Merits of build-and-sell
11/02/2003 www. theedge.daily Reminiscences: By Shaik Osman Majid

We are one of the few countries where a house is bought on nothing more than an artist’s impression. We hand out down payments when we are allocated a space in one of the phases the developer launches. We search out and obtain loans before signing the sale and purchase agreement (S&P) in the belief that the developer will deliver the house of our dreams in two years.

For many, that dream turns out to be pie in the sky because builders take their time. They have cash-flow problems, a financial bottom line and the shareholders’ interests as priority. The buyer, once snared in the S&P, rarely preponderates in the project manager’s plans.

Schedules are dictated by the financial wherewithal of the builder. Thus built-up units are often delivered late. Some buyers are given keys without the certificate of fitness (CF) or occupation. Many have to endure the headache of having no utilities, others, the heartache of seeing cracks in the foundation and beams, poor finishing and shoddy work. Most, if not all, of the problems can be traced to the prevailing practice of sell-then-build among developers.

It is ironic that the biggest investment any consumer makes in this country is one that he cannot see, touch or feel, except possibly the model units the developer grandly unveils at the time of the launch.
All that would, or should, be history now that the Housing Developers’ (Control and Licensing) Act has been amended, gazetted and in force since last December.

So far, attention has been focused on the revised schedule of payments, reduction of penalties and forfeiture. But everyone seems to have overlooked a number of clauses that would enable developers to build and then sell.

In a nutshell, these rules exempt developers from obtaining a permit to advertise if they build and then sell. They have to obtain one for every phase. Clearly, it is an incentive to sell built-up units complete with their CFs.

For consumers, the change means that they can shop around for houses. Theoretically, they can take along a sledgehammer and knock the walls of the prospective house they desire to buy. They can check to ensure the walls, floors, marble tiles and parquet panels have a professional finishing. They can verify whether the house has the specified number of electrical and power points promised in the S&P. If discontented, they can demand rectification before they part with their money, borrowed though it maybe.
Indeed, buyers will enjoy more benefits. They need only meet instalments of their loans just before or after they move in. No more the burden of double payments: rentals and loan payments.

In sum, the build-and-sell practice will create a buyer-friendly environment in the housing sector of the construction industry. Such a situation clearly does not favour developers.

The CEO of a property developer, which has a decent record of delivering on time, and has a sizeable landbank and adequate financial resources, paints a grim picture. “Developers will encounter difficult times. Those with borrowings will not survive. Prices of houses will go up. Already, contractors and subcontractors face a labour problem. The build-and-sell scenario will only accentuate it.”

The view is a sober assessment, an analysis which underscores the need to enforce the build-and sell concept.

First, let us examine what would happen to developers. Those who have landbanks will endure; those who borrowed to buy will not as they would not be able to raise the finance to build. This is business practice that should have been the norm in the housing sector.

In the past, anyone with a piece of land could masquerade as a developer. One apocryphal tale relates to an ice-cream seller who was able to obtain a housing developer’s licence on nothing more than the piece of land he owned. He put up advertisement boards announcing his intent to build linkhouses. The eager among the homeless paid down and progressive payments as they witnessed the site cleared and foundations piled. The project was later abandoned, as were almost 300 throughout the country between 1985 and 1986.

The trauma of that recession should have taught the authorities many lessons. They should not permit any company to build without substantial land, financial resources, building knowledge and a market research department. These conditions, of course, are so stringent that they, if enforced, would compel many developers to close shop.

But who should the authorities protect? I remember in August 1981, the then secretary-general of the Ministry of Housing and Local Government, in response to an article I had written, actually wrote that “the goose that lays the golden egg should not be killed”.

Amendments over the years give rise to the belief that increasingly the interest of buyers prevails. The latest amendments are clear pointers. But they are not sufficient to end buyers’ complaints.

The new rules, designed to encourage the bigger among builders to build first, must be reinforced. Additional incentives could be given. The deposit, before a developer’s licence is issued, could be reduced substantially if they give the undertaking to sell built-up units.

Without a bigger carrot, developers will persist in the old ways. Buyers will continue to lament old complaints. The concept of build-and-sell will remain just that.

Shaik Osman Majid is a former teacher and journalist