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Abandoned hopes?

14/04/2006 The Sun

THE article "Protecting house buyers" (Property plusFriday, April 7,2006) by Jennifer Gomez on her interview with Dr G Parameswaran (the director of the Monitoring and Enforcement division in the Ministry of Housing and Local Government) prompted me to write this letter to you.

The number of abandoned housing schemes and destitute borrowers is testimony to broken dreams, broken promises and surely broken policies. The reason for these failures is not only greedy developers. The government policies are the real cause. Let me tell you how:

When a developer purchases land (normally agricultural land of fairly large acreage), he has to get it converted. Such conversion premiums are normally 25% of the market value. After the payment for land and premium (on the total area), the developer normally launches phase 1 on a fraction of the land. During this phase, the developer has to do the infrastructure such as drains, sewerage treatment plants, utilities and so on. Normally, this infrastructure is done for a much, bigger capacity than just for phase 1 as equipment is not available for small numbers.

While the house buyer thinks he is paying for 100/0 of the purchase price for the empty land, he doesn't know about the total cost of land paid, premium paid on the (total) area and costs of the numerous approvals for the various infrastructure the developer has incurred (the debt mountain).

Very few developers recover costs in phase 1. They make their money when this phase succeeds and they can then launch and sell phase.

2. If the first phase does not sell, the debt mountain kills the developer's project

Why do big developers succeed? They normally have big land bank in good areas and deep pockets to conquer the debt mountain.

The reason there are so few abandoned projects in developed countries and Singapore is because developers in such countries only need to buy small parcels of converted land with infrastructure already put in place by local councils. Generally, developers there bid openly for such development lots which the councils put up for bidding. They can bid for just one or more lots as the saleable lots are planned and subdivided by local authorities. (This is also why a condominium project doesn’t suddenly appear in a housing neighborhood!)

What does it take for the Ninth Malaysia Plan to give Malaysians more certainty of a roof over their heads when they make a purchase? Change the whole housing development scenario by making local councils take the lead as follows:

1. Get local authorities to convert and subdivide land first it only takes pen strokes to do this but it enhances the land value by many times.

2. Allow open bidding for such subdivided lots. Local councils can rake in huge sums from such converted pieces of land.

3. Unless the developer buys large tracts to do the infrastructure itself, get every bidder to contribute to that. That way we will not get housing schemes with out basic amenities as the local authorities can put these in place.

Ever wonder why we haven't learnt from others and have this unique "sell then build" concept? It makes for huge profits for the developer whose phase 1 does succeed. And without open tenders for land many "deals” are possible!

MS
Kuala Lumpur

 

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