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Minimising house buyers’ risk
01/10/2003 Malaysian Business-Housing & Property By National House Buyers Association of Malaysia

'Build then sell" delivery of houses protects buyers from failed developments

With the recent High Court’s decision that the Tribunal for Homebuyer Claims (Tribunal) has no jurisdiction to hear claims where the sale and purchase agreements were signed prior to its appointment (1 December 2002), the following are the immediate outcome:

  • Scores of aggrieved house buyers who had sought redress through the Tribunal and who have won their cases against their housing developers will now have the awards nullified.
  • Hundreds of aggrieved house buyers who have submitted their grouses and who are awaiting the Tribunal to adjudicate their cases will now have their cases thrown out.
  • Thousands perhaps tens of thousands of aggrieved house buyers who are having problems with their developers and who are contemplating seeking the Tribunal to redress their grievances, can now forget the idea unless the Attorney General’s appeal against the High Court decision is successful. The sad point is that most of these complainants are already financially exhausted spending the bulk of their life long savings in the purchasing of the houses. Hence civil litigation in the civil courts is out of question due to financial reasons.

Such is the ramifications of the recent High Court’s decision that leaves a majority of house buyers fuming. The Tribunal for Homebuyer Claims was one of the protections implemented after years of discussion to improve protection for house buyers. In this modern society, house buyers need to know their rights and have access to a resolution process that is independent, fair, accountable, affordable, effective and efficient.

A review of the present system of delivery of buying bought directly from developers raised a major concern in relation to the protections afforded. The progressive payment system places great risks and put house buyers in a grossly disadvantaged situation. Cases where developments fail and the developers cannot be brought to account because of disappearance or insolvency is not uncommon.

The National House Buyers Association has all along been suggesting the “build then sell” system of house delivery. In fact this mode of transaction can be called by any other nomenclature. There are also numerous practical variants to this system. The bottom line is that developers should not be allowed to collect full payments before they deliver completed houses. If we are not ready to adopt this system in an expanding market, then we will never be ready to adopt it at all.

One of the reasons cited is that the price of houses would escalate due to the developers having to shoulder the finance costs. One needs to look deeper into the situation to see a clearer perspective of the situation. The parties who are actually financing the industry are the financial institutions. Presently house buyers are shouldering the bulk of the finance costs, making progressive payments even though there is no house in sight.

One is wrong to think that this present system of delivery makes houses more affordable. Look at the prices of houses in the country today. It does not commensurate with our per capita income. The present situation allows developers to do business with minimal capital and more importantly lesser risks. In such a situation they become reckless and irresponsible.

Financial Institutions on the other hand enjoy a situation whereby their exposures are well spread out amongst the large numbers of house buyers (to whom they give end-financing) instead of a few directors of the developer companies.

While the appeal by the Attorney General is awaiting disposal in the Court of Appeal, the country should seriously look at the mode of delivery of houses. Winning the appeal is only a piecemeal solution to the more serious overall problem. Amending the Housing Act further is also not likely to remove the bulk of the problems afflicting the industry. Even if the Ministry of Housing & Local Government is able to enforce the Act and bring the offending culprits to court, the volume of cases involved will surely overwhelm the already overloaded civil courts.

Clearly a practical variant of the “build then sell” concept should be urgently and seriously looked into. The overriding principle should be that developers should not be allowed to collect payments and to reap profits before they deliver their products. We believe that the future of the housing industry and indeed the well-being of the Malaysian house buying public lie in the crucial and badly needed reform to the present mode of delivery.


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