to the rescue
05/02/2005 Published in NST-PROP
A Buyer Watch Article by National House Buyers
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
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
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
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
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
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
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
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: firstname.lastname@example.org.