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Making BTS Work
22/07/2006  NST-PROP By Salleh Buang

THE commentary I made early this month on the Government's decision to introduce the 10:90 variant of the Build-Then-Sell (BTS) mode of housing delivery (NST-Property July 1, 2006) has received quite a bit of feedback.

Because of this, I feel obliged to recap statements made by various bodies, especially the body that speaks for housing developers, the Real Estate and Housing Developers' Association or Rehda.

I must first start with the public statement made by its former president, Datuk Jeffrey Ng, that called for a "win-win approach" to the BTS model, when the matter was the subject of persistent public debate.

The BTS system should not be made mandatory, he argued, as it can co-exist with the Sell-Then-Build (STB) system, which "is proven and has successfully delivered more than three million completed houses".

House buyers, Ng continued, "must be given the right to choose to buy completed homes in the primary or secondary market, or houses under construction, based on their need and affordability".

He then went on to argue that:

  • Ultimately, market forces of demand and supply will determine everything;

  • If buyers indeed feel more comfortable about buying completed houses, developers will move in that direction;

  • The construction industry will shrink in terms of business activities and employment if the 10:90 BTS variant proposed by the National House Buyers Association (HBA) is adopted;

  • BTS would cause demand for building materials, professional services and related downstream businesses to decline;

  • Construction jobs too will be at stake, with manufacturers of cement, steel and other building materials operating on lower capacities and architects, lawyers, engineers and surveyors needing to retrench in order to survive.

Indeed, Rehda painted a very gloomy picture. It predicted that house prices will escalate "between 30 and 50 per cent" while annual housing production will reduce by at least 60 per cent.

The association went on to claim that "many industry players and trade associations do not support" the BTS system, and included most of the country's professional and industry-related bodies and institutions in this claim.

Is this statement truly grounded on fact, or is it pure speculation?

Consider also that Rehda insisted:

  • Financial institutions are not likely to support smaller property developers with weak financial standing;

  • Neither will financial institutions support developments in smaller towns or in poorer locations, since "credit risk exposure is definitely substantially higher" for such borrowers;

  • The existing housing development law "is already very strict and punitive against errant developers; and that

  • The law "is now in the process of incorporating more amendments" to give even greater protection to house buyers.

As for the HBA's push for the 10:90 BTS variant, Rehda brushed it off as "a copy of the Australian system," and dismissed the proposal as being "too simplistic".

Rehda went on to argue that developers in Australia are not forced to subsidise low-cost housing, make capital contributions to utility companies, build infrastructure works or "comply with Bumiputera quotas and discounts"

However, it pointed out that Malaysian developers are very much involved in the socio-economic engineering of housing the population via the subsidy concept.

The Australian system, therefore, has a completely different level of operating costs, it said.

Rehda did accept, though, that house buyers "should not be made to suffer hardship caused by errant developers". Even so, it said "tough laws to protect house buyers are in place" and what is needed is effective enforcement against non-compliant developers.

Rehda added that house buyers with no faith in the law can always opt to buy completed homes with Certificates of Fitness for Occupation or CFs already obtained by developers, or units from the secondary market.

Rehda also expressed, in no uncertain terms, that changing the present system to weed out errant developers would hurt all players in the industry and would be tantamount to "using a sledge hammer to kill an ant!"

All this was in October last year. Fast forward four months later to Feb 18 this year, Rehda again spoke out against BTS at a press conference at its headquarters in Petaling Jaya, Selangor. The model, it said, cannot be the "mandatory mode" of housing delivery.

Buyers, it argued, "must be allowed freedom of choice". After all, the existing system had "successfully helped in the production and completion of about 900,000 housing units under the Eighth Malaysia Plan, of which about 675,000 (or 75 per cent) had been completed by private sector developers".

It went on to say that "Malaysia's growing population needs affordable housing" and the BTS system "will hamper the country's homeownership agenda".

Under the Eighth Malaysia Plan, it argued, about 675,000 units were completed by the private sector.

For BTS to work, Rehda said, "some structural changes are needed". The existing laws "need to be changed to prevent reneging by buyers and also to prevent speculative activities".

Support for the new BTS system came from an unexpected quarter, the Malaysian Bar Council. Its president, Yeoh Yang Poh, was quoted earlier this year as saying, "The 10:90 model is the way forward" as the "STB model does not adequately protect consumers. So a new system must be put forward in order to improve the industry".

Yeoh's argument, as is widely accepted, is that purchasers could lose what they have paid and be left without effective recourse when projects are abandoned under the present STB system. Those who have procured housing loans would still have to pay up, despite not having the product they paid for.

In contrast, under the proposed 10:90 BTS variant, buyers need only pay 10 per cent of the purchase price into a trust account when signing a Sale and Purchase Agreement, with the balance 90 per cent to be paid only when the house has been completed.

As to why the Bar Council was coming out in support of the BTS proposal, Yeoh said, "The law is supposed to take care of problems faced by society, especially when it concerns something as basic as owning a roof over one's head."

I salute the Bar Council's stand on this issue. And, as was expected, the HBA was only too happy to receive the Bar Council's endorsement of its proposal.

Describing it as the first step in a long process to garner support for BTS among industry players, HBA secretary-general Chang Kim Loong went on to say, "Getting its support is a momentous achievement for us, as the Bar Council will lend tremendous weight to our cause."

There is more to be done, the HBA said, and it has called for the support of other professional bodies and institutions involved in the housing industry.

The next time you hear of a roadshow on the BTS system organised by the HBA, or for that matter, by any other organisation, I hope you turn up and give your support. I hope the HBA will consider having one where I reside in Alor Star soon.

In the meantime, I shall ponder more deeply on the new changes that are required in the law, in order to make what the Government has promised for the 10:90 variant of housing delivery, to work.

* Salleh Buang is senior advisor of a company specialising in competitive intelligence. He is also active in training and public speaking and can be reached at sallehbuang@hotmail.com

 

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