Build-then-sell debate continues
The Sun 27/4/2006

PETALING JAYA: Small and medium-sized housing developers say implementing the build-then-sell model would jeopardise the housing targets set under the Ninth Malaysia Plan (9MP).

The Real Estate and Housing Developers' Association (Rehda) branches of Melaka, Pahang, Kelantan, Kedah/Perlis, Perak, Negri Sembilan and Terengganu say the build-then-sell proposal would "spell the death knell for smaller developers who play a very critical role in housing delivery in smaller towns and less developed parts".

They added that these players have provided housing in niches where bigger players would not venture into. "We have done so successfully, adding to the breadth and depth of the housing stock throughout the country," they said in a statement. The basis of this success lies in the sell-and ­build system of housing delivery practiced over the last 30 years or so".

The group said it was responding to recent calls for the Government to adopt the build-then-sell model. Under the 9MP, the housing target totals 709,400 units, with the private sector expected to drive housing growth and achieve 72.1% or 511,595 units of the target. The private sector has to date delivered 2.9 million housing units, which developers say reflects the effectiveness of the existing system.

Meanwhile, Rehda national council member Anthony Cho appealed to the Government to consider various factors that affect smaller developers before implementing the build-then-sell proposal.

Cho tells theSun:"For example, the Federal Government should look into the National Land Code of each state before implementing regulations?' He adds that small and medium-sized enterprises in other sectors are given special attention and assistance for their contribution to the economy. But with the residential subsector contributing to 144 other industries and also contributing to economic growth, the small and medium-sized developers do not receive similar incentives.

The smaller developers "request to be given incentives and assistance in order for them to play their role of providing affordable housing in the smaller and rural areas" if the build-then-sell model is implemented, he adds.

Cho notes that developers have to deposit RM200,000 prior to the issuance of the advertising permit and developer's licence. "As [smaller] developers are subject to the same laws as established ones, the implementation of build-then-sell would not be viable for us with the increase of cash outlay. But it would benefit established developers as they can build in smaller numbers. Bigger developers would not be affected as much by the cash deposit [requirement]?

Cho adds that the smaller players are also subject to "onerous regulatory require­ments such as low-cost housing quotas,bumiputera discounts and bumiputera quotas". - By Loo Pik Kwan

KUALA LUMPUR: The debate on the build­then-sell model, also known as the 10:90 variant, took centrestage at the 3rd National Building Control Conference yesterday.

National House Buyers Association (RBA) deputy president Datuk Goh Seng Toh (Pix), in his paper on the 10:90 models, highlighted the weaknesses of the present Housing Development (Control and Licensing) Act and the risks facing housebuyers under the present "buying-off-the-plan" system.

"Under the present Act, the Ministry of housing and Local Government face problems in undertaking the revival and rehabilitation of stalled housing projects. It is also not uncommon to hear of complaints about defective delivery upon the granting of vacant possession.

"Housebuyers are at risk as they would not be able to check the financial strength and capability of the developer. Potential housebuyers can only rely on brochures, advertisements and I showrooms when making their choice and decision. Moreover, even upon the completion of sale, they would not able to occupy the home until the Certificate of Fitness for Occupation [CFO] is issued," explains Goh.

The 10:90 variant is HBA's proposal that would merge the "buying-off-the-plan" conceptand a complete "build-then-sell" method. Under the variant, housebuyers would have to pay 10% of the contract price upon the signing of the Sale & Purchase Agreement, which would in turn be placed in an escrow trust account The remaining amount is only payable within 90 days upon delivery of vacant possession with CFO and individual title to the property.

Goh tells theSun: "There have been numerous assumptions of the effects of the 10:90 proposals that have been hyped up by developers. Among them include an increase in house prices, fewer houses being built and small developers being put out of business. All this is only a tactic that developers are undertaking to prevent the implementation of the 10:90 model.”

HBA, he says, believes its proposal would work because the developeris assured of a committed sale and can concentrate on completing the project on time and with quality.

Financial institutions would progressively release the bridging finance funds to the developer and are in a better position to ensure the developer is paid what they deserve.

There would be no room for siphoning or diversion of payments from housebuyers since there would be no progress payments under this model.

"House prices would naturally increase, as with any other product, over time. However it is the market forces of demand and supply that determine me prices, not the methodology. It is also contended that fewer houses would be built because only big and cash-rich develop­ers are able to survive while the smaller ones may be put out of business. We want to point out that few, if any, developers actually mobilise their own funds to fully sup­port their housing projects. Financing is an integral part of property development and even big corporations incor­porate smaller subsidiaries to undertake different projects.

In fact, the smaller ones would benefit even more under the 10:90 variant as they are more risk averse and would carry out more extensive viability and feasibility stud­ies. They are also more focused and exercise tighter management principles, making them more attractive customers to financiers," explains Goh.

Sustainable homeownership is a key housing goal and HBA urged the Government to give the proposal serious thought The 10:90 variant would force industry players to place even greater emphasis on housebuyers' requirements, thereby putting an end to substandard quality. It would also curb overzealous building and reduce the supply overhang.

The two day conference with the theme "Compliance for Better Building Performance" is organised by The Institution of Surveyors Malaysia and was officiated by Datuk Azizah Mohd Dun, deputy minister of the Housing and Local Government Ministry. The conference is held biannually and alternately with the International Building Control Conference.