'Build-then-sell can exist side by side with sell-then-build'
29/09/2005 The Sun By Jennifer Gomez and Diana Chin

KUALA LUMPUR: When addressing the 1,300-strong crowd at the International Real Estate Federation (Fiabci) Malaysia Property Awards 2005 gala dinner on Tuesday, Fiabci Malaysian Chapter president Datuk Teo Chiang Kok took the opportunity to offer his thoughts on the build-then-sell issue.

The topic has been brewing in the property development industry over the last couple of months, with various parties voicing support and reservations about the introduction of the concept here.

In his speech, Teo - an industry veteran responsible for the successful 1 Utama shopping centre and Bandar Utama residential area - said the present system of sell-then-build had served the country well. Audit had 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 producing houses that are affordable for all levels of our society. Fiabci is convinced that if the build-then-sell system is implemented, the number of houses produced will shrink drastically. This will bring along a shrinkage in the construction industry as well as the manufacturing and services industries that feed into the housing development industry, resulting in severe negative impact on our economy," Teo said.

Teo elaborated that if the build-then-sell method is enforced, 80 % of the property developers in the country would have to close shop. Given this scenario and the fact that even the bigger developers would have to run on a reduced capacity (depending on their financial strength), there would be a shortage of housing supply, which in turn, would cause house prices to go up.

Teo employed the build-then-sell method in his company's Bandar Utama homes because of his company’s his confidence in the project's good location and the financial strength of the company.

But, he said, buyers should have a choice whether they want to buy off the plan or purchase a completed unit. "The build-then-sell system can exist side by side with the sell-then-build system, and should not be made mandatory.”

Meanwhile, he said the Housing Development Act had been amended to tighten the loopholes in an effort to protect the interest of house buyers. "During the years after the crisis in the late 1990s, there were some failed projects. And when we analysed the reasons, it was due to the fact that funds from projects were being channelled to other uses, such as buying more tracts of land. Now, this won't happen as the Act has been amended whereby the funds from a certain project are locked up in a housing development account and can only be used to build that particular project."

Fiabci's Property Man of the Year 2005 Datuk F D Mansor of Glomac Bhd also touched on the issue
while giving his acceptance speech at the dinner. "The property industry is already facing a lot of challenges amid rising construction costs. The concept of build-then-sell needs an indepth study to address the existing structure of the finance and property sectors, as well as the consumers' affordability."

In tune with Teo, he added that the price of properties would escalate immediately as developers would have to factor in new inherent risks in the system with regards to bearing the burden of the interest of construction costs solely. They would also be taking a risk that purchasers would remain committed in their decision to buy, he said.

"I believe we already have a good system of sell-then-build. What needs to be corrected is control over licences issued to developers. They must be responsible and committed in doing what they do."On the purchaser's part, they should be mindful to pick developers that are credible," Mansor said.