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10-90 deal will spare house
buyers anguish
16/10/2005 The Sun By
Brigadier-General (R) Datuk Goh Seng Toh, Vice-President, National House
Buyers Association
I REFER to the recent media reports on the "build-then-sell" concept for the
housing industry. I notice that the discussions stress that the
"build-then-sell" concept will prevent projects from being abandoned. This
is not totally true because the abandonment of housing projects is largely
due to various other causes, financial problems and mismanagement being the
main culprit. The present "sell-then-build" system certainly does make
matters worse.
Whether it is "sell-then-build" or "build-then-sell", future housing
projects will continue to face the possibilities of abandonment due to
various causes.
However, the critical factor is that in the "build-then-sell" concept, house
buyers are not dragged into the legal and financial quagmire in case the
project fails. Rightfully, they should not have to finance the developers in
their business ventures and more importantly, they should not carry the
business risks of both the developers and their financial Institutions (FIs).
Builders will also build better quality houses and exercise more
responsibility because they will not risk disputes on quality, come payment
time.
There is actually an intermediate compromise between the "sell-then-build"
and the "build-then-sell" concept. We call it the "10-90" variant. In this
concept (broadly), developers are allowed to sell their products upon
launching after all approvals had been obtained.
They can secure and lock in their buyers. A house buyer makes a 10% payment
upon signing the S&P Agreements. This 10% is held in trust by a lawyer in an
escrow interest-bearing account.
When the house is completed with Certificate of Fitness for Occupation (CF),
the developer then collects the 10% together with whatever interests
accrued.
The buyer then pays the remaining 90% and the sale is completed. If for
whatever reason the developer fails to deliver the houses within the
stipulated time plus whatever stipulated extended grace period, then the
buyer is entitled to demand back the 10% payment plus interests accrued and
the deal is off.
We see this as a very equitable, logical and practical concept of houses to
be adopted until such time when the industry is ready for the absolute
"build-then-sell" system.
The "10-90" system will eradicate the bulk of the problems currently faced
by house buyers and at the same time not put undue or excessive burden on
bona fide developers. The housing industry will be more self-regulating and
policing and enforcement functions by government agencies will be greatly
reduced.
Most noteworthy of all is that house buyers are then insulated from the
business risks of developers and FIs. |
