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Smokescreens and detractions
11/08/2007 NST

From time to time, we've read of rather bizarre reactions by developers to changes in certain government policies.

One of them is the move to allow the 10:90 variant of the Build-Then-Sell (BTS) system of housing delivery to run alongside the conventional practice of selling, then building (STB) houses.

Soon after it was announced, we at the National House Buyers Association (HBA) began reading about how BTS would drastically increase house prices by as much as 100 per cent!

Umpteen reasons were cited, headed by the argument that developers would have to bear the cost to finance construction as the 10:90 variant would only require buyers to place a 10 per cent down payment upon signing their Sales and Purchase Agreements and nothing thereafter until their units have been completed.

To justify their claim, red herrings were thrown in to muddle the issue. The increased cost of building materials, compliance costs, and the cost of bearing social obligations such as providing infrastructure, lowcost housing and Bumiputera discounts were also cited.

The inevitable increase in house prices as a result of capital appreciation, under whatever mode, was also twisted to make it appear as though the 10:90 variant would be the cause of such price hikes!

Against this backdrop, it was no surprise that the general public, and even some public servants, were thoroughly confused.

Make no mistake though: The explanations are simply smokescreens and frighteners tactics of industry players to stay in their "comfort zone", where they can use house buyers' funds to finance their business ventures.

The 10:90 model would effectively annihilate this comfort zone.

One of the early frights came through a Bernama report carried in a local English daily that quoted the then president of the Real Estate and Housing Developers Association (Rehda), Datuk Jeffrey Ng, as saying the BTS method would cause house prices to escalate by between 30 and 100 per cent.

Ng went on to say that developers who borrowed from banks to finance their projects were likely to charge house buyers for the additional loan interest cost incurred, and that terrace units in places such as Bandar Utama (in Petaling Jaya, Selangor) would cost RM750,000, or twice as much as it would under the STB method.

In an immediate response, Housing and Local Government Minister Datuk Seri Ong Ka Ting rejected this argument and said the government would "monitor prices so that buyers' interests would be protected".

The minister went on to say: "What Ng said was not quite right, and the example he used was an extreme one."

Our view is that it is acceptable for any individual to fight for his or her interest, or for the interest of the organisation he or she represents. But scare tactics, or confusing people to achieve an objective, is another thing altogether.

Let us go back to March 25, 1966, when the then Minister of Housing Tan Sri Khaw Kai Boh was tabling the original Housing Developers' Bill in Parliament.

Industry players then raised strong opposition to the new law through their mouthpiece MPs, arguing that small developers would be wiped out of business; that thousands of construction workers would lose their jobs; that housing would be in shortage; and that prices would shoot up.

Khaw did not flinch against such opposition. Today, 40 years down the road, the housing industry has not collapsed. On the contrary, it has grown by leaps and bounds. The small developers then are now big developers and the big ones of old have even become global.

We cite this as proof that whenever the government attempts to initiate any regulatory measure, parties with vested interests will oppose it, and to the very end, too.

While the housing law has served us well, it nevertheless has some serious weaknesses, and these are felt most when projects are abandoned.

We appreciate the government's attempts to continue to fine-tune the law, and we see the adopting of the 10:90 variant as a way of keeping the number of abandoned projects littering the development landscape in check.

Let us now consider a presentation on the BTS model made by a surveyor at a seminar in May this year, organised by the Institute of Surveyors Malaysia (ISM).

The surveyor, Ong See Lian, a past president of ISM, examined in great detail the various inputs for the construction of terrace housing and condominiums, and worked out that under the 10:90 variant, the selling price of a terrace house can only go up by three to four per cent, while a condo can only cost seven to eight per cent more.

He also concluded that:

  • The 10:90 variant will result in an increase in total housing development cost due to the additional financing cost;

  • Where medium-cost houses are allowed in lieu of the low-cost housing quota (as a government incentive to those undertaking BTS), there will be no financial loss to the developer; and

  • The 10:90 variant will be workable with the support of financial institutions and further support from the authorities with simplified approval processes (such as through a One Stop Centre).

While it is fair to say that prices will rise because of the transfer of financing costs from buyers to developers, what we are unable to accept is the quantum and the range of cost increase being bandied about.

Computations by professionals show that even on the generous side, the increase is much lower than what developers claim.

The rise in cost is brought about by additional finance cost during the construction period. Interest is incurred on the progressive disbursements made by banks, which in a typical case is based on a 24-month construction period. Such disbursements and incurrence of interests are based only on the construction expenses, not on the selling prices of the houses.

Price increases brought about by the higher cost of construction materials, or the burden of unsold units, are totally irrelevant for the purpose of cost comparison between the STB and the 10:90 variant.

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