Protection for all parties
05/05/2006 NST By Chang Kim Loong, Secretary-General, National House Buyers Association

THE arguments put forward by members of the Real Estate and Housing Developers Association (Rehda) in "We ll need help from banks" (NST, May 1) cannot be left unchallenged.

The whole theme of the letter was to oppose the concept of the build-then-sell model for housing.

The variant to the present sell-then-build, termed the 10-90, is conveniently not discussed. The 10-90 model would remove almost all of the present risks and hazards faced by house-buyers.

With regard to the 2.9 million units of housing supposedly delivered to the buyers, we would like to state that quite a number of them are of questionable/unacceptable quality.

This doesn’t speak well of the industry. We have enough complainants to back this claim. The tens of thousands of innocent buyers who face the financial distress caused by abandoned housing projects also do not speak well of the present sell-then-build model.

Perhaps Rehda should consider who the real financiers for the housing industry are. No, they are not the house- buyers as house-buyers do not have such funds. The banks are the ones. They give end-financing to buyers and under the present model this end-financing is used to progressively pay developers for their construction work. Herein lies the problem and the crux of the issue. When projects fail, buyers are dragged into the legal and financial muddle.

Due to so many house-buyers being involved, the Government has had to channel billions of ringgit through Syarikat Perumahan Negara to revive some of these failed projects so that some of the affected buyers may still get their houses.

Do we still want to continue with this state of affairs? Such bailouts fit the observation that "profits are privatised but losses are nationalised".

They had to be "nationalised" because so many buyers are suffering. And the problem is caused by the present sell-then-build (progressive payment) model.

The 10-90 model would totally insulate buyers from the risk equation. Banks lend directly to developers to build the houses and the buyers’ end-financing kicks in only when the houses are completed. In this mode banks operate within a safer system. In the 10-90 model, the exposure by banks is reduced, due firstly to the fact that only the construction costs are involved, not the selling price of the houses (which includes the land costs and the developers’ profits). Second, they are in a better position to monitor the construction and at the earliest indication of trouble they are able to respond to resolve the problem.

The Rehda members’ letter is peppered with conjectures and "fright" scenarios. Incidentally, some 40 years ago, the same arguments were vigorously put forth by industry players when the then Minister of Housing, the late Tan Sri Khaw Kai Boh, was tabling the first Housing Developer’s Act in Parliament.

Khaw, in his wisdom and courage, had to repeatedly reassure the House that the dire predictions put forth would not materialise.

Yes, we agree with Rehda over its suggestion that developers, like other small- and medium-sized enterprises, deserve government support.

Developers are not the only party that is subjected to the "onerous regulatory requirements" and the social obligations mentioned by
Rehda.

Indeed, the nation’s industry players all operate within the structures of our social engineering programme that is applicable to the whole spectrum of the nation’s economic activities.

Developers would do well to support the 10-90.

Build-then-sell or 10-90 is not about punishing the good SME developer for the misdeeds of a few errant developers. Rather it is about removing the hazards and risks that the country’s house-buyers have to face just so that developers can continue to do business using house-buyers’ money and at house-buyers’ risk.