Developers concerned about ‘build first sell later’ proposal
22/05/2004 BT By RUPINDER SINGH

PROPERTY developers are concerned that the proposal to make them sell only completed houses will increase house prices and raise borrowing margins.

Prime Minister Datuk Seri Abdullah Ahmad Badawi said yesterday that the Government was considering a proposal for developers to have adequate funds before embarking on housing projects so that they would not have to depend on up-front money from buyers.

Real Estate and Housing Developers’ Association (Rehda) president Datuk Jeffrey Ng Tiong Lip, when contacted, said that not all developers had the required funds to complete a project and such a move may dampen the property industry in the country.

He said the private sector is responsible for creating half of the 615,000 housing units called for under the Eighth Malaysia Plan for 2001-2005.

“The housing sector cannot afford a slowdown as it has a high multiplier effect. (Building) more houses means more job opportunities from contractors to manufacturers,” Ng said.

Although developers understood that the Prime Minister’s proposal was to eliminate errant developers, they cautioned that such a move would increase the construction cost, house prices and risk to financial institutions and borrowings.

“With the current ‘sell first build later’ system, developers bear about 15-25 per cent of the construction cost, but how can they bear 100 per cent of the cost when large sums of money have been spent to acquire landbank and secure bank borrowings before launching a project,” said a developer.

The increase in financing cost would mean a parallel increase in housing price, which will only burden the purchasers, he added.

“Furthermore, banks will be exposed to higher risk which would lead to higher cost of borrowings,” he said, adding that interest rates would also escalate.

Ng said the existing laws under the Housing Development Act, amended in 2002, had sufficient safeguards to protect purchasers’ interest.

Under the Act, developers are subject to a defect liability of up to 18 months or risk losing their licence.

On the flip side, if the ‘build first sell later’ system is in place, the Act will not cover for any defect incurred after purchase.

Nevertheless, all agreed that the ‘build first sell later’ system would require an overhaul in the financial mechanism, such as introducing a government- backed bond to source for funds.

The Property Market Status Report 2003 indicates that the country had 12,273 units of overhang stock worth RM2.14 billion as at the end of last year.

The report also shows that the number of overhang properties had been on the rise since the first quarter of 2003.