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Book first, Regret Later
01/09/2003 Malaysian Business-Housing & Property By National House Buyers Association

House buyers are advised to do their homework first to avoid booking fee headaches.

A woman paid RM2,000 as deposit for an apartment to the developer without her family's knowledge. Her parents objected because when they came to know about it because they were afraid she would be tied down by the added commitment. She wanted to know if she could cancel the booking and get a refund.

A man paid RM200 as a booking fee for an apartment unit. He later visited the site and found that the construction progress was not to his satisfaction. He went back to the developer's office to cancel the booking and request for a refund. At first, he was verbally informed by the company's marketing manager that a refund will be given. After waiting two weeks, he called the company again to be told that deposit would not be refunded. His argument is that since he had not signed the sale and purchase agreement (SPA), he is entitled to a refund.

A woman paid the 10% booking fee and signed the SPA for a house. She later learned that she was only eligible to secure a bank loan of 85% of the purchase price, instead of 90%. Because of that, she wished to cancel the booking. She was asked by the developer to show proof that she was not eligible to obtain a loan.

Another woman booked a unit and paid RM1,000 as the booking fee. She was supposed to come up with the remaining 10% downpayment within two weeks. However, she decided not to buy the property and wished to cancel the booking and get a full refund.

The National House Buyers Association (HBA) receives many enquiries each year from such people about their deposit problems, including some from buyers who have given up hope of seeing their deposits refunded.

In a normal conveyancing practice where the property is completed, there is a chain of events starting with an 'offer to purchase'  together with a payment of an initial deposit. There is no fixed guideline on this, and it is up to the vendor, purchaser and their lawyers. This offer to purchase is legally binding once the offer is accepted and should one of the parties withdraw, there is a penalty involved - usually the forfeiture of the deposit or compensation in lieu thereof.

However, with the purchase of housing from plans or under construction from housing developers, there is no provision under the law for collection of booking fees. Obviously, this is confusing to potential purchasers, as there are many advertisements offering initial booking fees as low as RM1.

Collection of booking fees in whatever name is illegal. Regulation 11(2) of the Housing Development (Control & Licensing) Regulations 1989 (revamped 2002) states that: 'No housing developer shall collect any payments except by whatever name called except as prescribed by the contract of sale.'

The statutory SPA forms - the Schedule of Payments of Purchase Price (Third Schedule of Schedules G and H) - specifies that 10% of the purchase price is to be paid immediately upon signing of the agreement. Our conclusion is that the developers must have obtained prior written consent from the Controller of Housing to be allowed to collect the booking fees.

Some creative developers than devised ways to circumvent this illegal 'booking fees' by getting the buyers to 'offer to purchase' and to accept the fees to book their units. These forms/letters provided by the developers also require the purchaser to pay the rest of the booking fees within two weeks. There is usually no cooling-off period, and purchasers are often bound by the offer letter as the monies are now in the hands of the developer.

To serious buyers, it means you do not have to provide a deposit if you have an SPA and the initial payment of 10% of the purchase price. Even after payment of 10% of the purchase price, in cases where the purchaser is unable to obtain a loan, he is able to back his deposit, albeit with a deduction of 1%. This has been provided for in the recent amendment to the contract of sales according to the Housing Development (Control & Licensing) Regulations. This only applies if the purchaser fails to obtain the loan due to his ineligibility of income and has produced proof of such ineligibility to the developer.

Purchasers in the situations above still have an avenue to seek the refunds by going to the Tribunal for Homebuyer Claims. Our advice to serious buyers is to do your homework well, such as checking the construction site and your credit eligibility, before you make any bookings to prevent any regrets.

 

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