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Sell-then-build
system badly flawed
29/10/2009 The Star
I REFER to the report: “Kong: Housing revival fund a one-off allocation” (Sunday
Star, Oct 25).
I would like to look at the reasons why RM200mil of public funds have to be
used to revive abandoned housing projects, one-off or otherwise. Abandoned
housing projects are essentially failed businesses where the developers are
no longer able to complete the houses they set out to build.
Thus, it is a situation of “profits privatised” while losses are nationalised!
By the way, the RM200mil represents only a small proportion of the total sum
required. In Selangor alone, it was reported that RM4bil to RM5bil is required
if the abandoned projects in the state were to be revived.
Why does the Government have to intervene and dump in vast amounts of public
funds to revive these abandoned housing projects? The answer is because innocent
house buyers are suffering the effects of paying a lot of their savings to
the developers and not getting their houses. Their dream houses have turned
into nightmares!
How does this situation come about? I would like to shed some light on the
cause of this pathetic situation.
The main culprit is the present sell-then-build (STB) system. The badly flawed
system compels buyers to make progressive payments while the houses are being
built.
The National House Buyers Association (HBA) has over the past few years been
appealing to the Government to do away with the progressive payment system
and to adopt the 10-90 build-then-sell (BTS) system.
Opponents warn that the 10-90 BTS will shrink the industry because smaller
developers will be put out of business while the big ones will downsize their
projects. They argue that there will be shortages and house prices will go
up by up to 50%!
The HBA has adequately rebutted all those arguments. A flawed system cannot
be a sustainable system. If we do not phase out the current obnoxious progressive
payment system, house buyers will continue to face hazards in buying houses
and Malaysian taxpayers will forever have to shoulder the burden of paying
for the revival of failed housing projects.
We believe the proposed 10-90 BTS not only benefits house buyers but it actually
benefits all parties involved in the housing industry as follows:
> For the bridging financiers, collaterals will not be progressively fragmented.
Revival is less complicated and speedier.
> Developers need not have to rely so critically on their sales to meet their
cashflows.
> Joint-venture land owners’ interests are better protected and there will
be more land owners who will be willing to go into joint-venture partnership
with developers.
> House buyers are insulated from the effects of project abandonment. There
will be better quality houses and less substan dard materials used because
come payment time, the buyers will conduct a prior delivery inspection with
their developer.
> For the end-financing banks, the risks are much lower as they now finance
completed houses that are readily cashable in the event of defaults.
Furthermore, the Government need not get involved with and spend a vast amount
of money to bail out what are essentially failed businesses. The industry
will be more self-regulating with less governmental policing and enforcement.
The STB progressive payment system has outlived its usefulness and is now
creating havoc to the industry. The switch to the 10-90 BTS is long overdue.
CHANG KIM LOONG,
Honorary Secretary-General,
National House Buyers Association.
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