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ABANDONED HOUSING PROJECTS: It shows failure of present system
18/05/2009 New Straits Times Letter By CHANG KIM LOONG, Honorary secretary-general National House Buyers' Association

I REFER to the abandoned housing projects situation and would like to delve into the reasons why this phenomenon is plaguing the country. It has to do with the system of selling and buying houses that was put in place by the government in line with the Housing Development Act 1966. This act dictates that the system of buying and selling houses be based on the system of sell-then-build (STB).

Basically, it enables developers to sell their products and start collecting payments as soon as buyers sign on the dotted line. It can be equated to buying and progressively paying for a dream. If the dream materialises, all is well, but if for whatever reasons the developers fail to complete the houses for which they have collected partial payments, the buyers would be left with a devastating financial and legal nightmare.

Why does the government have to spend so much of the rakyat's money to bail out these failed projects? They are actually business failures. The government bails them out because the innocent and naive house buyers (voters) are suffering. But then, why are house buyers involved and dragged into these business failures?

It is due to the system of payment. House buyers are made to progressively pay their developers when they are building the houses. In other words, developers are using their customers' funds for their capital requirements. It is a situation of "profits privatised, losses nationalised".

It was reported that there were 45,449 units of abandoned houses in Selangor and that it would require RM3 billion to RM5 billion to revive them. That's a lot of taxpayers' money.

And yet, these figures only represent Selangor. They also do not include commercial properties. Add in the other states, together with all other projects that are classified "commercial", and I believe the situation may have reached crisis level.

The actual amount required to revive all these projects is certainly much higher.

Even if the government can afford and is willing to spend such a large sum to bail out these failed projects, what happens after that? Are we to make big annual budget allocations to deal with abandoned housing projects?

How are we to put an end to this problem? The answer is quite simple and the mechanism is already in place.

The build-then-sell (BTS) variant called the 10-90 system (pay 10 per cent upon signing and the balance 90 per cent after the house is handed over) was put in place during the last amendment to the Housing Development Act two years ago.

The problem is that the 10-90 system was not made mandatory but left to the discretion of developers. Why should developers voluntarily opt out from a position of extreme advantage?

If the government is serious about not having to continually spend vast amount of taxpayers' money to bail out failed housing projects, the 10-90 system is the most practical one to adopt. This system removes the house buyers from the risk equation, leaving developers and banks to deal with the successes or failures of their business ventures.

Banks will conduct more stringent viability studies to ensure that only viable projects are financed and rule out bogus developers. The system will be more self-regulating and the Ministry of Housing and Local Government will not need to spend so much time and resources to enforce the law to protect house buyers.

 

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