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Housing Minister to the rescue
05/02/2005 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

He has the power to safeguard buyer interest
               
WHEN a housing development project fails, everyone in Malaysia suffers. Individual buyers tend to suffer in terms of broken dreams, time wasted, fees paid, being stuck with an end-financing loan, losing a portion of their Employees' Provident Fund savings - and, on top of all this, have nothing to show.

Ordinary taxpayers pay their dues, not knowing that public funds have been used to revive abandoned projects. Ironically, even the people who cannot afford to buy a house are paying for the revival of abandoned housing schemes, through the taxes they pay.

It is not uncommon to hear "economic downturn" as the excuse for failing to complete a housing development. No one can predict the future of the economy and when a downturn happens, it affects everybody, not just housing developers.

However, Parliament was recently told by Housing and Local Government Ministry parliamentary secretary Datuk Dr K. Subramaniam that there are other causes for abandoned housing projects. These include:

* Poor locations;
* Inability of developers to obtain bridging loans;
* Fraud committed by contractors;
* Disputes between landowners and developers; and
* Internal problems of the developer.

We concur with Dr Subramaniam. It does not take a genius to realise that all these factors are beyond the control of the man-in-the-street that desires to own a home.

But how else can one aspire to own a house, without any fear of the development failing and becoming poorer in the process?

Section 10 of the Housing Development (Control and Licensing) Act empowers the Minister of Housing and Local Government to direct the controller of housing to investigate any offence, or investigate the affairs, the accounts, or other records of any housing developer if he "has reason to believe" that the developer is carrying on business "in a manner detrimental to its purchasers" or "has assets insufficient to meet liability". Five buyers or more can also support an application for an investigation.

Section 11 of the Act allows the minister to take various steps to safeguard the interests of purchasers if the controller is informed, or is of the opinion that a developer is unable to meet its obligations to the purchasers, is about to suspend building operations or is carrying on business in a manner detrimental to the interests of the purchasers.

Once the minister has certified that the developer has abandoned the project, the developer may then avail itself to the various schemes introduced by the Government for the revival or completion of abandoned projects.

In such a situation, the minister is empowered to:

* Direct the developer in question to take such steps as may be considered necessary to rectify any matter or circumstance;
* Appoint a person or direct that one be appointed to advise the developer in the conduct of its business;
* Direct a company, with the concurrence of the Minister of Finance, to assume control and carry on the business of the developer upon such terms and conditions as may be determined;
* Direct the developer to present a petition to the High Court for the winding up of its business; or
* Take such action as he may consider necessary, under the circumstances of the case, for the provisions of the Act to take effect.

As to the cost of implementing the directives, the minister may specify that any costs and expenses reasonably incurred by those he appointed to carry out his directives or decisions be paid from the particular project's Housing Development Account, or from money due to the account.

In addition, Section 11(3) allows a new company to assume control of the defaulting developer and carry on its business.

We have used abandoned projects as an example because they are the most serious problem that house buyers can face. But there are other situations where the powers of the minister can be enforced.

These include a developer's inability to honour the defects liability assurance in a completed project; its inability to complete the infrastructure; its failure to apply for titles to individual lots or parcels; and its inability to fulfil the conditions imposed in order for the permanent Certificate of Fitness for the project to be issued.

We can safely conclude that though this Act is more than 30 years old, it does contain the mechanism to deal with situations where developers have defaulted on their contractual obligations to buyers.

The power of the minister was tested in the case of the Majestic Heights Apartments in Penang. Problems started surfacing in 1997, when buyers of the first phase were given vacant possession. The manner of delivery was not in accordance with the standard Sale and Purchase Agreement.

In 1999, creditors of the developer filed a winding up petition against it. In a landmark action in 2001, the Housing Minister invoked Section 11(1)(d) of the Act and directed the developer to voluntarily wind up or risk prosecution under Section 19 of the Act.

Our question is, shouldn't Section 11 be invoked at the first sign of trouble? The longer the buyers wait, the higher the cost of reviving the project will be - and their personal losses would be higher as well.

In the case of Majestic Heights, the buyers had to make an additional contribution of about RM7,500 each to revive the project. If the authorities had taken proactive measures swiftly, we believe that this amount could have been minimised.

There are also cases where white knight developers have failed to revive projects, causing buyers unnecessary delays and further anguish. Delays in invoking the protection mechanism will make house buyers the unwitting,
sorrowful victims of faults in the housing delivery system.

The National House Buyers Association (HBA) is a non-profit, non-government and non-political organisation manned by volunteers. Its website is www.hba.org.my. E-mail: info@hba.my.

 

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