The certificate of fitness saga
The Edge 07/10/2003 By Kumar Tharmalingam

The Ministry of Housing and Local Government controls and legislates some 800 developers in the country through the Housing Development Control and Licensing Act 1966 and its subsequent amendments. All prospective developers have to go through the process as stipulated in the Act (from schedule A to schedule G). It is an enormous learning process for the developer but so long as he complies with all the conditions, he should get a licence and the fact that there are nearly 1,000 developers in the country denotes that it is not difficult to obtain one.

The Act seeks to prevent housing developers from obtaining deposits from prospective purchasers without due process and, by and large, the Act seems to have done its job. The large number of abandoned projects around the country demonstrates that it is not the Act itself that is at fault but rather its implementation and enforcement by the relevant government agencies created to oversee compliance.

There are enough safeguards in the Act to protect purchasers but a careless developer can still fail when he miscalculates demand for his project and goes ahead with the project, hoping the buyers will eventually come.

The creation of the National Property Information Centre (Napic) in 1999 and the subsequent analysis of Napic's research data by property professionals has been an enormous help in helping prospective developers re-think their property development strategy. As a result, you now have niche market players and developers who are branding products with their own house names, thereby enabling them to add a premium value to their housing. Reputation has become an important ingredient in the new millennium.

The recent ranking of Malaysian property developers by The Edge and interviews with the best players in the country seem to suggest that our industry has matured. In the Klang Valley at least, the reputation and quality of a development have become necessary ingredients in assessing the quality of a project.

In the years to come, more and more developers will seek to be included in the Top 10 list. Inclusion in this list could be financially attractive to developers as they will be able to use the ranking as a marketing tool. In my view, any attempt to raise the bar in terms of quality, transparency and accountability must be applauded and The Edge has to be commended for its move. (Kumar was one of the judges in the qualitative attribute section of the ranking.)

It is interesting to note that developers of fringe greenfield property, which would normally seem difficult to develop, have been creative enough to offer attractive features, including lakes, water ways, affordable pricing and low-density living. On top of these are the trademark of longevity in the business such as the developer's sound reputation, enhanced by a track record of quality work and high standards.

Certificate of fitness

There is only one clause on the certificate of fitness (CF) in the Housing Development Control and Licensing Act and that is Clause 23(1), which says that a CF can be issued by the relevant authority - the local council.

But prior to the application for a CF, the developer would have had been through a maze of master plan and building plan approvals that call for the submission of plans to nine or more agencies, including the fire and health departments and the electricity, water, sewage and telephone service providers.

At times, during the course of construction, a developer may find that he needed to effect some minor changes to the plans which have already been submitted and approved, such as the height of the curb, positions of hydrants or the location of the water tank. Getting the necessary approval for the changes could take a long time, although the so-called anomalies to the original plan are nominal.

A delay in the issue of CF is not something new and the Minister of Housing and Local Government has attempted to speed up the process many times over the last decade. The latest measure basically says that the developer is deemed to have met with CF compliance if no approval is received from a local council 30 days after the application has been received by the latter.

This is well and good if the documents by the CF applicant are accepted by the local council concerned. The 30-day period does not start ticking unless and until the council accepts the documents.

Self-regulation the way?

Recently, some calls have been made for self-regulation by the industry. At Fiabci (the International Real Estate Federation), we have interviewed some major developers on the issue. They feel the industry has matured and the time has come for the respective project consultants to be ready and willing to accept the standards set by all the overseeing departments. In the process, the housing developer could then in fact issue his own CF and inform the local council accordingly.

Self-regulation, in other words, has a developer guaranteeing the quality of his product. In contrast, getting a CF from the local council does not necessarily guarantee that the developer has complied with all the regulations. This is because at the end of the day, shoddy workmanship and poor infrastructure are not pinned on the developer who could shift the blame to the local council that has issued the CF.

On the other hand, a CF issued by a developer and his consultants would in fact absolve the local council of any liabilities and the authorities can therefore come down hard on any errant developer under existing legislation.

The next question is: Should all developers be given the right to issue their own CF? The obvious answer is "no". This is because in areas where most of the developers are small in size and their products price-sensitive, there should be some measure of joint supervision by the relevant developer associations and local council.

Under the circumstances, a green lane list should be drawn up, comprising developers who are prepared to offer their own CF and be responsible for all defects and liabilities arising out of that CF.

Imagine the reputation and prestige of being a green lane developer and the premium it will place on the selling prices of his products.

I believe that responsible public-listed housing developers will opt for the green lane. However, should a developer on a green lane receive a large number of complaints, then he could lose his status and instead, join the red lane which will subject him to the regulations currently being enforced by local councils. It is time the CF issue become nothing more than a blip in the property development process.

Kumar Tharmalingam is president of the International Real Estate Federation (Fiabci) Malaysian Chapter. In 1989, he established one of the first property trusts in Malaysia and has tracked the industry since.