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Grappling
with abandoned projects
18/07/2009 The Star
THERE is a great deal of excitement that comes with booking one’s first
home – you finally own a property which you can call your own (well,
technically it belongs to the bank until the loan is repaid, but you are
close), the stark relief when you have secured the financing for it and
later, the mounting anticipation as you wait to occupy the property.
But alas, the project is stalled and you’re left saddled with financing a
house which has indefinitely been abandoned. Sounds familiar? You’re not
alone – there are some 31,337 housebuyers who currently face such
predicament.
For over two decades, the property sector has been grappling with the
scourge of abandoned housing projects, which has understandably caused
hardship to many buyers. It remains a major thorn till today.
Based on data from the Housing and Local Government Ministry, as at May
30, some 148 housing projects have been abandoned, involving a total of
48,664 housing units (of these, 31,337 units have been sold).
On its own, these numbers may not seem astonishingly high but when viewed
from the perspective that there are tens of thousands of people who are
aggrieved by such failed projects, it becomes a major problem that needs
to be resolved urgently.
The biggest headache for housebuyers when a project is stalled is monetary
losses – the victims have to settle monthly loan repayments and deal with
much anguish as, more often than not, there’s little chance of reviving
these projects and getting the houses completed.
Over and above that, many have to continue forking out rental for their
current abode.
Needless to say, from an industry perspective, the economic cost is
staggering; abandoned projects also affect many other related industries
(over 140) including suppliers of construction materials, transportation
companies, contractors and consultants.
In an interview with StarBizWeek, Housing and Local Government Minister
Datuk Seri Kong Cho Ha says although only 1.8% of all projects licensed by
the ministry are abandoned, project abandonment is serious as the
casualties are consumers and their hard-earned money as well as many other
related industries.
“We are looking at further tightening the laws and punishing errant
developers that do not try their best to complete their housing projects.
We do not want errant developers to spoil the reputation of the whole
industry,” says Kong.
Tackling the issue
Since 1998, the ministry has been collecting data on the matter and it has
also taken several measures to tackle the problem of abandoned housing
projects.
There are several stages, as defined by the ministry, before a project is
declared abandoned. If it has passed its promised delivery date by 10%,
it’s considered late; if the delay stretches beyond 10%-30%, then it’s
considered “sick”; and finally, if no work has been carried out or no
workers are on the project site for up to six months, then it is deemed
abandoned.
Noting that there are multiple reasons why a project is stalled, Kong
points out that ultimately the responsibility lies with the developers to
ensure their projects are completed on time.
“If they encounter problems, they have to take the necessary actions to
overcome them and seek help if necessary. At the end of the day, the
interests of all the stakeholders – developers, buyers and bankers – have
to be protected,” he adds.
Kong says the Housing Development (Control and Licensing) Act, 1966 (Act
118) is meant to ensure the orderly development of the housing industry
and to protect house buyers.
“The legislations are in place to ensure the success of housing schemes
and to minimise abuse and quarrels between developers and buyers. Section
7 (F) of the Act stipulates that developers have to submit half-yearly
reports to the ministry on the progress of their projects.
“If this requirement is duly adhered to, any work delay will raise a red
flag and will be watched early on to prevent the problem from escalating
into a full blown abandoned project,” Kong says. Invariably, he says, when
projects are abandoned, fingers are pointed at the ministry that it should
take over with the aim of reviving the projects.
But Kong says: “The ministry is not in the position to take over abandoned
projects as it will cost a substantial amount of taxpayers’ money. Also,
they must understand there are many unsolved problems associated with
abandoned projects such as claims from buyers, bank borrowings and other
liabilities, which are best left to the professionals to resolve.”
Instead, he points out that the ministry takes on the role of a mediator
who looks for white knights to help revive abandoned projects.
Crunching numbers
Of the 148 abandoned projects, eight projects involving 4,591 units (4,306
units sold) are at various stages of being revived by Syarikat Perumahan
Negara Sdn Bhd under the Government’s recent economic stimulus packages,
14 projects with 7,750 units (5,139 units sold) are in the process of
being revived by white knights, and six projects with 1,361 units (1,262
sold) are being revived by the original developers.
But not all abandoned projects can be resuscitated. Some 12 projects
involving a total of 1,601 units (554 sold) have failed to take off and
the ministry is in the process of mediating a settlement between the
developers and buyers.
Consumer groups and industry players are calling for the protracted
problem of abandoned projects to be nipped in the bud through stricter
enforcement of the laws and for punitive measures to be meted out on
errant developers.
They say abandoned projects will continue to plague housebuyers unless
more stringent punishments, including jail terms, are meted out to
offenders.
By punishing the “few bad apples” who have failed to fulfil their
obligations spelt out in the sale and purchase agreement with housebuyers,
industry players that have duly performed their duties in building and
delivering their projects on time to buyers will hopefully be spared the
bad image.
The call for stiffer penalties has the support of the Real Estate and
Housing Developers Association (Rehda), which has urged the Government to
take action against these “culprits”.
President Datuk Ng Seing Liong says the association does not condone any
project abandonment caused by non-compliance to the laws, in particular
the Housing Development (Control and Licensing) