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Questioning the housing safeguard

17/05/2003 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

The Housing Developers' Project Account is meant to protect buyers from unscrupulous developers. Yet, why isn't it working?

By law, all housing developers are required to open a Housing Development Account into which all money collected from purchasers must be remitted. In a nutshell, this is to ensure developers channel the revenue to its rightful purpose - that of completing a project and handing over a completed home to a purchaser - and not for other intentions.

It is solely for the protection of house buyers that this law, under section 7A of the Housing Development (Control and Licensing) Act, 1989, was drawn up. With this safeguard, at least if a housing project fails in the hands of one developer, it would still be viable for another group to reactivate it as whatever money spent would have been channeled towards the development of the project.

To make sure an account is maintained, a developer had to periodically submit it to the Controller of Housing in the Housing Ministry for monitoring purposes. This would give the controller warning of any financial problems faced by the developer.

Indeed, section 7A serves as a noble and rightful objective since it was legislated on Aug 26, 1991.

Yet, as at this moment, there exists countless housebuyers who are left in the lurch because the houses they had purchased and partially paid for have been abandoned by their developers. In many cases, it is not economically viable to resuscitate them, primarily because the money that had been collected by the developers did not correspond to the stage of development.

Something has gone terribly wrong. But what, how and why?

Whenever something goes wrong, some party must have been negligent. Some party must have failed to do something which it should have rightly done, or it must have done something which it should not have. Now, who has failed to do what?

We would like to take a clinical look at the issue in order to shed some light.

In our view, the mechanism to ensure the rightful use of housebuyers' money is entrenched in section 7A. This section makes it incumbent for all licensed developers to operate a Housing Development Account. Contravention of any provision of this section constitutes an offence and the offending party would be liable to a fine of not less than RM10,000 and/or imprisonment for a term not exceeding three years.

With such stringent provisions provided for by the Act, why are there still so many cases of projects gong bust and abandoned?

We conclude that the root cause is enforcement, and suspect that the requirement to operate the Housing Development Account has been largely and deliberately ignored by developers. They do not relish the idea of being so tightly shackled. But what is disturbing is that we have not seen any media report involving a developer being prosecuted for a breach of section 7A.

We believe developers do not take much heed of this requirement because they know that there will be no consequences for their refusal to comply with the Act. We also believe that had this account been religiously enforced, a lot of housebuyers' headaches and heartaches would have been avoided.

We leave it to readers to conclude who is the negligent culprit that caused the failure of the safeguard which section 7A is intended to provide. With the new Act, provisions have been made to make it mandatory for housing developers to open a Housing Development Account prior to application for a developer's licence.

Section 4 of the Act also provides for all monies (be it initial deposit or progressive payments) to be deposited in the Account. The question is, will this be enough to put an end to wayward developers?


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