A step closer to build then sell
17/12/2002 www. theedge.daily My Space:By Kumar Tharmalingam

Many years ago, Datuk Seri Dr Mahathir Mohamad said that a measure of his success as a leader in a multi-racial country was that none of the three major communities was satisfied with his performance. And that if one community was completely satisfied, he was not doing a good job as prime minister.
The Housing Development (Control & Licensing) (Amendment) Act 2002, effective Dec 1, 2002, was hailed by consumer groups and house buyers associations as a step in the right direction. Housing developers on the other hand, have expressed alarm and concern over certain provisions they fear could open a Pandora’s box of nasty, petty litigants.

The amendments confer on the Minister of Housing and Local Government a great deal of power in controlling the operations of housing developers and in some areas, in great detail. Here, however, it must be put on record that there are black sheep among developers.

To recap, some of the major provisions impacting housing developers are:

• The setting up of a tribunal to hear house buyers’ grouses;

• The inclusion in the Act of all cooperative societies and government agencies offering housing for sale and their need to obtain licences;

• A higher minimum deposit for a housing developer’s licence with no exemptions;

• Stiffer penalties for errant housing developers;

• No transfer or re-assignment of the housing developer’s licence. Those taking over a project have to apply for a new licence; and

• A bigger role for the Controller of Housing (usually the secretary-general of the Ministry of Housing and Local Government — he is now able to appoint an unspecified number of deputy controllers and inspectors. The inspectors are empowered to enter, search and seize any document relating to any offences spelt out under the Act. The Controller can also assign duties and powers to local councils, where necessary.

For consumers, the most “exciting” component of the amendments must be the setting up of the tribunal which deals with claims RM25, 000 and below.

The tribunal is limited to any cause of action arising out of a sales and purchase agreement (S&P) between the developer and a home buyer and such action should not be later than 12 months. The major concession to developers is that claims to the tribunal will probably only surface three years after Dec 1, 2002 (two years for completion of a landed property plus a year of defect liability period), as the act is not retroactive.

Clause 16 AC states that awards by the tribunal are final and binding on all parties and there are criminal penalties for failure of compliance. Clause 22 C allows the home buyer to initiate proceedings in a court of law irrespective of whether the property concerned has been assigned to a financial institution. This effectively deviates from the norm where previously the financial institution had to be a party to any suit against a developer.

While the amendments appear to be user-friendly as far as the consumer is concerned, the question is whether there is any room for abuse. Consider the following scenarios:

1. Purchaser allowed to abort S&P if unable to secure a housing loan. The fundamental law of contract between two parties determines the responsibility between the willing buyer and willing seller. While a buyer aborting the sale was previously liable to a payment of 10 per cent of the purchase price, it is now down to 1.0 per cent, if it is a case of not being able to secure a loan.
I worry that this could lead to abuse. For example:

A person who has managed to secure a “hot” buy after queuing up for many days and nights may flog it off to a third party at a premium. He will be more than happy to absorb the 1.0 per cent liability to the developer for getting out of the S&P. As for the developers, I do not envisage them kicking up a fuss over the change in the buyer identity, provided all the administrative expenses are borne by the buyer. Generally no developer will want the hassle of putting the unit back on the market.
A developer needs to achieve 65 per cent sales in a launch before he can draw down on his bridging finance. Say if he has only managed to secure 55 per cent success, there is nothing to stop him from seeking the help of friends and relatives to make up the short fall by funding the required 10 per cent deposits. The loan is drawn down — and then the friendly parties withdraw from the picture as planned, citing inability to obtain loans. In such a case, the developer has in fact complied with the spirit of his agreement with the financial institution providing the bridging finance. He can then start work on the project and hope that the products would be sold soon. Without the bridging finance, it could mean that the developer will have to apply to the Minister of Housing and Local Government to cancel the project and refund all deposits collected. No developer would want this — as he would have spent a considerable sum on the project already and such an incident will put a negative stigma on the project.

2. Clause 35. My reading of the new Clause 35 is that it exempts cooperatives and government agencies that develop homes for sale from the ambit of the tribunal. For accountability’s sake, it would be prudent to subject all housing developers to the tribunal.

3. Definition of a home buyer. A home buyer eligible to file for claims includes purchasers in the secondary market as long as the defect liability period of the property is still valid. In effect, the multiple sale of a property to different owners does not absolve the developer
responsibility under the original S&P.

Apart from the Act, word on the grapevine has it that utility companies want to bill housing developers a certain percentage of the selling price of homes, as opposed to the actual cost of the utility involved. If true and allowed by the government, such a move will impact housing prices.
By and large, it appears that the new legislation leans towards the build-then-sell concept which will inevitably, over time, “squeeze” out the smaller players. If indeed such is the long-term intention of the government, then this legislation could very well be a step in the right direction.
The next two or three years could very well determine the future of the housing industry in Malaysia.

Kumar Tharmalingam is president of FIABCI (the international real estate federation) Malaysia. In 1989, he established one of the first listed property trusts in Malaysia, and has tracked the industry ever since.