More than was bargained for
25/09/2004 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

Continuing the discussion on why build-then-sell should be the way of the future

We at the National House Buyers' Association (HBA) sometimes can't blame buyers who have unwillingly "married" errant developers to vent their frustrations on us, even though it is our assistance they seek.

After putting their hard earned money into the downpayment, the least they expect is a home that can fulfill their dreams - not one that will become their nightmares. And so, they turn to us, expecting us to be some kind of marriage counsellor.

But for as long as the sell-then-build (STB) method of housing delivery is practised, this problem will always exist to haunt buyers.

As it now stands, buyers saddled with defective  houses and uncooperative developers have to end up paying more to undertake remedial work, simply because they cannot check workmanship quality before their units are handed over to them. Furthermore, they have no right to refuse taking vacant possession.

Unlike developers, buyers cannot terminate their Sale and Purchase Agreements and have their monies refunded in full if their units are shoddily built, delivered late, or do not adhere to the original building plans. Their rights can only be exercised in a court of law, which means having to waste time, incur more heartache and fork out more cash.

But that's only if the house is completed in the first place!. Statistics from the Ministry of Housing and Local Government revealed that until 2002, 544 housing projects were abandoned. The number might appear small compared to the number of projects launched, but nevertheless, it means that we have a situation where our fellow man has been subjected to torment - suffering that can happy to any of us, or our loved ones, too!

Besides this, abandoned projects are also taking their toll on all of us through the way the Government has to channel our tax-ringgit into reviving some  of them. Billions have been poured into agencies such as Syarikat Perumahan Negara Bhd (SPNB) to revive them - money which could have been better spent if STB wasn't adopted.

The method is also not one that displays fairness and equity. For instance, buyers are given numerous deadlines to adhere to when it comes to making their progress payments - miss one by just a few days, and immediately late payment penalties will be incurred. However, developers have a wider berth, as can be seen from the numerous cases where their buyers have had to wait for months and even years to receive their liquidated ascertained damages resulting from the developers' late delivery of the units.

Furthermore, while developers might be able to satisfy their financiers by offering them security in the form of collateral, buyers 'trapped' by errant builders are often left with a 'shell' company that is insolvent and not practical to sue. In cases of insolvency of the developer's company, buyers are ranked as unsecured creditors.

STB also allows developers to take risks with buyers' money. Many use special purpose companies to limit their financial risks, but buyers have no such 'protection'. As a result, many people who thought they were buying property actually ended up owning debt.

The housing industry has had ample time to address and overcome the problems faced by the buyers and the public deserves a more effective system of delivery, quality control and consumer protection than STB can provide.

The first step is to place responsibility where it belong, and that certainly isn't on buyers laps. Developers must construct and deliver their products based on their own financial capabilities. Secondly, buyers' rights have to be better protected through an improved method of sale and purchase - only by doing so will construction quality show improvement and housing delivery be made more efficient.

Thirdly, in order to encourage change, the Government should create legal, administrative and market based frameworks that allow only responsible, qualified developers to succeed. Doing so will ensure the country can reach developed nation status within the expected time frame.