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Abandoned hopes?
14/04/2006 The Sun
THE article "Protecting house buyers" (Property plusFriday, April 7,2006) by
Jennifer Gomez on her interview with Dr G Parameswaran (the director of the
Monitoring and Enforcement division in the Ministry of Housing and Local
Government) prompted me to write this letter to you.
The number of abandoned housing schemes and destitute borrowers is testimony
to broken dreams, broken promises and surely broken policies. The reason for
these failures is not only greedy developers. The government policies are
the real cause. Let me tell you how:
When a developer purchases land (normally agricultural land of fairly large
acreage), he has to get it converted. Such conversion premiums are normally
25% of the market value. After the payment for land and premium (on the
total area), the developer normally launches phase 1 on a fraction of the
land. During this phase, the developer has to do the infrastructure such as
drains, sewerage treatment plants, utilities and so on. Normally, this
infrastructure is done for a much, bigger capacity than just for phase 1 as
equipment is not available for small numbers.
While the house buyer thinks he is paying for 100/0 of the purchase price
for the empty land, he doesn't know about the total cost of land paid,
premium paid on the (total) area and costs of the numerous approvals for the
various infrastructure the developer has incurred (the debt mountain).
Very few developers recover costs in phase 1. They make their money when
this phase succeeds and they can then launch and sell phase.
2. If the first phase does not sell, the debt mountain kills the developer's
project
Why do big developers succeed? They normally have big land bank in good
areas and deep pockets to conquer the debt mountain.
The reason there are so few abandoned projects in developed countries and
Singapore is because developers in such countries only need to buy small
parcels of converted land with infrastructure already put in place by local
councils. Generally, developers there bid openly for such development lots
which the councils put up for bidding. They can bid for just one or more
lots as the saleable lots are planned and subdivided by local authorities.
(This is also why a condominium project doesn’t suddenly appear in a housing
neighborhood!)
What does it take for the Ninth Malaysia Plan to give Malaysians more
certainty of a roof over their heads when they make a purchase? Change the
whole housing development scenario by making local councils take the lead as
follows:
1. Get local authorities to convert and subdivide land first it only takes
pen strokes to do this but it enhances the land value by many times.
2. Allow open bidding for such subdivided lots. Local councils can rake in
huge sums from such converted pieces of land.
3. Unless the developer buys large tracts to do the infrastructure itself,
get every bidder to contribute to that. That way we will not get housing
schemes with out basic amenities as the local authorities can put these in
place.
Ever wonder why we haven't learnt from others and have this unique "sell
then build" concept? It makes for huge profits for the developer whose phase
1 does succeed. And without open tenders for land many "deals” are possible!
MS
Kuala Lumpur |
