10-90 deal will spare house buyers anguish

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.