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Pay only for completed houses

07/06/2003 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

Several complaints have been recently vented by buyers of abandoned serviced apartment projects that the Housing Ministry can’t do anything to help them.

The reason given by the government is that serviced apartments sit on land zoned for commercial use, which puts them out of the purview of the ministry as they are considered non-residential accommodation.

We at the National House Buyers Association sympathise with all buyers whose developers have abandoned their projects, and even more so for those who cannot turn to the government for remedy.

The purchase of a house is, to the average man, the most precious investment he can make. It is indeed very cruel and unjustified when such a noble intention can turn into a living nightmare.

The main cause is brought about by the system of housing delivery involving the “buy off the plan” approach. This method compels a house buyer to pay for his property as soon as he signs a Sale and Purchase Agreement (SPA), even though the dwelling is months, sometimes years, from being completed. The piling may not even have started - in some instances, the process of land conversion could still be unfinished.

The buyer is then made to pay progressively through the stages of construction, which is usually by way of a developer drawing down from the buyer’s housing loan secured from a financial institution after the project’s supervising architect has certified that the portion of work has been done.

If all goes well, the finished house would be handed over to him after most of the loan has been disbursed. Conversely, if a developer was to get into financial trouble resulting in the abandonment of the project, the buyer would not get the house he had partially paid for.

There have been cases of projects being abandoned at advanced stages, when a buyer’s end-financier would have almost fully released the loan to the developer. In this event, not only would the poor buyer have used up his savings to pay for the difference between the purchase price and the loan amount, he would also have to service the loan for a property he cannot occupy. The financial institution would not care whether the property is delivered or not.

In other countries, a buyer only has to pay a 10 per cent down payment upon signing an SPA and nothing else until the house has been completed and is ready for occupation.

A time frame is also given to the developer to finish the job, failing which options are given to the buyer. Even the 10 per cent down payment is protected by the legal practice fidelity fund, in the unlikely event a solicitor misappropriates the money. Isn’t that a beautifully secure way of buying property?

Should this method be employed, we believe house buyers would not have to worry about orphaned projects and other hazards associated with “buying off the plan”.

Furthermore, if the houses a developer builds are of sub-standard quality, and since a buyer would not have fully paid up for his unit yet, it would be the developer holding the short end of the stick instead of the buyer.

We believe that the only way buyers’ confidence can be gained, and quality of construction improved is for buyers to only pay for completed houses.


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