What is the 10:90 or Built then Sell?
02/10/2006 By National House Buyers Association
Published in Iproperty Magazine
From the various reports and write-ups since the Dep. Prime Minister Dato
Seri Najib Razak announced the new 10:90 concept of house purchase and
delivery we get the impression that there are a lot of confusion and misunderstanding
as to what the announced 10-90 system entails. The present progressive
payment system (sell then build-STB) is generally well understood due
to the fact that it has been the mode of house purchase for the past few
decades. The build then sell (BTS) system is where developers sell only
completed houses. A few financially strong developers with developments
in prime locations have adopted the complete BTS system and hence it is
not a totally alien system. Housing projects that are build and marketed
using the complete BTS system need not comply with the statutory standard
Sale and Purchase Agreements. It is not difficult to see the vast difference
though.
However, the system that was announced
by the government
is not a system that is truly BTS. It
is actually a midway between the present progressive payment (STB) and
the complete BTS. You may call it a variant of the STB or a variant of
the BTS, or 'Deferred Payment' basis, it matters little. We would prefer
to term it the 10-90 concept so that it portrays a more accurate picture
of what the system entails. What is important also, is to understand the
mechanics of it.
In the announced 10-90 system a buyer
pays a deposit of 10% and thereafter the balance of 90% will only be payable
upon the due completion of the house together with the issuance of the
Certificate of Fitness (for Occupation). The 10% is paid to the lawyers
acting as Stakeholders and the sale is 'locked-in'. For the house buyers,
it is still a purchase based on brochures and advertisement on a concept.
The 10:90 system is still a "Sell first then Build" model as homes are
still yet to be build or completed at the time of signing of the sale
& purchase agreement. However the big difference is that if the developer
for whatever reasons fails to complete the project or abandons the project,
the buyers are insulated from the disastrous fallout.
Obviously, with the introduction of
the 10-90 system, a new set of Standard Sales and Purchase Agreements
needs to be put in place. The Legal Committee of the National House Buyers
Association have put their heads together and have prepared a copy of
our proposed draft Sales & Purchase Agreement to cater for the 10-90 system.
We have, during a formal dialogue held with senior officials of the Ministry
of Housing & Local Government, presented copies of our efforts to Yg Bhg
Dato Ahmad Fuad the Ministry's Sec Gen. We term them the Schedule J &
K - Sale & Purchase Agreement 10:90 concept.
To better understand the various existing
sale transaction and the payment systems for the different types of purchase;
the same are enumerated from this table:
Table1: Comparison on the delivery systems
| |
|
|
|
Completed Properties |
|
Progressive Payment System (Sell-Then-Built) |
|
10:90 payment System |
|
|
(1). |
|
On the signing of the Sale & Purchase Agreement (SPA) |
|
Pay 10% of Purchase Price |
|
Pay 10% of Purchase Price |
|
Pay 10% of Purchase Price |
|
|
(2). |
|
Waiting period for Completion of Construction & Notice
of Delivery of Vacant Possession |
|
None |
|
Within 24 or 36 months or more upon Architect's Certification
of Completion |
|
* Within 24 or 36 months or more upon Architect's Certification
of Completion |
|
|
(3). |
|
Buyer to complete payment/s |
|
3 months from SPA Date (in normal situations) |
|
Progressive payment system (10; 10; 15; 10; 10; 10;
5; 5; 5; 12.5; 2.5; 5 in % (from first 10% payment or SPA Date) while
waiting for completion of construction |
|
90% of Purchase Price at 24 or 36 months from SPA Date
depending on the regulated contract of sale |
|
|
(4). |
|
Waiting period for actual occupation with Certificate
of Fitness for Occupation (CFO) |
|
None |
|
Within 14 days from Vacant Possession or longer depending
on Developers' architect to procure the issuance of CFO. |
|
*Proposed Vacant Possession with CFO |
|
|
(5). |
|
Waiting period for transfer of individual/strata titles |
|
Varies on whether titles have been issued at the time
of signing of SPA |
|
Varies from developer to developer |
|
*Proposed Vacant Possession with issuance of titles |
|
* Proposals made by HBA
As can be seen from the table above, the 10:90 payment
system is still a contract to sell (through the signing of the SPA), build
then deliver. The term "Built-then-Sell" is hence not appropriate and
should not be used in its entirety, when referring to the 10:90 system
as the two systems encompass substantially different characteristics.
To avoid further misconceptions and confusions, perhaps
we should all refer to this recently announced concept as 10:90 system
rather than confusing it as a BTS system.
