Making build-then-sell work
20/11/2004 Published in NST-PROP
A Buyer Watch Article by National House Buyers Association
MANY countries in the region have adopted the build-then-sell
concept of housing supply. However, developers in Malaysia are far
ahead of those in many other countries in terms of skills and
technology. Is there any reason, then, as to why they cannot adopt
this same concept?
The National House Buyers' Association (HBA) does not see any reason
they can't. Of course, we do not expect them to adopt the
method overnight, for to start implementing this system completely
be too big a paradigm shift for the players.
However, there is ample "encouragement" within the system for
to sell completed houses. For example, they can get the Certificate
Fitness for Occupation (CF) without having to comply with the full
requirements of the Housing Development (Control and Licensing) Act
We at the HBA believe that Malaysian developers too can deliver
the build-then-sell way, by adopting a system that is quite similar
one successfully adopted by housing developers in Australia.
Our proposal is a variant of the present concept, in which the
practice of buying-off-the-plan is merged with the build-then-sell
concept. We term this the "Buying-off-the-plan Variant", a 10:90
arrangement based on the Australian model that we believe is a fair
Under this concept, purchasers pay a downpayment/deposit/reservation
of 10 per cent of the contract price upon signing the Sale and
Agreement (SPA). This deposit is then placed in an escrow trust
The remaining 90 per cent of the purchase price becomes payable
90 days of the delivery of vacant possession of the house, together
its title and the CF. The deposit and interest earned in the escrow
account will go to the developer simultaneously with the balance
We see this as a very fair and practical concept.
The developer, assured of the committed sale, can now concentrate on
completing their project on time with an assurance of quality, while
financial institution concerned will release bridging finance funds
In this way, the financial institution is in a better position to
that the developer is paid what it deserves and that every ringgit
disbursed goes towards the completion of the project. There will be
room for siphoning or diverting payments from buyers, since they
There are numerous housing projects at a standstill at present,
the majority of the houses in those projects having been sold. This
that these failures have not been due to insufficient buyers but
of mismanagement or fraud and the exploitation of the
Housing Development Project Account.
Our proposal of a 10 per cent deposit upon the booking of houses and
remaining 90 per cent upon delivery of vacant possession is one that
Malaysian market can adopt, and it appears viable from the angle of
if not all, market players.
We also recommend that a pre-delivery inspection be included in the
The developer will notify buyers of the joint pre-delivery
both builders and buyers and during this exercise, all the
defects in the property will be recorded.
The developer is to rectify the defects before the house is handed
to the buyer. It is important that vacant possession of the unit is
delivered only after the defects are rectified, for this will also
long way in promoting mutual respect between a developer and its
The HBA also recommends that buyers be allowed to hold back a part
the full payment until the defects that have been identified are
There are two reasons for this: One is that there should be no
obligation to pay for work that is not done or is not done properly;
other is that the work will be done in a satisfactory manner only if
developer knows that it will not be paid until the defects are
As for the defect liability period, it should remain at 18 months'
warranty as a safeguard for buyers.
Other defects in workmanship and materials that are identified by
purchaser over the course of a certain number of years, say five
occupancy, may be raised directly with the developer.
Ideally, the purchaser should not have to complete the purchase
the property title is issued.
The National House Buyers Association is a non-profit,
and non-political organisation manned by volunteers. Its website is
www.hba.org.my. E-mail: firstname.lastname@example.org