|Striking a compromise
21/05/2005 Published in NST-PROP
A Buyer Watch Article by National House Buyers
THE National House Buyers Association says the impending certification of
housing by professionals instead of by the Government might work if ...
Now that the Minister of Housing and Local Government has
finally ruled that Certificate of Fitness for Occupation (CFs) for housing
will be replaced by Certificates of Completion and Compliance (CCC), we
can only hope buyers will have one less worry on their minds in their
run-up to home ownership.
If you have been following the opinions we have
expressed in the pages of Property Times, you will know we have vehemently
objected to the replacement of CFs issued by the local authorities by CCCs
to be signed off by architects and engineers.
Our stand, on behalf of buyers, is clear: By leaving
this important process to to "development professional" who are
essentially agents of housing developers, the industry is deprived of a
check-and-balance mechanism to ensure quality housing standards.
Although the new process might mean buyers will be able
to move into their houses faster, we think that it will open a new can of
worms, and had highlighted our fears in the past by citing cases of errant
certification by some professionals.
Despite our arguments, the Government has made its
ruling and we are now at a stage where housebuyers throughout the country
have to depend on the professionalism and integrity of architects and
engineers to ensure their houses and surrounding infrastructure will be
properly built to specifications.
On a parallel but brighter note, we are fully supportive
of the Government's call that developers embrace the Build-Then-Sell (BTS)
method of housing delivery, as opposed the current practice of selling and
It is because of the latter that so many buyers are
facing financial and social problems due to non-delivery and
non-compliance on the part of the developers. Yet, although the industry
openly acknowledges BTS as being the perfect answer, its coming is still a
long way away, with developers saying they are not ready to implement it.
Creating a win-win environment
In examining the two issues facing the industry (the
introduction of CCC and the BTS preference), we feel a compromise can be
reached that will allow both initiatives to happily sit side-by-side. It
is a variation of the BTS, which we call the 10:90 concept.
In this proposal, a developer will be allowed to sell
its products by executing a revamped version of the standard Sale and
Purchase Agreement (SPA) with its buyers even before construction
commences, so long as all necessary approvals have been obtained.
Buyers will pay a downpayment of say, 10 per cent upon
signing of their SPAs. However, instead of the money being remitted to the
developer's Housing Development Account as is current practice, it will be
placed in an interest-bearing escrow account held by a nominated
stakeholder (such as a lawyer or banker).
Once the developer secures the requisite number of
buyers, it can proceed to build its project - if it can be completed
before the prescribed 24 months (for landed properties) or 36 months (for
stratified properties), the speed will be to the developer's benefit.
However, while the developer can take out bridging
finance to cover construction cost, it will not be able to take any money
from the buyers until the houses have been completed and the envisaged CCC
Only once this happens can the developer collect the 10
per cent downpayment, together with the accrued interest.
For the remaining 90 per cent, buyers will have to make
payment either via housing mortgages or from their savings after they have
physically inspected their houses and are satisfied with the quality of
the work. Once the buyers give the nod and okay the release of the
balance, the SPA will be fully performed.
For buyers/speculators who renege on their commitments
and refuse to complete their transactions, the developer can seek remedy
through the penalties as spelt out in the revamped SPA.
Advantages of the 10:90
We see the 10:90 concept as being a viable compromise
between the present system and the much talked about BTS as it possesses
The first is that buyers' downsides will be limited in
the event of the project abandonment.
Nobody can guarantee that there will be no more
half-completed schemes in the future, but the 10:90 will ensure that
buyers won't be dragged deep into any more financial and legal quagmire as
they would only paid out the 10 per cent downpayment.
Furthermore, without the buyers, an abandoned project
can be more easily revived as only the bank providing the bridging loan
and the developer need be involved. Without the participation of the
buyers, discussion can be on a corporate basis without the emotional
baggage carried by the buyers.
A bank providing the bridging loan to a developer would
also not be put in the precarious situation of seeing its collateral
diminish in strength. Such a scenario currently arises because should
buyers take out end-financing from a bank that is not providing the
bridging loan, the late has to issue a whole or partial "disclaimer
undertaking" of the assets it holds as necessary.
With the 10:90, the bridging financier would retain full
control of all collateral until the project is completed and full payment
made by the buyers. Only then will the formal transfer of ownership be
presented for adjudication and the end-financing banks assume the
The long list of other problems now faced by buyers is
also likely to be shortened with the 10:90.
For instance, sensible developers will attempt to build
quality houses instead of questionable units because at the end of the
day, when the time comes for the buyers to make full payment, developers
would not want to risk getting into disputes due to shoddy or unacceptable
Disagreements over penalties for delays in handover of
vacant possession would also be a thing of the past, because any
postponement would only be to the detriment of the developers. As such,
the 10:90 would give them the incentive to complete their ventures in good
time instead of the giving all kinds of excuses and challenging buyers to
take them to court for late delivery penalty claims.
All said, we strongly believe that with the advent of
self-certification by way of the CCC system, the time has come for the
industry to depart from the present method of progressive payment. It
would provide some comfort and assurance to buyers who have had to play on
a lopsided field for so many decades.
To implement the CCC while maintaining the current
sell-then-build method would be akin to taking one big step backwards as
it would put buyers in an even hazardous situation.
We at HBA feel that the CCC, working with the 10:90,
will bring about positive results. Certainly, it would achieve Prime
Minister Datuk Seri Abdullah Ahmad Badawi's two aspirations of "enhancing
the public delivery system" as well as breathe life to the
"build-then-sell concept". A win-win proposal if we ever saw one.
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: