Strike equitable balance
22/11/2005 NST  By V.T. ,Sungai Buloh

VIEWS have been aired on proposals to change the house-purchase policy from the sell-and-build system to a build-and-sell system.

When building a house on one’s own land, one pays the building contractor a down-payment plus progress payments. This is the basis of the sell-and-build system long followed in this country.

But now, because of errant developers, stalled housing schemes and the exploitation of house buyers, the system needs to be reformed.

Housing development on a massive scale as in Malaysia, needs hundreds of million of ringgit. Even large firms do not have that much money for a full build-and-sell system.

Therefore, if such a system is adopted, a payment scheme based on a 50-50 formula might be more equitable than one on the proposed 10-90 formula.

Under the 50-50 formula, the house buyer pays 10 per cent of the house price to effect a sale and purchase contract (which will also be the first 10 per cent progress payment) to buy a house.

After this, the next 50 per cent of the construction cost has to be borne by the developer. When 60 per cent of the house (10 plus 50) has been completed, the developer can avail himself of the 40 per cent of the buyer’s loan by way of progress payments to finish the house.

The developer collects the remaining 50 per cent when the house is issued a certificate of fitness and vacant possession.

This will mean that in the event of the project being delayed or stalled while at the, say, 70 per cent completion stage, there will be enough money in the buyer’s loan account for the government appointee to revive and complete the project.

This method will ensure that only developers with the expertise, financial means and a sound track record remain in the industry, and that developers move from one completed phase to another and do not spread themselves too thin and run into problems.

More importantly, the risk will be borne by both parties. It will also eliminate the property overhang and match supply with demand to ensure a vibrant and profitable housing industry.

Additionally, the House Buyers Association (HBA) needs to be institutionalised and empowered and get the support of the Government, developers, local authorities and banks.

All house buyers need to pay RM200 or one per cent of the price of the house (whichever is higher) to the HBA, which will safeguard their interests by employing a panel of lawyers, engineers and architects in every State to monitor the projects.

The main reason for the exploitation of house buyers has been the lack of a strong protective set-up for them.

The panel’s professionals can check on projects to verify progress payments demanded by developers and paid by banks, conduct surprise checks during construction to ensure proper workmanship and materials according to specifications.

The lawyers can look into all the legal issues. Individual buyers and small groups do not have the clout to take on developers, banks, legal firms or the local authorities, which the HBA can do.