Delayed Or Abandoned?
The Home Buyer's Dilemma
Bernama.com 18/7/2004 By Santha Oorjitham

KUALA LUMPUR, July 18 (Bernama) -- Ranjit Singh, victim of what he believes to be an abandoned housing project, says all home buyers should support the "build then sell" concept because it would prevent developers absconding with their money before completing a project.

In 1999, he and his wife Catherine applied for a flat through Kuala Lumpur City Hall (DBKL).

The property marketing executive says he was recommended a project in Taman Setapak Jaya Baru here on land owned by DBKL and developed by a private company.

They signed a Sale and Purchase Agreement in February 1999 which stated that the flat would be ready in three years.

"We had faith nothing could go wrong because it was DBKL land. But after three years, when the project was 80 percent complete, it was abandoned," he claims.

Five years later, Ranjit says, "I see no light despite assistance from the Housing and Local Government Ministry and the National House Buyers Association (HBA), which are doing their very best."

At a recent meeting of the buyers with representatives from the developer, DBKL, the ministry and HBA, he says, they were told the developer had arranged to complete the project by 2006.

"But I don't know if the house will ever be completed or if the developer will wind up," worries Ranjit. "I still do not see any solution."

According to the ministry's website, more than 80,000 Malaysians have fallen prey to over 540 abandoned housing projects in the country worth RM9.5 billion.

Both consumers and the industry have given mixed reactions to suggestions for implementing the "build then sell" concept, which was proposed by Prime Minister Datuk Seri Abdullah Ahmad Badawi in May.

Housing and Local Government Minister Datuk Seri Ong Ka Ting said on July 3 that his ministry was preparing a report on the concept for the Cabinet, outlining the advantages and disadvantages and including feedback from various parties.

The "build then sell" concept was first suggested by Malaysia's second prime minister Tun Abdul Razak and later debated during a national seminar organised by the Housing and Local Government Ministry in 1991.

"Now our CEO, the Prime Minister, has brought it up so we are motivated again," says HBA committee member Brig-Gen (Rtd) Datuk Goh Seng Toh.

"If we had followed that concept, we would have paid the money when we got the key and be living in our flat now," Ranjit says.

"But now we have to pay for something we can't even live in."

The Construction Industry Development Board (CIDB) General Manager Abdul Latif Hitam, says the "build then sell" method can weed out unscrupulous developers and improve quality, since the purchaser can check the workmanship before paying.

CIDB is a statutory body under the Ministry of Works.

"We could promote 'build then sell' through the use of the Industrialised Building System (IBS)," he adds.

The IBS, in which parts of the building are mass-produced in a factory and then assembled on site, can save time, cut costs and reduce the number of workers on site, he explains.

Asked to comment on the "build then sell" proposal, Real Estate and Housing Developers Association (REHDA) president Datuk Jeffrey Ng Tiong Lip says Malaysia's economy and state of development is not mature enough for immediate implementation of the concept.

He says developers wil not be able to meet the need for between 100,000 to 150,000 new units per year if the concept is adopted as construction needs the financial resources of both the developer and the buyer.

"The house buyer should not participate in the project and should not carry the risk," argues HBA's Goh.

"Very few developers use their own funds, even if they are cash-rich. They prefer to spread their risk through bridging loans. And if they have no resources, they shouldn't be in the business anyway because there is a higher chance they'll have financial difficulties."

The Housing and Local Government Ministry has asked for HBA's views on "build then sell", which they will submit in a paper in early July.

Under the present system, a buyer pays 10 per cent of the sales price after signing the Sale and Purchase Agreement and then makes progress payments, based on the stage of completion.

Since REHDA says developers are not ready to fully implement "build then sell", Goh suggests an "intermediate" system until they are ready:

"Once the developer has the licence, the housebuyer pays about 10 per cent (depending on how competitive the developer is) and this is held by the lawyers, who put into a fixed deposit with interest," he proposes.

After that, the buyer does not pay anything else until the house is completed.

Meanwhile, the developer seeks bridging loans from the banks.

"When the house is ready and the Certificate of Fitness issued, the buyer has three months to pay the remaining 90 per cent," Goh says.

At the exchange ceremony, the developer also gets the 10 percent plus interest.

But if the developer fails to finish in time, the buyer has the option to rescind and claim back the 10 per cent plus interest.

HBA also recommends that the banks give bridging loans to developers rather than end financing to the buyers.

"The banks will have full control of disbursement and will be ultra-cautious because it is their own money," explains Goh.

"If the developer fails to complete the project, the value of the house still holds and it will be easier to get another developer to take over."

And, he points out, the loans will be smaller because construction is only about 40 per cent of the total cost.

-- BERNAMA