Working Together
for Change
01/09/2004
Malaysian Business - Housing & Property By Ong Bok Siong
Despite all the protection already embodied in the current
‘sell-and-build’ delivery system, some house buyers still have to
live with the problems of shoddy workmanship, late delivery or
abandonment of project. They also have to be laden with repayment of
bank loans while still continuing to stay in their rented house. Is
this fair to house buyers? Certainly not, if you are in their shoes.
No wonder some of these house buyers are pushing developers to
complete their house before selling.
The ‘build-then-sell’ system simply means that developers only sell
house that are completed. Actually, this is nothing new as some
local developers have already been successfully marketing their
properties in this manner. The problems faces by house buyers today
were faced by house buyers more than 10 years ago. The same issues
was raised by our second prime minister, the late Tun Abdul Razak,
and hotly debated in 1991’s national seminar by the Housing and
Local Government Ministry.
Why is it after more than 10 years, the system of selling
ready-built properties is still not widely adopted? The question
simply lies in the issue of whether we are ready in relation to our
country’s objective of providing affordable homes. Through the
various Malaysia Plans, the Government has set a target of building
100,000 to 150,000 units of houses per year as part of the national
objective of home ownership. Whatever the criticisms leveled at the
current practice of ‘sell and build’, it has at least helped our
country substantially achieve this national objective. Thanks to
this system, most of us can own an affordable home.
However, we are still not meeting the targets set under the
respective Malaysian plans despite the current housing overhang. The
overhang problem is associated with the Asian financial crisis where
many entrepreneurs thought housing was a lucrative business and
jumped onto the bandwagon without understanding the business.
Eventually, this group of developers not only got themselves burnt
but unfairly gave problems to their guise buyers.
We agree that the ‘build-then-sell’ system will reduce most of the
problems faced by house buyers. There will be greater emphasis on
house buyers’ requirements in term of design, safety and quality.
What has been envisioned under the ‘build-then-sell’ system is
certainly and ideal, but our country’s state of development is not
quite ready and pushing this system will certainly have
implications.
Implications
The legislation of the ‘build-then-sell’ system will certainly mean
an exit for some of the smaller developers whose development
activities are concentrated in suburbs or states other than Klang
Valley. Being small does not mean they are not good. After all, the
current established developers were also once small.
The way we push our numbers in term of the units of housing we build
each year will certainly strain the financial resources of even some
of our established big players. They will then scale down the number
of units of houses to be developed. The direct implication would be
that supply will be less than demand. If this happens, common sense
tells us that house price will increase.
Even if the established developers are willing to put all their eggs
in one basket, that is investing all their financial resources into
a single project and stomaching all the risks of failure, they would
resort to placing a very high price tag on their houses.
In times to come, housing will become luxury items only within reach
of the super rich. One need not imagine further what the social
consequences will be – more robberies, snatch thefts and the like.
What will also happen to the so-called upstream industries that are
dependent on the housing industry? We must not forget these
industries that form a pillar of our Malaysia economy.
It not true that the developers are shying away from the issues of
‘build then sell’. Rather, the provision of affordable homes to our
populations is a joint responsibility of house buyers, developers
and financiers. Are bankers ready to go along with the
‘build-and-sell’ system? Some have already taken a very conservative
attitude in terms of their lending policies. In some projects, they
want to see a high percentage of sales before they are willing to
part with their money.
The ‘build-then-sell’ system is a good idea – an idea that is
possible when we are more ready as a country. On the other hand, it
is also absurd to hide behind this unreadiness when there are so
many grouses and hardships with the present system. As such, we
should go beyond our shores and explore other possibilities.
The Middle Path
The first is the so-called the 10:90 system adopted in countries
like Singapore and Australia.
Under this system, house buyers are only required to pay 10% of the
house purchase price to stakeholder. They need not make any more
payment until the certificate of fitness for the house unit has been
issued.
Sometimes the system is modified so that developers need not proceed
with the development if they have not achieved a certain percentage
of sales. There will also be a penalty or specific performance
clause if the buyer backs out. Under the 10:90 system, the developer
will certainly deliver all that has been promised otherwise the
house buyers will be entitled to rescind the sales and purchase
agreement.
Another variant that is practiced in China limits the developer to
only sell the units when structural works have been reached a
certain stage, for example, when two-thirds of the construction has
been completed or a few month from the expected date of completion,
as is practiced in Hong Kong.
Conclusion
The ‘build-the-sell’ system is a great idea that is possible if all
players in the provision of affordable homes are willing to take
this challenge. The process towards ‘build then sell’ should be
gradual, and a balance needs to be struck between the problems faced
by the house buyers, the housing industry and national objective of
our country in terms of affordable home ownership and sustainable
economy growth.
Perhaps, the present system of ‘sell-then-build’ should be allowed
to remain as the current housing laws are already providing a lot of
protection to house buyers. The unscrupulous developers will be
phased out eventually if they don’t heed this wake-up call. It may
be time now for the Housing Developers Association to impose
self-regulation to weed out irresponsible players.
The build-then-sell system and its variant, modified to suit our
local conditions and needs, should be encouraged as an effort to
eradicate problems faced by house buyers. Perhaps, all involved in
the provision of affordable homes should sit down and work out ways
they can move towards ‘build then sell’.
Whatever the variant, the issue of financing capacity will be still
there if we don’t get the support from bankers. The Government can
play a role in setting up a special fund for those who adopt the
‘build-then-sell’ system or its variant with incentives such as
lower financing rates, as practiced by the Ministry of Tourism in
boosting our country’s tourism industry.
When the funding issue is resolved, the developers should look at
construction technologies that can help speed up delivery and reduce
cost without compromising good quality. |
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