No such thing as a risk-free business
NST 05/08/2006 By National House Buyers Association

Every other venture uses its own money; why should it be any different for housing development?

WE refer to the opinion of Datuk Eddy Chen, the most recent past president of the Real Estate and Housing Developers' Association (Rehda) and a trustee of the Rehda Institute, published in last week's Viewpoint column (NST-Property, July 29, 2006).

In it, he expressed concern that for projects adopting the 10:90 Build-Then-Sell (BTS) method of housing delivery, buyers might find the flimsiest of excuses to renege on their purchases once their houses are ready for hand-over, thus leaving developers in a lurch.

Developers have to note that there is no such thing as a "risk-free business". The fact that the market has been adopting the Sell-Then-Build (STB) system for the past few decades, in which the purchase price is paid progressively over the course of a house's construction period, does not make it the rightful and only system. In fact, it is a lopsided approach to housing delivery as it greatly favours developer instead of the  house buyer.

Indeed, the playing field will be more level with the adoption of the 10:90 BTS system, as with it, buyers only need to commit 10 per cent of the purchase price as downpayment and pay the balance once their houses have been completed.

The STB system may have delivered 3.6 million houses to the nation as Datuk Chen said, but look at the trail of havoc following its wake. He seems quite satisfied to accept the fact (of fiction) that only two per cent of the total number of house buyers have suffered the effects of abandoned projects under STB.

Looking at the Ministry of Housing and Local Government's statistics, last year, 58,000 buyers were affected by abandoned projects. Based on an average of three persons per family, it means 174,000 innocent Malaysians are suffering from varying degrees of financial distress with no solution in sight, because of STB.

Our stand is that nobody  - not a single person - should be subjected to such torment. It is grossly unjust - it is unwarranted, unkind, and worst of all, it is a situation that can be avoided.

Even our criminal procedures are based on the philosophy that would rather let a thousand guilty go free than allow a single innocent person to be convicted. And yet, in the housing industry there is a custom that

innocent and unwary house buyers to become victims of immoral "convictions" and impending financial destruction.

For the sake of these innocent buyers, the Government has had to allocated funds to salvage the country's abandoned housing projects, most which are of the low- and medium - cost types , to the tune of RM8 billion. This is our - the tax-paying Malaysian's money. Which means that a person who might not even be able to own a home has had to come to the "rescue" of an abandoned scheme. The recent statement by Prime MInister Datuk Seri Abdullah Ahmad Badawi. "profit privatised losses nationalised", is certainly apt.

Besides project abandonment, there are other problems BTS can help to solve. One is shoddy workmanship. Another is the delay in obtaining ownership titles, since under BTS, for as long as titles - be it strata or individual - are not issued and ready to be transferred, a developer cannot be deemed to have completed its legal obligation under the Contract of Purchase.

In his defence of STB, Datuk Chen made another claim that is disputable - that BTS will put banks at greater risk.

We hold the opposite view: That with 10:90, banks will actually operate in a less risky and safer environment

month to the Association of Banks of Malaysia in the presence of representatives from Bank Negara, and they seem to concur with our opinion - especially those risk managers who themselves have been trapped in abandoned housing projects.!

Indeed, the damage caused by rogue developers is great, and even includes foreigners who had invested in the country in the belief they were making a wise decision, but who too have become victims. Not only do they no longer have any confidence to buy, they're also spreading the sentiments to the countrymen.

Given the scenario, nobody should be surprised that house buyers want a system that can enable the delivery of properly built, completed houses. The 10:90 BTS system and its coexistence alongside the present STB is only the first step.

Ultimately, the only system that should be practised is a total build, then sell method.