Reviving Abandoned Housing Projects Requires Time And Support
15/12/2006 Bernama By Minggu Simon Lhasa

KUALA LUMPUR, Dec 15 (Bernama) -- Reviving abandoned housing projects is no easy task as it requires the support of stakeholders, particularly purchasers who in most cases have to top up on the prices that they agreed to pay.

It is also time-consuming as a lot of work is needed, according to those with experience in such projects.

"Of course, we would take into account everyone's (stakeholders') views and come out with a scheme, which would then be refined until it is agreeable to everyone," said Andrew Heng, a partner at Ferrier Hodgson MH Sdn Bhd.

"But once that is agreed, everyone must concede something," he said in a recent interview.

There is always a solution when a property development project is abandoned, Heng said, adding that that the options ranged from reviving the project to selling the land.

However, purchasers' support is critical as without it, the project will not be able to move, Heng said, basing his experience on the success in reviving a number of projects over the past years.

Ferrier Hodgson's latest success story concerned reviving the Sri Impian condominium project in Brickfields, Kuala Lumpur, which will be delivered to buyers on Dec 17, 2006, about 10 years after it started.

Ferrier Hodgson already has the experience of reviving at least half a dozen of mostly mixed development projects over the past 10 years, and is currently eyeing several more.

Heng said it was critical for the purchasers to support the revival scheme as without it, the project manager and receiver would not be able to collect progress billings in order to pay the contractors.

"We got the support of the purchasers who agreed to claim compensation for late delivery only after completion but at the same time to continue with their progress payments," he said on the concession made by Sri Impian purchasers.

Had the buyers taken the stance that because the developer failed to deliver the project on time and sought compensation for late delivery, the project would never move, Heng said.

"No contractor is going to do it for free. The receiver would also not do it for free, while the bank would not give money in the form of a bridging loan," he added.

Heng said there would always be purchasers who were unhappy and previous contractors and creditors not paid for work or services done wanting to take legal action, and that was the reason why all must agree to enable the project to proceed.

Patrick McPhee, also a partner at the same firm, said the extra payments to revive abandoned projects were mostly in the range of 10 to 30 percent, depending on how long the projects have been abandoned and at what stage.

That was the range that the Sri Impian purchasers have to top up. Each condominium unit was priced at over RM300,000.

McPhee maintained that although buyers needed to concede something, they would still win in the end.

However, he said, the extra payments on top of the purchase price should not be too much and buyers must make their own judgement.

"If I was buying a place and I have to kick in 50 percent or more, I would consider not participating," he added.

The top-up was necessary as prices of construction materials and other costs have gone up since the sale and purchase agreement was signed, McPhee said.

He attributed part of the success at Sri Impian to the buyers' committee which met regularly to discuss issues.

McPhee said Ferrier Hodgson considered itself as one of the best to assess whether a project could be revived.

"We actively pursue and look for that sort of work," he said.

Over the past 10 years, the company has undertaken six to seven such projects, comprising mainly mixed development.

McPhee said a lot of administration work was needed to revive an abandoned project and Ferrier Hodgson has developed an in-house template to accommodate the requirements for such projects.

The firm has revived projects in places such as Sungai Buloh in Selangor, Penang and Johor apart from Kuala Lumpur.

Heng agreed on the necessity to top up on the purchase price, saying that the construction cost in 1996 was different from 2005 in addition to inflation and rising costs.

He said if the agreement was signed in 2003 and 2004, the cost difference would not be not too much but for an agreement signed 10 years ago, the difference was substantial.

Still, Heng said, the purchasers would be in a winning position once the project was completed as they could recover their money by selling the property and even making a profit in the process.

"Even if they (purchasers) top up RM20,000 to RM30,000 but if the value appreciates by more than that, it is worth getting the hard asset in hand and sell later. It is better than having an abandoned structure that cannot even be sold," he said.

Tracing the history of the Sri Impian project, Heng said the project was suspended in 2000 with just 10 floors of the 28-storey building completed, and Ferrier Hodgson was appointed the receiver and manager for the project in February 2004.

The developer, Li-Foong Housing Development Sdn Bhd, despite having an almost sold-out project, abandoned it in 2000 after facing a credit crunch due to the Asian financial crisis as it was also involved in other projects.

Only three of the 249 units at Sri Impian had not been sold.

Heng said once appointed, the firm undertook an assessment of the project viability and also the structure integrity of the building, before proposing a revival scheme.

Construction started in March last year and it took 15 to 17 months to complete the building and obtain the certificate of fitness, he said.

The construction cost now was RM42 million and likely to be RM45 million to RM48 million in the final account, he added.

Heng said apart from the purchasers, support from the banker, which in the case of Sri Impian was AmBank, and also the government and local authorities was important.

He said AmBank provided the bridging loan as it saw the benefit of reviving the project.

"If they (AmBank) sell it through foreclosure, they would only get the land value and whatever on it would be useless," Heng said, adding that the land would also not fetch a high price as the buyer would have to deal with the condominium purchasers.

On the government's role, Heng said there was a need to reapprove the plans for the project as some of the approvals have lapsed because these were valid for between two and five years while the project had been abandoned for 10 years.

He said among the reasons why a project was abandoned was because some developers spent a lot of money on building the infrastructure first, which became a financial burden as progress payments were collected based not on the infrastructure but on the construction of property units.

"Many wanted to get into property but they did not manage the cashflow properly. Often, infrastructure has to be at the end or middle of development when more payments have been collected," he added.

According to Heng, not much legislation has been drawn up to speed up the revival of abandoned projects and at the end of the day, it depended on the support from purchasers and bankers.

He said in European countries and the United States, funds were specifically created to invest in the revival of abandoned housing projects by lending money to receivers and liquidators.

This, he added, was commercially viable as these funds tended to lend money for such projects at a higher rate due to the risks involved.

However, Malaysian investors may not be ready to invest in such funds as they tended to be risk-adverse and fairly conservative, Heng felt.

He said it would be difficult for the government to provide all the funds needed due to the huge sum arising from about 2,800 abandoned housing projects in the country.