24/08/2002 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

The problems currently faced by aggrieved houses buyers are varied and plentiful but the most serious must be the one relating to abandoned housing projects.

This is the fallout of the unbridled and frenzied speculative situation that preceded the crunch of 1997. Now orphaned projects are bringing untold hardship to house buyers, many of whom are genuine home seekers and not speculators.

It is difficult to imagine the sufferings experienced by victims of abandoned housing projects unless one has a relative or close friend who is willing to talk about his or her predicament. Having to lose one’s life savings is already bad enough. But to be further lumbered with an enormous bank loan with ever increasing interests running is really adding salt to the wound.

The question to be asked is whether such a situation can be avoided. The House Buyers Association certainly thinks so. Buying a house should be no different from buying a car but in actuality, the risk involved is much greater.

When you buy a car you are not exposed to the same risks as in buying a house. Have you heard of any person having paid for a car and not getting it because the manufacturer turned belly up? Have you heard of any buyer having to fork out progressive payments while the car is in the designing or manufacturing stage? Why then, is buying a house so different?

First of all, there are the so-called progressive billing/payments. In such a situation, buyers not only have to shoulder the developer’s financing costs but worse still, they have to pray that the developer is a responsible one, that it will not suffer any serious financial problem and that it will diligently and honestly complete the construction of the houses!

But why should house buyers be made to carry the risk on behalf of the developers?

The HBA believes that herein lies the main structural defect in the housing delivery system. In Australia, a house buyer only has to fork out 10 per cent upon signing the Sale and Purchase Agreement. He pays nothing else until the house is ready for occupation and is then given a further three months to arrange for financing to settle in full. If, for whatever reason, he is unable to complete the transaction, or if the developer fails to complete the project, in the worst case scenario, he only stands to lose his 10 per cent.

Back home, we have dealt with house buyers who have forked out as much as 80 per cent of the cost of their houses, only to see them abandoned. In many cases, the money paid by the house buyers was channeled elsewhere to plug the developers’ other financial problems instead of being utilised solely for completing the projects. House buyers were left to suffer the consequences with nothing but a defaulted SPA.

So what is the use of the Housing Project Account under the law?

Pursuance of the matter in court is not likely to bring the desired results but would only incur more expenses. Often, purchasers are not even able to stake a claim to the land upon which the houses were supposed to have been built as in many cases, the land is still under the master title because the sub-division process was not completed. And the real killer is that the developers would have charged the land to its financier, which will have priority of claim as secured creditors.

Such wayward developers are thus benefited on two counts. First, they would have taken the money from the mortgage of the lands, which most probably belonged to some innocent and unwary owners who had entered into joint-venture arrangements with them. Second, they would have collected the money paid to them by the house buyers. And they are well aware that the chances of getting away with such deceitful acts are indeed very, very good.

Individual house buyers are no match for them as it is financially prohibitive to attempt to crack the corporate veil behind which many developers hide. Hence we advocate house buyers who are in such a predicament to unite and share the cost of apprehending their developers. Government authorities should also be active in lifting this veil and bringing the offending culprits to book.

Only then can potential black sheep in the industry be discouraged from pulling their stunts. And only then can some orderliness be instilled into the industry.

We also urge the relevant authorities to consider pre-emptive measures to prevent or at least minimise the serious risks that house buyers are exposed to. For a start, how about insisting that developers show proof of land ownership, successful conversion and sub-division, payment of premiums to the relevant authorities and building plan approvals before any development licence is issued?