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20/4/2002 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

The House Buyers Association outlines some of the issues that need further consideration when drawing up the Housing Development Rules and Regulations

If the Housing Development (Control & Licensing) Act 1966 is to provide protection for house buyers there is a further need for regulatory measures to weed out errant developers.

Although a foolproof system might not be achievable, stringent controls and carefully thought out preventive measures could reduce such breaches. For example, developers should be required to produce additional supporting documents not limited to the ones already made compulsory under the present regulations in order to obtain their licences. These include:

1. Authenticated copies of approval for conversion of land and proof of premiums and other land charges having been paid.
2. Certified copies of building plans and development order and proof of payment for the development charges.
3. Sworn statutory declaration by company directors as proof of credibility of company.
4. Latest audited balance sheet and projection of cash flow.
5. Feasibility study of project and geological report.
6. Letter of offer from a bank or a financial institution for bridging finance.
7. Form 49 duly certified by company secretary in relation to the directors, shareholders and their shareholdings. 

For purposes of advertisements, developers should be made to follow certain stipulated guidelines. The following should be considered.

• Prohibition from overstating of non-factual information to entice house buyers.
• Sales gimmicks with speculative forecast of financial gains should not be allowed.     
• Claims of linkages to adjacent upmarket neighbourhood properties should be forbidden unless substantiated.
• Land tenure and the remaining period left in the lease must be clearly stated.
•  Titles that have restrictions should be made known from the beginning.

Sales and Purchase Agreements (SPA), which had been the bone of contention between signatories should be revised to be consistent with the new amendment. Once the SPA has been concluded between the purchaser and the developer, it should be made the responsibility of the latter, within a set time frame of six months (and not, "as expeditiously as possible,") to apply for the document of title and sub-title. The developer should be compounded if it delays applications without any legitimate reason. 

The developer should similarly be required to apply for sub-division of the buildings for the acquisition of separate titles of the said parcels under the Strata Titles Act, 1985.

Purchasers should be awarded refunds if the final area of their units show a decrease of more than three per cent. No extra charge should be levied on the purchaser if the final area in the title shows an increase of three per cent. The rationale is that the developer does not use more land upon which the parcel lot is built nor pay extra to the building contractor and should therefore not benefit at the expense of buyers.

Another issue that has to be addressed is the one pertaining to "administration or consent fees" amounting to one to two per cent of the house price charged by developers for transactions involving strata units that have not been granted titles. This practice must be regulated - the fee should be capped at RM500 or one per cent of the sale price of the particular unit, whichever is lower.

In addition, it is HBA's view that the Deed of Covenant be a regulated and standardised document rather being left to the whims and fancies of developers. Presently, the contents in the unregulated Deed of Mutual Covenant signed between developers and house buyers differs greatly from one project to another.

The HBA also fees that for contravening any part of the Regulations, including the statutory contracts of sale or the proposed standardized Deed of Mutual Covenants, the penalty must be of sufficient stern - and the penalties should commensurate with the gravity of the offences. In addition to the five-fold increase of penalties as provided for in the revamped Act, custodial sentences of up to three years and not less than one month should also be instituted. Laws would be meaningless unless they were strictly enforced.

House buyers should not be made to pay extra interests if progress payments are delayed by the banks and/or the financial institutions and not due to any fault of their own. The regulations should also stipulate that payments of outgoings including quit rent, assessment rates, water and electricity should take effect from the date of vacant possession and when the utilities have been connected and not before that.

Payment of maintenance services for collection of refuse prior to services taken over by the local authorities should be based on fair charges. The quantum could be pre-determined for monthly collection and not as advance payments for a period of one  year as currently imposed by developers, who would withhold the release of keys unless payments are made.

Delivery of vacant possession to house buyers should coincide with the date of issue of certificate of fitness for occupation and connection of water and electricity, failing which developers should be made to pay liquidated damages to be calculated on a daily basis at the rate of ten per centum (10%) per annum of the purchase price. Developers who fail to complete the common facilities on schedule should immediately pay to the purchasers liquidated damages calculated at the rate of ten per centum per annum of the last 20 per cent of the purchase price.

To ensure that developers observe their part of the bargain under the contract of sale a certain portion or 2.5 per cent of the purchase price should be retained by the stakeholders to ensure that the developer promptly pursue the issuance of strata/individual titles.

No money from the Housing Development Account should be expended except on the production of a certificate issued by responsible architects and engineers. The responsible directors of the company that are demanding the payments should authenticate demands for payments from other companies.

The setting up of the Housing Tribunal should also deal with the settlement of awards by the Tribunal for the satisfaction of any judgement made in the courts of law in Malaysia.