Should we adopt a 'Build-and-Sell Homes' plan: Yes, it will be good for buyers
29/09/2005 NST  By YIN EE KIONG, Penang

I REFER to the report "Don’t make build-then-sell system compulsory: Rehda" (Business Times, Sept 24) and your editorial (New Sunday Times, Sept 25). When Prime Minister Datuk Seri Abdullah Ahmad Badawi first proposed the build-sell concept some time back, he was concerned by the number of honest, hardworking Malaysians who have been duped by unscrupulous developers.

He wanted the problem of "abandoned projects" addressed. The Prime Minister suggested a "build-sell" system.

In asking for a non-compulsory "build-then-sell" system, the Real Estate and Housing Developers’ Association (Rehda) has, in fact, tacitly accepted that the system works (only that it should not be made compulsory).

Indeed, Thailand changed over to "build-sell" (forced by the exigencies of the 1997 financial crisis) without problems. Build-sell is also the norm in most countries.

For Rehda to cite national economic interests over the interests of "vested house buyers" is disingenuous.

Whose interests does it represent? In a toss-up between the vested interests of developers and those of ordinary Malaysian house buyers, surely the latter should take precedence.

However, any adjustments needed in the change-over would not threaten the livelihood of developers or the nation’s economic interests.

Why should they? There is no evidence of this in Thailand and there has not been any negative repercussion on the national interests of countries where "build-sell" is practised.

The issue goes beyond economics; there is a moral angle to it. Why should those who stand to profit from the industry (principally the banks and developers) not also carry the risks?

On what logic is Rehda’s position based — that the risks should be borne by house buyers, while its members take the profit?

Up till last year, 227 housing projects worth RM7.3 billion have been abandoned. How many Malaysian families have been ruined by this?

As to "upsetting the apple cart for the smaller housing developers", this is a natural culling process of business. It affects all developers, irrespective of size. In good times, every man and his dog turned developer. Many were unqualified, inexperienced and under-financed.

However, in a system where the principal risk is borne by the buyers, it is easy for anyone to build houses, leading to shoddy workmanship, delayed delivery or non-delivery.

A build-sell formula will weed out the fly-by-night and inefficient developers — big or small. This is a good thing.

The Government has come up with a plethora of rules and regulations to combat abuses in the industry. But no amount of rules can cover every eventuality.

For every rule, there is a loophole. And when implementation and supervision is slack, the abuses continue. All this expenditure of money and manpower to police what is inherently a flawed system is public waste.

The best rule is the rule of the market. Public demand determines how many houses will be built and where they will be built. Buyers pay only when they get the house. Price, quality and delivery will determine which developer will survive.

Banks and other financial institutions will similarly base their lending on market demand. For instance, if a developer can show paid-up bookings for his houses (hence the 10:90 formula), the banks will lend them the money. There is no need for convoluted rules and regulations.

Rehda’s insinuation that only the "big boys" will survive is not based on fact but speculation. On the contrary, in countries like Australia, small and medium-size builders are responsible for most of the housing and provide most of the jobs.

Rehda’s claim that house prices will go up by 30 to 50 per cent and production drop by at least 60 per cent is also speculation. More than that, it’s a scare tactic. Experience in other places has shown this not to be the case. In some cases, it is the opposite as greater efficiency is achieved. Competition will ensure that prices do not inflate irrationally.

In pleading that the "build-sell" system should not be made compulsory (as against its previous stand of being against it), one senses that this is Rehda’s last-ditch defence against a tide of rising public sentiment against the present system of "sell-build".

The Housing and Local Government Minister must not pander to vested interests by balking at much-needed radical changes to the housing industry.

Perhaps a grace period can be given for developers to make the change-over but after that all development should be "build-sell".

In the final analysis, it is not a case of adopting one system or another; it’s a matter of protecting the life savings of ordinary Malaysians against a system that is patently unfair and often unethical.

The Prime Minister obviously felt that the present system is unfair to ordinary Malaysians when he broached this matter.