Making BTS Work
22/07/2006
NST-PROP
By Salleh Buang
THE commentary I made early this month on the Government's decision to
introduce the 10:90 variant of the Build-Then-Sell (BTS) mode of housing
delivery (NST-Property July 1, 2006) has received quite a bit of feedback.
Because of this, I feel obliged to recap statements made by various bodies,
especially the body that speaks for housing developers, the Real Estate and
Housing Developers' Association or Rehda.
I must first start with the public statement made by its former president, Datuk Jeffrey Ng, that called for a "win-win approach" to the BTS model,
when the matter was the subject of persistent public debate.
The BTS system should not be made mandatory, he argued, as it can co-exist
with the Sell-Then-Build (STB) system, which "is proven and has successfully
delivered more than three million completed houses".
House buyers, Ng continued, "must be given the right to choose to buy
completed homes in the primary or secondary market, or houses under
construction, based on their need and affordability".
He then went on to argue that:
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Ultimately, market forces of demand and supply will determine everything;
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If buyers indeed feel more comfortable about buying completed houses,
developers will move in that direction;
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The construction industry will shrink in terms of business activities and
employment if the 10:90 BTS variant proposed by the National House Buyers
Association (HBA) is adopted;
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BTS would cause demand for building materials, professional services and
related downstream businesses to decline;
-
Construction jobs too will be at stake, with manufacturers of cement,
steel and other building materials operating on lower capacities and
architects, lawyers, engineers and surveyors needing to retrench in order to
survive.
Indeed, Rehda painted a very gloomy picture. It predicted that house prices
will escalate "between 30 and 50 per cent" while annual housing production
will reduce by at least 60 per cent.
The association went on to claim that "many industry players and trade
associations do not support" the BTS system, and included most of the
country's professional and industry-related bodies and institutions in this
claim.
Is this statement truly grounded on fact, or is it pure speculation?
Consider also that Rehda insisted:
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Financial institutions are not likely to support smaller property
developers with weak financial standing;
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Neither will financial institutions support developments in smaller towns
or in poorer locations, since "credit risk exposure is definitely
substantially higher" for such borrowers;
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The existing housing development law "is already very strict and punitive
against errant developers; and that
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The law "is now in the process of incorporating more amendments" to give
even greater protection to house buyers.
As for the HBA's push for the 10:90 BTS variant, Rehda brushed it off as "a
copy of the Australian system," and dismissed the proposal as being "too
simplistic".
Rehda went on to argue that developers in Australia are not forced to
subsidise low-cost housing, make capital contributions to utility companies,
build infrastructure works or "comply with Bumiputera quotas and discounts"
However, it pointed out that Malaysian developers are very much involved in
the socio-economic engineering of housing the population via the subsidy
concept.
The Australian system, therefore, has a completely different level of
operating costs, it said.
Rehda did accept, though, that house buyers "should not be made to suffer
hardship caused by errant developers". Even so, it said "tough laws to
protect house buyers are in place" and what is needed is effective
enforcement against non-compliant developers.
Rehda added that house buyers with no faith in the law can always opt to buy
completed homes with Certificates of Fitness for Occupation or CFs already
obtained by developers, or units from the secondary market.
Rehda also expressed, in no uncertain terms, that changing the present
system to weed out errant developers would hurt all players in the industry
and would be tantamount to "using a sledge hammer to kill an ant!"
All this was in October last year. Fast forward four months later to Feb 18
this year, Rehda again spoke out against BTS at a press conference at its
headquarters in Petaling Jaya, Selangor. The model, it said, cannot be the
"mandatory mode" of housing delivery.
Buyers, it argued, "must be allowed freedom of choice". After all, the
existing system had "successfully helped in the production and completion of
about 900,000 housing units under the Eighth Malaysia Plan, of which about
675,000 (or 75 per cent) had been completed by private sector developers".
It went on to say that "Malaysia's growing population needs affordable
housing" and the BTS system "will hamper the country's homeownership
agenda".
Under the Eighth Malaysia Plan, it argued, about 675,000 units were
completed by the private sector.
For BTS to work, Rehda said, "some structural changes are needed". The
existing laws "need to be changed to prevent reneging by buyers and also to
prevent speculative activities".
Support for the new BTS system came from an unexpected quarter, the
Malaysian Bar Council. Its president, Yeoh Yang Poh, was quoted earlier this
year as saying, "The 10:90 model is the way forward" as the "STB model does
not adequately protect consumers. So a new system must be put forward in
order to improve the industry".
Yeoh's argument, as is widely accepted, is that purchasers could lose what
they have paid and be left without effective recourse when projects are
abandoned under the present STB system. Those who have procured housing
loans would still have to pay up, despite not having the product they paid
for.
In contrast, under the proposed 10:90 BTS variant, buyers need only pay 10
per cent of the purchase price into a trust account when signing a Sale and
Purchase Agreement, with the balance 90 per cent to be paid only when the
house has been completed.
As to why the Bar Council was coming out in support of the BTS proposal,
Yeoh said, "The law is supposed to take care of problems faced by society,
especially when it concerns something as basic as owning a roof over one's
head."
I salute the Bar Council's stand on this issue. And, as was expected, the
HBA was only too happy to receive the Bar Council's endorsement of its
proposal.
Describing it as the first step in a long process to garner support for BTS
among industry players, HBA secretary-general Chang Kim Loong went on to
say, "Getting its support is a momentous achievement for us, as the Bar
Council will lend tremendous weight to our cause."
There is more to be done, the HBA said, and it has called for the support of
other professional bodies and institutions involved in the housing industry.
The next time you hear of a roadshow on the BTS system organised by the HBA,
or for that matter, by any other organisation, I hope you turn up and give
your support. I hope the HBA will consider having one where I reside in Alor
Star soon.
In the meantime, I shall ponder more deeply on the new changes that are
required in the law, in order to make what the Government has promised for
the 10:90 variant of housing delivery, to work.
* Salleh Buang is senior advisor of a company specialising in competitive
intelligence. He is also active in training and public speaking and can be
reached at sallehbuang@hotmail.com
