implemented to some effect, notably through imposing tougher penalties and preventing fictitious content. This does not exhaust the matter, with it behooving property developers to move with the times. The enactment of the Advertising Law should enable developers to give proper consideration to the genuine needs of their clients, and take such factors into consideration in devising measures for their protection.

Purging the real estate industry of fictitious or false advertisements calls for a concerted effort on the part of all actors, which effort has been found wanting as things stand. When property developers and advertising agencies fail to pull their weight, it is up to the consumers to step up to the crease.

The following doggerel aptly sums up the situation:

How Real Estate Advertisements Should Be

Be scientific, accurate and eschew falsities: avoid hyperboles at all costs.
Exaggerations should be done in a measured way; including citations means you don't have to pay.
Specify area and price; accuracy and purpose is always nice.
Mention neither supernatural forces or divination; a civilized society abhors superstition.
Renovations and rates you shall eschew; pre-sales are no place for a show.
The housing market is no stock exchange; property-derived capital sure is strange.
Enrolment upon residency is not true; facilities under planning are a woe.
Of minutes and meters you shall make no mention; Dossiers are an artistic invention.
The policy red-lines you shall take to heart; Your lawyer shall more advice impart.
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