Of criminalised abandonment, gradual BTS and ‘Russian Roulette

In Part 1, we reproduce here the HBA’s memorandum to Parliament on amendments to the Housing Development (Control&Licensing) Act,1966

The National House Buyers Association (HBA) applauds the positive response from YB Datuk Seri Chor Chee Heung, the Minister of Housing & Local Government, in addressing the cumulative problems related to the housing industry with the intention of giving further protection to house buyers.

1. Criminalised abandonment: HBA congratulates the Minister for the timely initiative on the exigencies of the matter to propose amend- ments to the Act to make it a crime for housing developers to abandon their housing projects. This is with the proviso that they are charged for the criminal offence and brought to court in the first place. However, an important aspect is who should be brought to court and punished? Is it the shareholders, directors or the employed managers of any abandoned project? Is there a mechanism to prosecute those wrongdoers who abandoned housing projects? How would this new amendment benefit the house buyers while they continue servicing their housing loans and some even end up bankrupt as a result of their default? Punitive measures do not benefit affected house buyers. As you are aware those fines only go to the Government’s coffers and to the consolidated funds.

What if an abandoned project is caused by a genuine business failure when the developer who did not sell enough to satisfy his cash flow had to ‘cut losses and run’? Consequently, there must be clear and precise definition to invoke this element of criminality. The Minister should assure Parliament that he has the house buyers’ interest in mind, otherwise this is another rhetoric and amounts to merely cosmetic changes.

There is no clear definition of the word “aban- donment” in the Act. Without such definition, it would be a case of the Minister exercising his discretionary powers to declare such instances and by that causing it to be shrouded with ambiguity. Exercising of such discretionary powers may also be adversely influenced by his urge to achieve his Ministry’s KPI. As the old saying goes: Power corrupts; absolute power corrupts absolutely.

Our Housing Development (Control & Licen- sing) Act, 1966 has been tweaked and fine-tuned many times over the years but still, it has been unable to resolve a lot of the problems. If anything, the problems seem to have escalated, particularly with regards to project abandonment.
In fact, it is so serious that the government had to establish a Special Task Force headed by none other than the Chief Secretary to the Government, YBhg Tan Sri Sidek Hassan. Yes, due to his dynamic leadership and his management of the Special Task Force (STF), scores of stalled projects had been/ or are being revived.

However, the effort of the STF has, to an extent, been negated when fresh projects get into trouble and may eventually get abandoned. Those previously categorised as ‘Sick’ and ‘Delayed’ housing projects have since matured into abandoned ones and continue to haunt the housing industry.

We have repeatedly stated that laws are only as effective as the degree of enforcement. This had been the bane of the whole situation. Wayward developers well know that the chances of their getting away with their wayward deeds are extremely good. Thus, enforcement is the key to more protection. Our fundamental belief is that even the best of legislation to counter a particular situation would just remain as ornamental pieces unless strict enforcements are carried out against offenders, without fear or favour against big or small developers.

2: BTS 10:90 – the Way Forward: Having said that, we feel encouraged by the recent announcement by the Minister that the Build-then-sell (BTS 10:90) system will be made mandatory (100 per cent participation) effective in 2015.
HBA would like to propose that a road map be drawn so that the shift to BTS 10:90 is fully completed come year 2015. HBA proposes that there should be a gradual ‘phase-in’ of the concept by promoting BTS 10:90 participation starting with 10 per cent participation by developers and gradually increasing that percentage until it beco- mes 100% participation by 2015. This way the developers will not suddenly suffer a total para- digm shift come year 2015.
HBA proposes that to make the BTS 10:90 concept effective, a Special Committee should be initiated immediately, under the auspices of the Ministry of Housing & Local Government with all the related players and stakeholders, to plan and chart the ‘ROAD MAP – Making BTS 10:90 work and the Way Forward’ towards an orderly housing industry. If the Minister fails to do so, perhaps, a Public Accounts Committee could be formed to chart the way.
BTS concept rightly insulates buyers from the business risks of developers and their financiers. The business risks should only be borne by developers and their financiers. Presently, house buyers carry a large proportion of the business risks involved. They start paying even though the houses that they have purchased are nowhere near completion.
They continue paying progressive payments until such time when the houses are completed. If for whatever reason the construction of the houses are disrupted or abandoned, they are the ones who bear the brunt. House buyers should not carry the risks because they are not business proprietors like the developers and the financial institutions.
The BTS 10:90 concept will also put an end to a host of other lesser but nevertheless serious problems faced by house buyers. These include shoddy workmanship, CF problems, individual and strata titles problem and the reluctance of developers to pay late delivery penalties (LAD). It will also compel developers to build quality homes commensurate with their prices and not resort to unethical and even dishonest cost-cutting measu- res using sub-standard material and employment of cheap unskilled labour force.
Presently errant developers are fully aware and promptly exploit the fact that house buyers do not have a way out without incurring heavy losses. They are being bullied by irresponsible developers.
Thus, unless the government puts in a timeline for the industry to adopt the system, the pre- sent problems will prevail.

Clearly, it is time the authorities bite the bullet and set a time line for the phasing out of this outdated and hazardous STB and to phase in the BTS (10-90) system. Note #1: HBA is part of the drafting team that made amendments to the current legislation. Most of its recommendations have been accepted, according to Chang Kim Loong, Secretary-General of the HBA.
Note #2: The memorandum above has been edi- ted for clarity and brevity.

 

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