Down memory lane
18/03/2006 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

Related Article: Housing law needs major revamp

With talk in the air that developers should progress to the Build-Then-Sell (BTS) system of housing delivery using approaches such as the 10:90 mode of payment, many buyers are hearing the same frightening song that was sung some 40 years ago: That this would bring about the death of the industry!

First heard when the Housing Developers (Control and Licensing) Bill was tabled in Parliament in March 1966, history has, however, shown that fears of the sector falling into ruins with the passing of laws to protect consumer interest have been unfounded. In fact, if anything else, they have made property development stronger. Even those who fought hard to resist the laws have found they were able to thrive following the enforcement of the regulations.

So, what’s so different this time around, if BTS is used over the current sell-then-build method, which has caused nightmares in the form of abandoned or defective housing to thousands of buyers?

As it is, the Housing Developers Act has gone through four amendments since it was presented to Parliament by Tan Sri Khaw Kai Boh, the Minister of Local Government and Housing (as his office was then known). These came in 1973, 1977, 1988 and most recently, in 2002.

It wasn’t all plain and smooth sailing when the Bill was tabled for its Second Reading in Parliament on March 25, 1966. Parties with vested interests vehemently objected to the Bill, saying it would hit the housing industry with dire consequences.

Khaw had to repeatedly assure the House that the various predictions of doom, and even the demise of the housing industry, would not happen.

Let us revisit the past and consider the arguments - and also see how false fears were created - by looking at the debate in Parliament, as recorded in the Hansard of that period.

Among other things, Khaw said the “then” proposed law was to:

• Empower the minister to issue directions to a licensed housing developer for the purpose of safeguarding the interest of purchasers;

• Make such other general directions as are considered appropriate; and

• Carry out investigations into the affairs of housing developers as well as to make rules for the purpose of administering the law.

The minister spoke of “repeated instances where innocent members of the public have fallen victim to rapacious and unscrupulous persons who pose as housing developers and obtain substantial deposits as booking fees for houses which they not only do not intend to build but also are in no position to do so”.

He told Parliament about having personally received a continuous stream of letters from people who paid deposits for houses only to later find that no houses were built - and that no money could be recovered.

Citing several instances, Khaw went on to argue that there was no way out but for “legislative measures (to) be taken to protect the people from bogus and or unscrupulous housing developers”.

Khaw said vested interest groups even went to the extent of saying that the Bill “is the death knell for the industry; that its introduction would adversely affect the building industry and put lots of workers out of jobs”.

He added: “They, the developers, claim they would not be able to carry on with the business and must stop operation, thus causing untold hardships to themselves and their workers’ families. My reply is, I do not see any reason why small developers should not be able to carry on their business.

“The whole purpose of this Bill is to prevent the bogus developer from cheating the public. The genuine developer need have no fear and conditions can be relaxed, if the reasons advanced are genuine and acceptable.

“They contend that the Bill will retard housing development. This is again not true. It is not the intention of our ministry to curb and stifle building development in the private sector.

“The Bill should, in fact, produce the opposite effect in that since people are now afforded the protection of this Bill, they will go forward with confidence to any licensed developer to purchase a house. This should generate more building activities.

“A further point raised by them is that a social problem will be created when tens of thousands of both skilled and unskilled workers are thrown out of work. Now, I can give them the assurance that this will not happen.

“The fears on the part of the Housing Developers Association are mainly imaginary and do not have substance. Any genuine bona fide developer need have no fear whatsoever. The Bill is primarily intended to protect the house-purchasing public and not to stifle the building industry.”

In supporting the Bill, Member of Parliament Hanafiah Hussain said the licensing of developers “in the manner set out in this Bill is comprehensive and will no doubt deter any bogus developer from embarking upon any housing development project”.

Another MP, Geh Chong Keat, in complimenting the minister for the proposed law, said people in their eagerness to own houses quite often suffered bitter experiences. In some cases, the Sale and Purchase Agreements did not even specify the dates for the completion and handing over of the property, he said.

“The increased volume of house ownership has given reflection to the success of our establishing a property-owning democracy. This, too, has attracted ‘smart Alec’ or bogus operators who want to cash in on this flourishing business,” he said. And this was back in 1966.

The venerable Opposition MP Dr Tan Chee Khoon said, “I would say that I am in complete agreement generally with the whole Bill.”

Pointing out that he does not often stand up in Parliament to defend a minister from the attacks of backbenchers, he went on to add, “As a professional man, I would like to see that justice not only should be done but must be seen to be done.”

Congratulating the minister for bringing “such a Bill that is long overdue” before the House, Dr Tan said, “the instances of malpractice that have been cited in his (Khaw’s) introduction are adequate justification that we must all pass this Bill in toto, without any amendment”.

In replying to the points raised, Khaw ruled out any possibility of house prices spiralling as a result of the new law.

“This Bill will encourage more development of houses because more purchasers will come into the open, as they know for absolute certainty that they would not have to face all the uncertainties of being cheated or being bluffed into paying deposits for years without the realisation of having a house to stay,” he said.

The Bill was passed without amendment, and it came into force as an Act of Parliament on Aug 29, 1966.

Standing where we are today and reflecting back, we now know that all the arguments put forth by the Housing Developers Association, the precursor of the Real Estate and Housing Developers Association (Rehda), that “house prices will increase”; “small developers will be out of business”; “downstream activities will be affected” and so on never came true at all.

We can only conclude that those resisting the housing law only wanted to hang onto what had all along been comfortable for them: Operating without proper regulation.

The courage that Khaw put up by not succumbing to scare tactics speaks volumes of the man.

Today, 40 years after the Bill was passed, we all know that the fears expressed were, as Khaw put them, “imaginary”. The Act has not stifled the growth of the housing industry. Instead, it has allowed small developers to mature and evolve into bigger ones, and paved the way for many more new players to emerge on the scene.

However, the Act did not completely achieve its primary objective - not because of its intrinsic weakness but due to enforcement problems.

Thousands of innocent house buyers are still left in a lurch and straddled with large financial and litigation problems because their developers did not complete their end of the bargain.

We should not enact more legislation to supposedly protect house buyers better. We should instead bite the bullet and remove the hazards altogether. When a hazard such as the present method of progressive payment is removed, the industry will no longer be shackled to operate in an over-regulated environment.

With the move towards the BTS mode of housing delivery as proposed by Prime Minister Datuk Seri Abdullah Ahmad Badawi still at the debate stage, industry players are reviving the fears that were raised in 1966.

This time around, we hope and pray that those vested with the responsibility of protecting the house-buying public will show the same wisdom displayed by Khaw and see through the smoke-screens and scare tactics.

They should resolve to fight for the interests of innocent house buyers and most of all, have the courage to overcome distracting and baseless scare tactics.

The National House Buyers Association (HBA) is a non-profit, non-governmental, non-political organisation manned by volunteers. For more information check out its website at www.hba.org.my or e-mail info@hba.org.my

Footnote:

The 10:90 mode of sale and delivery was proposed by the HBA, under which developers can lock in buyers by requiring them to pay a 10 per cent deposit upon signing their Sale and Purchase Agreements.

The money will be deposited into in an independent account and developers will not be allowed to touch it until the project has been completed, after which buyers will be required to pay the remaining 90 per cent of the purchase price within three months.

Related Article: Housing law needs major revamp