Shelter for house buyers

 09/05/2006 The Sun

THE news that a developer has at its own initiative extended the warranty period for houses to 36 months from 18 months is definitely to be welcomed.

But perhaps even more welcome is that the Housing Minister is planning to make this standard practice for the industry.

It is hoped that he will, because apart from the sad case of thousands of abandoned housing schemes affecting hundreds of thousands of residents scattered throughout Malaysia, the poor standards of house construction is probably the next mist major problem.

House defects often show up much later than the warranty period, currently 18 months. If that happens, the house owner has no cheap recourse to the developer because the liability period for defects has passed.

This means that he has to stump out his own money to make good the defects after having spent a fortune buying a house. Much of the time the ordinary house buyer scrimps and saves to afford the expenditure and any further renovation demands put him in great difficulty.

The Housing Ministry should go beyond this and also consider extending the warranty for structural defects, which don't show up until years later, to perhaps ten years. That will ensure that house builders are liable for major defects that can be only detected later.

To give even greater protection to house buyers, the ministry should also look into ways to ensure that developers actually complete the project. If they don't, developers should lose their own money and not the house buyer's.

One simple way would be to put all proceeds and progress payments from house buyers into a trust account, according to the stage of completion of the house. The housing developer will have no access to this account but will instead rely on bridging finance from the banks or his own resources to complete the project.

Once the house is completed, together with all accompanying infrastructure including services, the certificate of fitness obtained, and the house handed over to the purchaser, the money is released from the trust account.

An appropriate amount can be held back pending the expiry of the warranty period.

Such an arrangement still allows housing developers to sell house according to a plan and build later, but gives adequate protection to the house buyers as his money goes to the developer only upon satisfactory completion of the entire development.

The cost may increase slightly but it is more than compensated for by the increased protection. Fly-by-night developers or those who are tempted to shift the money out and disappear will not succeed under this arrangement .

That puts the risk of buildings houses entirely on the developer - which is where it belongs. It is simply ridiculous for purchasers of products to bear the risk for their production.