Published in NST-PROP
A Buyer Watch Article by National House Buyers
The continuing saga of why the build-then-sell
method should be embraced
IT is not uncommon to come across cases where buyers
are given vacant possession to their newly built
houses, only to find that their developers have not
yet even applied for the Certificate of Fitness for
Occupation (CF). At the National House Buyers
Association, this is just one of the many situations
unfortunate buyers have faced. And it doesn't end
After receiving their keys, buyers then have
to spend the next 18 months chasing developers to
comply with any breaches they may have caused and
rectify defects. Until CFs are available, they are
not able to move into their houses, even though the
full purchase price has been disbursed and they have
started servicing their bank loans.
Remedies, when available, are also slow in coming.
While both the Housing Development (Control and Licensing) Act and
the Housing Developers' Regulations are aimed at safeguarding the
interests of house buyers, they lack the bite and this is largely
because of poor enforcement.
The Housing and Local Government Ministry's
Monitoring and Enforcement Division has been given the task of
overseeing the activities of developers and enforcing the law.
However, this division's workload is extremely
heavy, and it cannot keep constant vigil on developers and their
compliance with the law. But this is vital as laws can only do so
Predetermined terms and conditions in the
statutory contract of sale, which is the Sale and Purchase Agreement
(SPA), bind those who buy houses from a developer.
However, there is no provisions in the SPA for
purchasers to get out of the contract and get a refund of the money
paid should a developer commit any breach or fails to perform or
observe any material term of the agreement, goes bankrupt or goes
Over and above this buyers face many other risks
under the existing practice of housing supply, which is the
'buying-off-the-plan' or the sell-then-build method.
To mitigate the risks, buyers are often advised to
"check the financial strength and capability of the developer",
meaning they should check its reputation, honesty, goodwill, track
record and most importantly, its financial resources. But this task
is beyond the capability of the average house buyer.
For one, there is nothing to inspect. Potential
buyers rely on advertisements, write-ups, architects' plans and
specifications, artists' drawings and projected returns. Bridging
financiers and end financiers also do nothing to protect the
interests of buyers.
When the sale is completed, that is when
purchasers have made full payment on the house, they would still not
be able to occupy the house until the CF are issued.
All this while construction remains a 'no-risk'
venture for the developer. If a project fails, it is the buyers who
suffer. A developer typically cites financial problems when they
fail to complete and deliver a project on time.
They also find other excuses, such as bad weather,
Government policies, building material shortage, stop work order
imposed by the authorities and even disputes with land owners,
consultants or contractors.
In any other business, a company involved in a
contract that fails to deliver the specific product required on time
would shoulder the risks and not pass them on to its customers.
However, in the case of housing, if a project is
abandoned and then revived, buyers would end paying more - and the
Government would lose revenue. Such was the case in the Majestic
Heights saga that played out in Penang.
In the case, the first phase of the development
comprising RM75,000 medium-cost apartments were launched in 1995 and
were due to be completed in 1998. However, the project was abandoned
in the early part of 1998.
On Oct 16, 2001, the High Court in Penang ordered
the developer to be wound up: This eventually led to the formation
of an action pane, in which the buyers were also involved that
Each buyer had to pay RM7,500 more and the units
were finally completed, with the CFs issued early this year.
If these buyers could claim late delivery
compensation, each of them would have been paid RM45,000 - a welcome
sum, for all the bank payments that they had been making all these
years. The statutory charges waived by the Penang Island Municipal
Council, Tenaga Nasional Bhd and Indah Water Konsortium alone came
up to RM3.62 million.
So, in reality, it is an expensive affair to
revive an abandoned project not only for the buyers but also for the
Government and other authorities that will lose revenue.
We, at the HBA maintain that despite the
amendments to the housing law in 2002, weaknesses remain. And one
way to tackle these problems is to have another comprehensive review
of the Housing Development Act - and to push for the building of
housing units before selling them.