FOCUS: BTS cure for abandoned housing projects

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ABOLISH: Dr Ernest argues that collecting payments before delivery of the completed houses is not the birthright of housing developers

I refer to a report in Sun Biz of Tuesday, 4 September 2012, where on page 13 Datuk Ng Seing Liong, immediate past president of REHDA, was quoted to have said “if the government were to implement the build-then-sell (BTS) mechanism for the property sector, it will cause supply of homes to dip by 80% and prices to soar”. This is a very serious claim by REHDA (Real Estate and Housing Developers‘ Association Malaysia).

 
Is the statement of Datuk Ng the truth and represents true facts?
 
I am familiar with ongoing debates over whether Malaysia should adopt the Build-then-Sell (BTS) or maintain the current Sell-then-Build housing delivery system.
 
Malaysia is arguably one of very few countries, if not the only country, in the world where bylaws permit housing developers to progressively collect payments from house buyers during the construction period. Let us pause to reflect on the reasons for Parliament to pass the Housing Developers (Control & Licensing) Act 1966 and Housing Developers (Control & Licensing) Regulations 1989 that provide for house buyers to progressively pay developers for the purchased houses.
 
The provision of affordable housing for its citizens has been an important part of the Malaysian Government’s Fiscal, Monetary and Public Social Policies since 1957.
 
Back then in 1966, six years after the 12-year Emergency (1948–1960 War on Communist Insurgency in Malaya) ended and just one year after Singapore separated from Malaysia, the Malaysian Government had to act quickly to revive the economy and provide Malaysians their three basic needs of food, clothing and shelter.
 
Successive Five-Year Malaysia Plans were launched with emphasis to meet these three basic needs of Malaysians. The need to provide affordable houses for Malaysians was met with the Government formulating the National Homeownership Programme that aims to create a “Home Owning Malaysian Nation” with the passing of the Housing Developers (Control & Licensing) Act and Housing Developers (Control & Licensing) Regulations.
Progressive payment “not birthright”
 
Back in the 1960s, bank loans, whether bridging or end purchaser loans, were not easily available. The Federal Government realised something had to be done to encourage more houses to be built to meet the housing needs of Malaysians.
 
There was a need back in the 1960s and 1970s to encourage more houses to be built to meet the housing needs of Malaysians, hence the “special concession” given to housing developers to progressively collect payments from their buyers before they complete and deliver the houses to the buyers. To collect payments before delivery of the completed houses is not the birthright of these housing developers.
 
In 1966, the Government had to encourage more houses to be built to meet the housing needs of Malaysians hence the 3rd Schedule was included in the Housing Developers (Control & Licensing) Act. After 46 years (1966–2012) of special and concessionary treatment and with banking facilities now freely available to those developers who qualify, the time has come for the 3rd Schedule of the Housing Developers (Control & Licensing) Act 1966 to be abolished.
 
In Malaysia, furniture makers, car assemblers and other producers and suppliers of consumer products do not have the right to collect payments from buyers before they complete and deliver the finished products. Housing developers in Malaysia should be treated the same as all other producers of consumer products. They should only be paid when they complete and deliver to the buyers their houses.
 
Properties, including houses, are tradable commodities that are subject to economic and market forces of supply and demand. With the implementation of the BTS housing delivery system by 2015, the supply of properties including houses will not diminish because of BTS and certainly will not diminish by 80 per cent. The housing industry in Malaysia, like all other industries the world over, will continue to build houses when there is profit to be earned even when they are subjected to BTS.
 
I have written a series of articles for the NST RED. In the article published on 6 July 2012, I traced the financial fortunes of three families and found that Malaysian families with monthly incomes of RM14,000 and below can only afford to pay a ceiling price of RM550,000 for their homes when the fact is most medium range residential properties in Kuala Lumpur are priced at RM600,000 and above. Property prices (house prices) in Malaysia have become unaffordable to most Malaysian families. How then can property prices (house prices) soar further when the BTS is implemented in 2015? The reality is property prices (house prices) have peaked and the only direction for it to go is down.
 
The benefit of the BTS when implemented in 2015 is the elimination of weak, under-resourced and under-capitalised developers, the survival of strong and well-capitalised developers and the reduction and elimination of abandoned housing projects to zero (this is not a dream).
 
Legacy of pain — abandoned housing
 
The housing industry in Malaysia in the past had contributed to growth of the economy. The sustained growth of the housing sector over the past 25 years, due in part to the banking sector providing the necessary funds for housing projects, had contributed to the Government’s successful implementation of its Home Ownership Programme. Since the 1997/1998 East Asian Financial and Economic Crisis, the housing industry in Malaysia had increasingly been the subject of intense public scrutiny and criticism.
 
Public perceptions of the housing industry gradually changed from that of “The Darlings of National Development and Growth” to “The Irresponsible Villains and Culprits” that caused much economic and financial hardships and pains to large segments of the Malaysian public.
The former Prime Minister of Malaysia Datuk Seri Abdullah Ahmad Badawi spoke for many Malaysians and represented then and now prevailing public perceptions on the conduct of housing developers in Malaysia when he said:
 
“I think it is not right to pay money first before you get your house. If they (developers) don’t get to sell all their houses, the money won’t be enough for them to build. What will happen to those who have paid up? Developers should not be paid before they complete and deliver to the buyers the purchased houses complete with Certificate of Fitness for Occupation” (The Star, 2005, May 22).
 
Echoing the Prime Minister’s representation of public perceptions, The Malay Mail on 1st March 2005 headlined the news: “Controversial Projects in Selangor” and “Majlis Perbandaran Petaling Jaya (MPPJ) clueless over Kelana Jaya Lake Project”.
Following close on the heels of The Malay Mail, The Star on 14th March 2005 headlined the news: “Dam shut down in Tanah Rata (silting of the Ringlet Lake caused by land clearing forces TNB to switch off power stations)”.
 
What caused this gradual change in public perception of the “Social standing” of housing developers in Malaysia? Did housing developers in Malaysia conduct themselves in a socially responsible manner when conducting their housing development activities?
To understand the change in public perceptions, we will examine the issue of the proliferation of “Abandoned Housing Projects” in Malaysia.
 
Definition of Abandoned Housing Projects in Malaysia
 
The Ministry of Housing and Local Government defines an “Abandoned Housing Project” as a housing project where:
 
1) All work at the site has ceased for at least six (6) months or work has yet to be completed after the scheduled date of completion as stated in the Sale and Purchase Agreement
 
2) The developer admits to his inability to complete the project; and
 
3) The Ministry feels that the developer cannot fulfil his obligations as a developer
 
Primary causes for Abandoned Housing Projects
 
From 1983, when the first abandoned housing project was recorded, until 1997, the year the East Asian Economic Crisis hits Malaysia, due mainly to over-certification of progressive payment claims by the respective Project Architects and over-payments by the banks from the respective borrowers housing loan accounts, many housing projects with funding inadequacies ceased construction activities thereby resulting in an increasing number of abandoned housing projects being recorded with corresponding increases in the incidences of “Non Performing Loans (NPLs)” affecting Malaysian banks.
 
Effects of Abandoned Housing Projects
 
In my next article, I will examine the effects of abandoned housing projects on the lives of millions of Malaysians.
 
This column is endorsed by the National House Buyers Association of Malaysia (HBA) to educate, inform and empower house buyers in Malaysia.

 


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