and sell or sell and build?
Concerned about the plight of house buyers in abandoned housing
schemes Prime Minister Datuk Seri Abdullah Ahmad Badawi has
indicated that developers may no longer be allowed to sell houses
before they are built. YONG TIAM KUI, K.T. CHELVI and ANNA MARIA
talk to house buyers, the people in the industry and others. BUILD
and sell? No way, say developers. That should be the way, say the
authorities and consumers.
Why not a middle way? Perhaps, the less stringent Australian
There’s a good deal of debate on whether the housing industry should
adopt the "build-and-sell’’ concept. Prime Minister Datuk Seri
Abdullah Ahmad Badawi has said it was not right that house buyers
have to pay before they can get their houses.
Consumer advocates are, of course, 100 per cent in favour of the
concept because they think it could solve most, if not all, of the
problems that have bedevilled Malaysian house buyers, including late
delivery of houses, substandard workmanship and abandoned housing
Housing developers, however, are adamantly opposed to the concept
because the current "sell-and-build" system favours them in every
Bankers and economists, however, warn that the adoption of the
"build- and-sell’’ concept could be detrimental to the interests of
house buyers as it would almost certainly raise the purchase price
of new houses.
The idea of making it compulsory for developers to build houses
before they sell them has been around since Tun Abdul Razak’s time,
but developers have always argued that the housing industry is not
ready for such a major paradigm shift.
While acknowledging that the "build-and-sell" concept could help
address house buyers’ complaints about late delivery and substandard
construction work, Real Estate and Housing Developers’ Association
president Datuk Jeffrey Ng Tiong Lip claims that it could lead to a
drop in the number of new houses being built every year and force
out small-time developers .
"The country needs between 100,000 and 150,000 new houses per annum.
It is unrealistic to expect developers to build that many houses and
face the risk of not having buyers.
"Adoption of the ‘build-and-sell’ concept will result in a
significant reduction in house building and market players, and this
could have potentially severe social and economic implications,"
Developers also claim that the ‘build and sell’ concept would make
it more difficult for them to secure bank loans to finance housing
projects because it involves greater risk. They also warn that it
could cause the prices of house to go up.
"The ‘build-and-sell’ concept would require major changes in
financing of development projects as financial institutions would be
unlikely to lend when they cannot gauge the viability of projects.
"Even under the present ‘sell-and-build’ system where developers can
demonstrate viability based on sales, banks have been known to be
reluctant to lend when conditions are not risk-proof," says Ng.
Bumiputra Commerce Bank Berhad’s executive vice-president Nik Hassan
Nik Mohd Amin says banks will only loan money to developers who can
show that they have sold 80 per cent of their housing units.
"With the ‘build-and-sell’ concept, we won’t know how many units
would be taken up by buyers. The banks would be taking a higher
risk. With higher risks, come higher interest rates," he adds.
And, that’s not all. Once the "build- and-sell" concept is made
mandatory, developers would no longer be getting progressive
payments from buyers.
This would force them to take bigger bank loans to finance their
projects and consequently pay even more interest to the banks.
Nik Hassan says capital requirements of developers could increase by
as much as 400 per cent.
"Developers would have to get a bigger loan to start a project and
interest costs would have to be passed on to buyers.
"I am not sure they will be receptive to this," says Master Builders
Association Malaysia president Lau Mun Cheong.
Nik Hassan speculates that the purchase price of housing units could
go up by at least 20 per cent!
Some developers also argue that the "build-and-sell" concept isn’t
really necessary because the vast majority of house buyers are more
or less satisfied with their purchases.
They say the current "sell-and-build" system has generally worked
well for the country and helped meet the national objectives of
building homes for Malaysians and generating economic growth.
Developers also stress that the Housing Developers (Control and
Licensing) (Amendment) Act 2002 and the Tribunal for Homebuyers’
Claims already provide a lot of protection for house buyers.
In other words, why fix it if it’s not broken?
However, advocates of the "build- and-sell" concept point to
disturbing facts like shoddy workmanship, delivery of vacant
possession without certificates of fitness for occupation and, most
troubling of all, the large number of abandoned housing schemes
which clearly indicate that there is something rotten in the housing
Housing and Local Government Ministry statistics indicate that, up
to 2002, there were 544 abandoned housing projects involving 125,649
units and 80,070 affected house buyers.
National House Buyers Association secretary-general Chang Kim Loong
says the association is "strongly in support of the ‘build-and-sell’
concept because it is a safer and more secure mode of buying a
But, being reasonable people, Chang says association members are
aware of the fact that the "build-and-sell" concept is probably too
big a paradigm shift for the local housing industry.
So they are suggesting that it adopt the less stringent Australian
variant. He says the Australian "build-and-sell" model requires
buyers to make a down payment of 10 per cent upon signing the sale
and purchase agreement.
