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Having a Say in the Way We Pay
01/09/2004  Malaysian Business - Housing & Property By National House Buyers Association of Malaysia

For the past two decades, the subject of ‘build then sell’, or rather a better system of purchasing homes from housing developers, has been debated and studied, but it has still remained a voluntary concept. Surely the time is ripe for the Government to seriously address the hazards, risks and uncertainties experienced by home purchases in Malaysia.

While it may be difficult for all developers to move straight into the ‘build-then-sell’ system, the National House Buyers Association is proposing a variant to the ‘buying-off-the-plan’ concept. With this variant (or the 10:90 concept), house buyers place a 10% down payment with the developer upon the signing of the sales and purchase agreement. This money serves as a confirmation of sales to enable the developer to obtain the necessary financing. It, however, must be placed in an escrow account and cannot be touched by the developer. The buyer only has to pay the remaining 90% of the purchase price to the developer upon completion of the property.

Many in the housing industry have publicly said that the ‘build-then-sell’ concept or the recommended variant is a ‘good ‘proposal but also raised the assumptions that it will not work due to certain obstacles. Here we also briefly explore some issues or concern developers have raised.

House prices will increase

House prices will naturally increase with time, just like every other product. Invariably, house prices too, are set by the forces of supply and demand. Demand and supply determine prices, not methods. This is an elementary law of economics. House prices will find its own realistic levels driven by the forces of supply and demand.

Completed houses are more attractive to buyers and banks because of their intrinsic values, compared with houses that are yet to be built. Buyers are ready to pay more for completed houses. However these price-increase factors will be offset by the developers’ keenness to secure sales so that they can proceed with their projects.

This situation is more of win-win situation, thanks to more ready buyers vis-à-vis willing financiers. Within an expanding market, developers will not be deterred from building houses. The 10:90 concept will also make prices more competitive in strategic locations.

Less houses will be built

Another argument is that smaller developers may be driven out of business, thereby jeopardizing the construction of the 150,000 houses required annually under the Eighth Malaysia Plan. However, few, if any, developers actually mobilize their own funds to fully support their housing projects. Financing has always been an integral part pf property development. This has to do with risk-spreading, taxation and funds leverage. Financiers lend based on the viability of projects rather than the size of the developer.

In any case, even the big corporations invariably incorporate smaller subsidiary companies to undertake different projects, rather than putting all projects under the parent company. Hence it is at best a conjecture that only big and cash-rich developers can continue business or that the will build less. Currently, the increase in the number of houses is negated by the number of abandoned housing units.

Small developers will be out of business

We contend that small companies will benefit more than the proposed’ buying-off-the-plan’ variant. Small developers are more risk averse and, hence, will carry out more extensive viability and feasibility studies. They are also more focused and exercise tighter management principles. All these virtues make them more attractive customers to financiers, and they should have no difficulty in seeking funding for their projects.

Policies facilitating the merger of developers, especially smaller ones, may be necessary, not unlike that which was put in place for financial institutions not so long ago. Despite objections to the mergers, the banking industry is now stronger and in a better position to complete and offer its services to the market.

Financiers will not be keen to lend because of higher risks

One of the reasons financiers shy away from bridging financing could be that the developers are not systematically organized. Often, the company seeking financing is part of a bigger group and the credentials presented for assessment do not carry the total financial picture of the group and that of their subsidiaries. There is difficulty in assessing the track record of developers since they keep having new identities. It is not unusual for a parent company to hold each of it housing projects under a different subsidiary.

With the 10:90 concept, developers will obviously exercise more stringent viability studies before embarking on any projects. This tenet is favourable for the industry and is also in line with the Ministry of Housing and Local Government’s repeated calls for developers to carry out detailed feasibility studies before embarking on projects.

Hence, banks will find it less risky to finance projects that have undergone the stringent viability audit. As far as end-financing is concerned, it is even more attractive for banks to finance completed house with the risk of abandonment totally removed. They may even pass such advantages to house buyers such as higher percentage of end-financing or even full financing.


The quality of house under our proposed 10:90 concept will certainly improve as developers will not build substandard houses and risk disputes with buyers upon handover and full payment. There will be more competition for developers on the finished products, which means better quality. Construction standards will improve and the quality of Malaysia properties would rise almost immediately.
Industry self-regulation

The requirement for governmental enforcement of the Housing Development Act will be greatly reduced as developers are not paid before they deliver their products in full.

Downstream activities will suffer

We see professional’s services in the construction industry being employed more by banks and financial institutions because they would need these services for verifying the quality of construction works at various stages. Contractors and their sub-cons will be more serious with their standards of construction and not hand in shoddy workmanship. Moving towards the betterment of the entire housing industry, the burden is on the developer to employ good consultants and contractors and to pay them promptly in order for work to be done efficiently.


Like any product, every market has two sides. In this case, the two sides are buyers and sellers, the demand and supply. Before construction or while under construction, any proposed development is just that – ‘proposed’. Our theory is that until construction is completed, there is no product to sell. So rightfully. The buyers should only pay fully when construction is completed. It is time that buyers have a say in how they want to pay for their homes. Developers must be honest enough to admit their shortcomings and brave enough to accept changes.


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