Buyers, builders argue over housing patterns

03/12/2005 NST-PROP kumhor@nst.com.my

PROPERTY developers have been resisting the build-and-sell concept for the housing industry. While their concerns are not without basis, the system may well solve a host of housing woes, writes CHOW KUM HOR.

IT is ironic that the biggest ever investment most people make - a house to call their own - is based on artists' impressions, squeezed in a four-page brochure, littered with industry jargon and sprinkled with promises about how their dream homes will take shape.

In reality, house-buying is a hit-and-miss affair. The lucky ones get homes that live up to what is pictured in the glossy flyers.

Others, after getting the keys to their properties, discover leaking roofs, cracked walls, sinking floors and shoddy workmanship - that is if their housing projects were not abandoned in the first place.

To alleviate this, Prime Minister Datuk Seri Abdullah Ahmad Badawi had announced that the Government was mulling the adoption of the build-and-sell concept in the housing industry. Under this arrangement, houses are built before being sold, as opposed to the present practice of selling the homes, often even before piling works start.

If implemented, home buyers will be able to touch the walls, feel the tiles, and spot defects before committing their life savings to what is usually their single most expensive purchase.

Systems engineer Shahabuddin Yahya, 33, like most buyers, welcomes the proposal after a bitter experience involving his developer - a common woe among house buyers.

In 2003, Shahabuddin signed the sales and purchase agreement for a double-storey link- house near the Kuala Lumpur International Airport.

In June, he was slapped with a RM1,000 fine by his developer because his bank was late in releasing the progress payment. What ensued was a volley of claims, with his bank insisting that the money had been released and the developer arguing that they had the right to impose the penalty.

To top it all, his house, expected to be completed this year, is only 20 to 30 per cent ready.

"This would not have happened if the house had been completed, because it would then be up to me whether to buy it at that time and at that price. I wouldn't mind paying slightly more," he adds.

But as well-intended as the build-and-sell proposal is, the idea is resisted by the one party most directly affected by the concept - developers.

The Real Estate and Housing Developers' Association's (Rehda) reservation is grounded on what it claims to be industry and economic-wide consequences.

Under the build-and-sell formula, developers have to use their own money or borrow to fund projects, as opposed to using buyers' money and banks' progress payments.

As a result, Rehda president Datuk Jeffrey Ng Tiong Lip says, house prices will rise between 30 and 50 per cent while annual housing production will shrink by at least 60 per cent.

"It's not a threat. The impact on prices is very real. The impact on the economy is also very real as housing is an important sector of the economy," says Ng, the managing director with AP Land Bhd, a developer listed on the main board of Bursa Malaysia.

"It's not a case of developers versus house buyers. The whole economy is at stake. We don't want the Government to come to us one day and say that Rehda did not warn them."

Ng adds unlike that other countries, developers here have to deal with issues like cross-subsidies for building low-cost houses, comply with Bumiputera discounts and quotas and make capital contributions to utility companies.

Another concern is that many small and medium-sized developers will not be able to compete with industry giants.

A developer with projects in Tanjung Malim says under the build-and-sell system, a project that appears viable now may end up with no buyers upon completion, especially if the economy slows down.

"The risk is tremendous and small-time developers like me will be badly hit."

But the National House Buyers Association (NHBA) does not buy the doom-and-gloom outlook. Its secretary-general Chang Kim Loong describes them as "mere frighteners".

He says the same arguments about house price increases, reduced supply and small developers closing down were used when the Government introduced the Housing Developers (Control and Licensing) Bill in 1966.

After the law was enforced, Chang says many developers still went about doing business as before. Prices did go up but only because property prices by nature appreciate.
 
"Let's shift the risk from buyers to developers. When they use their own money, instead of the buyers', there will be no more reckless building," Chang says. "Self-regulation will come in because developers will want to build houses that buyers want, not defective ones or with shoddy workmanship."

Chang adds that with the build-and-sell concept, buyers will also no longer have to put up with long delays in obtaining certificates of fitness (CFs) after vacant possession; they won't have to buy if the CFs are not ready.

As for the supposed reluctance of financiers to lend due to the high risks involved, Chang says if projects are feasible, developers should have no problems getting loans. In fact, developers will be forced to conduct more thorough feasibility studies before embarking on projects.

Salleh Buang, an expert on land laws, says house prices increase over time anyway and is optimistic that consumers do not mind paying more if they can "see, feel and touch the house" before buying them.

In view of Rehda's opposition to the build-and-sell concept, the NHBA has come up with a "compromise formula", the so-called 10:90 system.

Modelled after the Australian system, buyers commit 10 per cent of the house price as down payment after inking the sales and purchase agreement, a sum to be kept by an independent party like banks. The remaining 90 per cent will be settled within three months after the house is completed.

Rehda, on the other hand wants co-existence - the build-and-sell system running parallel with the existing sell-and-build system.

"Let market forces decide. If buyers say they want build- and-sell, I assure you developers will move towards that without even being told to do so," Ng says.

Housing and Local Government Minister Datuk Seri Ong Ka Ting says a memorandum on the proposal will be submitted to the Cabinet soon but declines to provide details. It is understood that the ministry is drafting a formula that will mitigate "market shocks" when the build-and-sell system is enforced.

The ministry is also said to be favouring a phased implementation instead of an abrupt change.

"We need to pace the developers and other related industries like cement manufacturers, engineers, architects, surveyors and even the buyers themselves," a ministry source says.

Salleh suggests the Government enforce an obligatory insurance scheme for developers. If developers abscond or do not complete a project, then the insurance money can be used by purchasers to finish it.

"Purchasers' interests should be our first priority. We should work towards build-and-sell," says Salleh.

That formula may be key point in putting the interests of house buyers foremost.