Buying Homes: Check the fine
11/03/2009 NST CHANG KIM LOONG, Hon. secretary-general, National House
Choices will be in abundance, discounts galore and gifts of cash and
attractive financing deals this is the order of the day. All these are well
and good for everybody -- house buyers, developers, banks and the 140 or so
downstream industries that thrive on the construction industry.
However, the National House Buyers' Association feels duty-bound to bring to
the attention of potential first-time house buyers one of the factors that
may give rise to misunderstandings with the possibility of serious
Of late, some innovative developers have come up with the "5-95" mode for
buying and paying for their products. Apparently, this scheme has achieved
However, Housing and Local Government Minister Datuk Seri Ong Ka Chuan, at
the launch of one such project, was reported to have stated that the 5-95
system was "one up from the 10:90". To the less informed, it would appear as
though the 5-95 is a better mode of buying houses than the 10:90 concept.
HBA has been lobbying for the build-then-sell (BTS) 10:90 concept because it
insulates buyers from the hazards of project abandonment. The government,
realising its benefits, is encouraging its use by developers. Incentives are
also given to developers who opt for the 10:90 concept.
This requires buyers to pay 10 per cent upon signing the sale and purchase
agreement (SPA). The balance 90 per cent is payable only when the houses are
completed with all the certifications, title deeds, utilities available and
keys with vacant possession. The BTS 10-90 concept has been provided for in
the Housing Development (Control & Licensing) Regulations 1989 (revised
2007) implemented on April 12, 2007.
On the other hand, the so-called 5-95 financial loan package offered by
certain developers means that buyers pay five per cent upon signing the SPA.
The remaining 95 per cent is arranged by a participating bank (subject to
terms and conditions) and when approved is progressively disbursed by the
banks from the buyers' end-financing loans directly to the developers.
This is exactly the same as the present sell-then-build system that is
getting a lot of buyers into trouble when projects are abandoned. However,
the interests payable on these payments are absorbed by the developers
during the construction period. (They are factored into the cost of the
houses anyway.) Hence, as soon as a buyer signs the SPA, he should
immediately secure a housing loan.
These are the key differences between the 5-95 offered by some developers
vis-à-vis the 10:90 that the government is encouraging. You cannot compare
the two since the loan package 5-95 and BTS 10:90 concept are two different
kettles of fish.
The key features of the 5-95 (as promoted by some developers) are:
- Instead of a 10 per cent down payment, buyers pay only five per cent.
- The progressive interest that is payable by buyers to the banks during the
construction phase are absorbed by the developers. (It is already factored
into the price of the house.)
- These are loan packages and the legal obligation to repay the loans rests
solely with the borrower and buyer.
- Should the developers fail in their obligations, whether in the SPA or the
"servicing of interest during the construction period", the borrowers
andbuyers bear the brunt of the defaulters.
The 5-95 cannot be equated with the 10:90. The key difference between the
5-95 and the 10:90 are:
- In the 5-95 system, if the project fails and the houses are abandoned, the
buyers are in serious trouble, being encumbered with a partially disbursed
housing loan while not having a house to take possession of. There are those
unfortunate ones who have waited over 20 years and there is still no remedy
- In the 10:90 system, if the developers fail to complete and deliver the
houses, buyers can claim back the 10 per cent down-payments made. In the
worst-case scenario, they only loses the 10 per cent down- payment.
This is because the housing loans do not kick in or are not progressively
disbursed to the developers until and unless the houses are ready for
Potential first-time house buyers should understand the meaning and the
implications of each method of payment. The 5-95 is not the same, much less
an improvement over the 10:90. Buyers are not insulated from the risks and
hazards of project abandonment as they are with the 10:90 module.