Builders don't have it easy
NST 14/12/2005

AS a housing developer, I find it amazing, as well as sad, that many are speaking against the sell-and-build system without taking a closer look at it.

Selling a house is different from selling chicken. Location is important. A house not sold in Ipoh cannot be moved to Damansara to be sold. A large investment is involved. It makes sense that buyers should be committed to the purchase before large sums are spent on construction.

Instead of buying from a developer, a person can always build the house himself. He needs to acquire the land and get all the requisite approvals. Then, relying on the pictures produced by the architect, he gives the go- ahead to build.

He has to pay the contractor as work progresses. Other than buying from the secondary market, there is really no escape from paying first and getting your house later, if at all. He doesn’t get to see the real chicken, hold it, feel it and then say: "I want to buy."

Buying a house from a developer is much simpler. Contrary to common belief, developers do not sell just "hot air", as one reporter put it.

A developer has to buy the land, get all the approvals and be ready to build before he can apply for a developer’s licence and a permit to advertise and sell.

At this point, about 40 per cent of the cost of completing the house, including land cost, would have been incurred. He gets 10 per cent when he sells.

From there on, he has to build. Upon certification by consultants on completed work, he makes a claim for progress payments from the buyer. Even then, he does not see the money.

It is paid to a special account from which the bank can only release it directly to the contractors. This account is to be closed and the residual amount released to the developer upon completion of the house.

If the construction cost is financed by the buyers, how come some houses are abandoned halfway? The problem lies in unsold houses. The developer has to pay the construction cost of these unsold houses. Some just can’t pay up and so work is stopped. The developer is the biggest loser and no dishonesty is involved.

No one really cares if the developer should pack up and head for the old folk’s home. What we need to do is ensure that innocent buyers do not suffer as they do now when a scheme is abandoned.

The sell-and-build system ought to be allowed to continue as this is the magic formula for churning out thousands of houses each year, which otherwise would never be built. I believe the following modifications will provide the necessary protection for the buyers:

• The land must be free from encumbrances. It is ridiculous to sell what is really not yours.

Upon issue of the developer’s licence, the Minister of Housing and Local Government will put a caveat on the land.

• All progress payments are to continue as before. However, the money in "the housing developer’s account" is held in escrow.

• Should the project be abandoned, the progress payments will be refunded to the buyers.

• The developer, consultants, bankers and contractors will jointly work out ways to pay for the construction pending the release of funds from the developer’s account, which will happen only upon completion of the houses.

• Buyers will not have the option to back out. If they do, what has been paid is forfeited.

I, for one, would discontinue all my remaining projects if I have to build first and then look for buyers. What if they don’t buy? I can only turn that many into old folks’ homes.
 

S.S.CHEN
Kajang