But, the developer has no access to this money as it is held in a
trust account by his lawyer.
When the house has been built and the certificate of fitness is
issued, the buyer is given three months to secure a loan to pay for
the remaining 90 per cent of the purchase price.
The buyer has the right to terminate the sales and purchase
agreement and ask for a refund, including any interest that may have
accrued, if the developer does not complete the project in time or
if the house does not meet industry standards.
"We see this concept as a fair, equitable and practical variant of
the absolute ‘build-and-sell’ concept," says Chang.
"The vendors are assured of the number of buyers who have paid the
10 per cent deposit and they can then concentrate on building good
homes and delivering them in good time.
"The buyers are not exposed to the risk of getting a house with
substandard workmanship or, in a worse-case scenario, facing an
abandoned housing project after having paid the bulk of the cost.
"We are not insisting on the 10 per cent figure. We are also open to
a 20 or 30 per cent down payment."
Federation of Malaysian Consumers’ Association president Professor
Datuk Hamdan Adnan acknowledges that it won’t be easy for the
country to adopt the "build-and-sell" concept all at once.
But, he stresses that we have to at least start moving in that
"It’s something that Fomca has been campaigning for years. If we
cannot have houses that are 100 per cent ready, we can try 50 per
cent," says Hamdan.
At least that’s a start. Now, they are selling houses on hot air and
"I hope the Government won’t back down this time. This concept has
been around for a long time. Tun Abdul Razak also wanted to
implement the concept, but he stopped talking about it when people
said small-time Bumiputra developers would be affected."
Chang says it is disingenuous of developers to claim that it would
be difficult for them to secure bank loans and that small-time
developers who are cash poor would be pushed out of the industry if
the "build-and-sell" concept is adopted.
"It is a fallacious argument. The question is the viability of the
project. If the project is viable, the banks will finance it.
"The question of whether you have money or not is irrelevant. Even
cash-rich developers resort to financing. They don’t use their own
Chang says the association expects developers to fight tooth and
nail to maintain the "sell-and-build" status quo because it is
greatly in their favour.
And, like Hamdan, he says the association is hoping that the
Government has the political will to make the housing industry adopt
the "build-and-sell" concept because house buyers have been getting
a raw deal for far too long.
"Developers are businessmen. As businessmen they have to be prepared
to face the risk that their projects could go belly-up. Why should
house buyers have to share that risk?" he adds.
Chang says the argument that the country cannot afford to adopt the
"build-and- sell" concept because it needs to build 150,000 new
houses every year is even more laughable.
"It shows that developers don’t have to worry about building houses
that can’t be sold. If we are reluctant to adopt the
‘build-and-sell’ concept in such a lucrative market, we will never
be able to adopt it."
MIDF Bhd senior economist Azrul Azwar says there will be far fewer
abandoned housing schemes once the "build-and-sell" concept is
implemented. This is because developers would be forced to be extra
careful to ensure that development projects are economically viable
before they proceed with them.
"Since a huge portion of their capital is currently financed by
house buyers, not many developers actually take the trouble to
conduct a thorough feasibility study on new projects.
"However, I think they will be more careful if they have to use
their own money first," says Azrul.
Stockbroking house MIDF Securities analyst Asnul Badrisyah Morni
says the developers are probably right when they say that the
"build-and-sell" concept could affect the growth rate of the housing
industry as it would discourage developers from developing housing
projects in non-prime areas and reduce the number of players in the
But, he adds that such a situation could prove to be advantageous in
the long run, as it would weed out bad developers and presumably
result in better quality houses for buyers in the future.
Associate Professor Dr Goh Ban Lee, meanwhile, says the "build-and-
sell" concept should not be imposed on the housing industry, even
though it was a good concept, because nobody knows how that will
affect the industry.
"Don’t punish the whole industry just because a few developers are
causing problems to house buyers. The ‘build-and-sell’ concept is an
ideal and it should be encouraged.
"But it should not be legislated. In will be even worse if you can’t
Goh, a social science lecturer at Universiti Sains Malaysia, says a
lot of the problems that we are seeing in the housing industry can
be minimised, if not eradicated completely, if existing laws and
regulations are seriously enforced.
"The housing industry is one of the most heavily regulated
industries in the country. The main problem is we don’t enforce
those regulations," he adds. "The Housing and Local Government
Ministry must enforce existing regulations. That would solve a lot
of the problems."
Chang, however, says that kind of enforcement would only be possible
if the Housing and Local Government Ministry employed thousands of
enforcement officers and that would be extremely costly.
"Why should the Government spend so much money on enforcement when
the ‘build-and-sell’ concept will solve the problems?" asks Chang.