Sell and build vs build and sell: The debate continues
The Star 10/10/2005

Property Talk: A weekly column by S.C. Cheah

THE 1,300 guests attending the FIABCI Malaysian Chapter gala dinner at the Mandarin Oriental Hotel in Kuala Lumpur recently couldn't help but notice the gold coloured souvenir programme featuring half the wing of a butterfly.

On the cover were the words: Malaysia Property Award 2005. As one opens this “wing”, the full shape of a butterfly appears to reveal the words “to recognise excellence in real estate development.”

The butterfly theme is also seen in the design of the new trophy for the award. It shows the emergence of a beautiful butterfly from the pupa.

As FIABCI world president Datuk Alan Tong Kok Mau said: “The new trophy introduced this year by FIABCI Malaysia signals excitement for the dawn of a new era that begins with visionary strength for pro-active leadership by FIABCI Malaysia to evolve from the pupa stage of self-sustenance to one of beauty and magnificence capable of directing flights of excellence in a world without borders.”

“As the butterfly emerges from the pupa in harmony and ascends into flight to display its beauty, so too does the property industry mature.”

In reality, things can be pretty ugly as issues of shoddy workmanship, abandoned housing schemes, and poor property management continue to beset the industry.

It has come to a stage where the Government is seriously considering implementing the build-and-sell method. There have been proposals that purchasers should only pay an initial 10% of the purchase price with the rest to be settled upon completion of the property.

However, the Real Estate and Housing Developers Association Malaysia (Rehda) stated that this 10:90 method, practised in Australia, should not be applied here as Australian developers need not have to make capital contributions to utility companies, build roads and other infrastructure, give discounts, comply with bumiputra quotas and subsidise low-cost housing, all of which eroded the bottom line. They warned that a build-and-sell method would drastically shrink housing supply, raise property prices and affect the supporting industries.

This issue must be so close to the hearts of all developers that FIABCI Malaysian Chapter president Datuk Teo Chiang Kok brought up the matter in his speech.

“The present system of sell and build has served our country well and have allowed the property development industry to produce in excess of 3.5 million houses in a short span of 30 years.

The delivery of 3.5 million houses has gone a long way to meet the backlog of housing needs as well as produced houses that are affordable for all levels of our society,” he said.

“FIABCI is convinced that if the build-and-sell system is implemented, the number of houses produced will shrink drastically, bringing along a shrinkage of the construction industry as well as the manufacturing and service industries that feed into the housing development industry and resulting in severe negative impact on our economy.”

FIABCI, he said, strongly recommended that both systems, sell-and-build and build-and-sell, should co-exist side by side and not be made mandatory.

“Let the buyers decide whether they want to buy based on the plans and take the capital gains or, for those who are more risk-averse, to buy completed units from the secondary market,” he added.

Glomac Bhd executive chairman Datuk Mohamed Mansor Fateh Din also voiced his views when he went up on stage to receive his trophy for Property Man of The Year 2005.

“The property industry is already facing a lot of challenges and rising construction costs. The concept of build-and-sell needs a very in-depth study to address the existing structure of the finance and property sectors as well as the consumers’ affordability,” he said.

“Needless to say, the prices of properties would escalate immediately as the developer would have to factor in the new inherent risks in the system with regards to bearing the burden of the interest of the construction cost solely and taking the risks that purchasers would remain committed in their decision,” he added.

Some developers have practised the build-and-sell method, especially those in the high-end market, in the past. During the mid-1997 recession, some developers adopted this method to “wait out” the recession as building something was better than doing nothing. So, they took their time to build their houses first.

Making this method mandatory may weed out the weaker and rogue developers and consolidate an industry that is getting quite crowded and create a more quality-conscious business environment.

Purchasers have suffered for too long even at the hands of reputable developers whose products are sometimes not up to the mark and have latent defects that only crop up more than a decade after the units' completion.

Buyers will benefit from the build-and-sell method, as they can pick and choose a completed product and, with the 10:90 methods, bear fewer risks. Anyway, the build-and-sell method has pros and cons.

Meanwhile, this year's award presentation ceremony, graced by the King and Queen, was unique in several ways.

Besides having a new trophy, the previous title of Award of Distinction has been renamed the Malaysia Property Award. There is also the presence of Tong, the first Malaysian to head the world body. Unlike previously, judges were non-industry players.

Another first is the inaugural Property CEO of The Year that went to Johor Corp chief executive Tan Sri Muhammad Ali Hashim.

The other winners were: Sunrise Bhd’s Mont’Kiara Damai, Kuala Lumpur (for Best Residential Development), MK Land Holdings Bhd’s Bukit Merah Laketown Resort, Perak (Best Resort Development), Leisure Farm Corp Sdn Bhd’s Leisure Farm Resort, Johor (Best Master Plan), Ireka Hotels Sdn Bhd’s The Westin Kuala Lumpur (Best Hotel Development), GIC Real Estate Pte Ltd’s Menara Standard Chartered, Kuala Lumpur (Best Office Development), and Paramount Property Holdings Sdn Bhd’s Sekolah Sri KDU, Selangor (Specialised Project Award).