Not right to pay first
Published in NST-PROP
A Buyer Watch Article by National House Buyers
WE at the National House Buyers Association Malaysia (HBA) agree
Prime Minister Datuk Seri Abdullah Ahmad Badawi that it is not right
purchasers to pay first before getting their houses.
He had pointed out that if developers don't sell all their houses,
money collected wouldn't be sufficient for them to undertake their
projects. Therefore, Abdullah asked, what would happen to those who
paid up under the current sell-then-build system of housing
For the past two decades, the "build-then-sell" concept has been
and studied, but it has still remained a voluntary concept. And it
brought on a raft of problems.
Time for change is long overdue so that the hazards, risks and
uncertainties experienced by buyers can come to an end - even though
would appear that we have unwittingly acquiesced to the adage of "a
thing when done over a period of time will become a right thing".
But no, we haven't. The present situation is grossly unfair and
a very disorderly environment in the property industry.
In the first of a series of articles, we'll take you through the
sale and purchase system of "buying off the plan", all the way
what the ideal system should look like.
For a start, let's look at the present Sale and Purchase Agreement
(SPA). Essentially, it is a contract between a developer and a
controlled by the statutory Schedules G and H of the Housing
(Control & Licensing) Act.
In it, the first 10 per cent of the purchase price is paid when the
contract, the SPA, is signed, while the remaining 90 per cent is
in stages, in accordance with the progress of construction. As the
purchaser usually needs a loan to fund the purchase, it is the bank
releases this remaining amount.
If there is default by the purchaser, the developer is allowed to
forfeit 10 to 20 per cent of the purchase price, depending on the
type and the stage of construction. The purchaser also needs to have
five per cent of the purchase price to pay for ancillary costs such
stamp duties, legal fees and registration expenses relating to the
purchase and the loan.
Even when the bulk of the purchase price is drawn down by the
upon an architect certifying that the house is practically
purchaser still cannot move in - he can only do so when the
Fitness for Occupation is issued by the local authorities. However,
the time vacant possession is delivered (with the architect's
certification), the purchaser has 18 months to report to the
any defect in the house.
Meanwhile, on the developer's side, it has to set up a separate,
limited company for each housing project it undertakes. The current
does not require a developer to have substantial cash in hand before
embarking on the project, particularly if no land holding cost is
A significant portion of the construction is funded by the
payments received from purchasers, while a margin of financing based
pledged collateral is sought to cover the construction and
costs, until the progress payments are received.
The nature of the Malaysian housing development industry can be
summarised as widely varied in its composition, highly cyclical,
ultimately competitive and inherently complicated.
The industry has almost no legal barrier to entry. Anyone can create
development company, buy land or form a joint venture with
hire a team of consultants and contractors, obtain financing and
approvals to put up housing units.
Such a framework invites the entry of errant companies whose
is only to eke profit at the expense of innocent purchasers. It is
therefore, that the Government steps in and puts an end to the
sell-then-build practice of housing supply in the country.