Guarded approval for new Act
NST-PROP 21/12/2002 By Jennifer Gomez; Nicholas Mun

With the Housing Developers (Control and Licensing) (Amendment) Act 2002 coming into operation on Dec 1 together with the regulations governing the new standard Sale and Purchase Agreements, housing development accounts and the tribunal, the legal overhaul of the property development industry is now complete.

Reaction to the new legislative scheme has been rather muted, but on the whole, most quarters are fairly satisfied with the amendments.

The National House Buyers Association (HBA) while expressing satisfaction, said that the effectiveness of the amendments would only be seen after they have been put into effect.

“We are quite happy with the amendments as they offer better protection for the buyer. But they must be put into practice first before we can see their effectiveness. However, if anything is found to be lacking, we urge the authorities concerned to take action to reform the whole Act to suit present day conditions,” said HBA president Datuk Zainuddin Bachik.

Zainuddin highlighted some of the deficiencies that the amendments had addressed at a press conference. He said under the new regulations, the consent fee payable by the buyer to the developer for re-sale of properties is now fixed at 0.5 per cent of the purchase price, or RM500, whichever is lower.

“Developers can no longer charge one or two per cent as they please, as the amount has now been fixed,” he said.

Zainuddin also pointed out that while before, buyers were obliged to pay outgoings such as quit rent and assessment fees from the time they purchased the unit, now they would only have to pay them once the keys to their new homes had been handed over.

“Developers willl also now have to state the expiry date of the lease in their advertisements, and misleading representation and gimmicks to woo buyers has becoming a chargeable offence,” Zainuddin added.

The HBA was also happy to note that while before, buyers stood to lose the entire downpayment paid to the developer in the event they were unsuccessful in obtaining a bank loan, developers can now only forfeit one per cent of the purchase price.

“Despite the fact that the balance of the down payment has to be paid back to the buyer within 21 days, we urge buyers to be prudent and to do some research and check on their eligibility to qualify for a loan before signing the agreement,” Zainuddin said.

The Real Estate and Housing Developers’ Association (Rehda) was, however, more circumspect about the benefits of the amendments.

Rehda president Datuk Jeffrey Ng said: “Insofar as the amendments to the Act are for the betterment of the property development industry to foster a better relationship between developers and buyers and to create a trouble-free delivery process for housing, it has the support of Rehda. The Housing Ministry has made an attempt to redress the grievances in respect of the Sale and Purchase Agreement to provide buyers with better protection.”

However, Ng pointed out that the amendments now favour the buyer at the expense of the developer. Using the analogy of the securities industry, Ng said that what is happening in the property industry can be compared with the high standards of corporate governance being adopted for public listed companies for the protection of its minority shareholders.

“It is very clear that developers now have to pay very close attention to the obligations set out in the Act and Regulations and must now be very focused on the delivery process. For instance, cash flow has now slowed down with the time limit for payment of installments being increased from 14 to 21 days. Also, forfeiture of payment when buyers back out from the sale is now limited to only one per cent of the purchase price.

“Secondly, developers have to work harder and faster to achieve the same level of billing as before. Now to reach the 92.5 per cent of the billing, developers have to ensure that the technical requirements for the issuance of the Certificates of Fitness for Occupation have complied with the submission of Form E,” Ng said.

Ng believes the amendments appear to have been designed to weed out the short-term fly-by-night developers who do not have the intention of fulfilling their commitment to buyers.

“Such developers will pay the heavy penalty in the event the SPA is breached. As for serious and long-term developers, there is no question that in today’s competitive market where reputation is crucial to survival, the amendments will make developers upgrade their mindset to meet the obligations of buyers to deliver and provide quality. Serious players, however, will not be too worried about the heavier penalties,” he said.

A senior official with Mah Sing Properties Sdn Bhd agreed with Ng and said reputable developers have nothing to worry about regarding the new regulations.

“We feel that the new regulations are a step in the right direction as they clear a lot of ambiguity in the SPA. More specifically, they will help to shake up the industry.

“While initially, developers will feel the pinch, this will steer them to work towards providing better quality and better awareness on buyers’ rights,” he said.

Federation of Malaysia Consumers’ Association secretary-general N.Marimuthu had mixed feeling about the amendments.

One of Fomca’s main grievances was over late issuance of certificate of fitness for occupation (CF), which the association claims the amendments have done nothing to address.

“About 30 per cent of the complaints among house buyers are on the CF delay. Since 1995 we have been championing that the CF be issued together with vacant possession but this did not come to pass,” he noted.

The other issue that Fomca expressed frustration over is related to the defects liability period, where its request for the period to be extended to 36 months was not addressed.

“We were informed by experts that problems such as water seepage in apartments would not be evident in 18 months, but could crop up a little later. However we compromised and requested that the 18-month period be calculated from the issuance of CF during our brainstorming sessions,” Marimuthu reasoned.

Currently, the 18-month defect liability period runs from the time of vacant possession.

“After all, if the authorities are serious about issuing CFO within 14 days of submission of all the required documents, then we are talking about a two-week difference, but this certainly shows that they expect the late issuance of CFO problem to continue,” he argued.

Marimuthu added that despite unhappiness over certain aspects of the amendments, Fomca is happy to note that the interest of late payment issue has been addressed. He was also satisfied that developers can now only forfeit one per cent of the down payment paid should the buyer fail to obtain a loan and wish to abort the transaction.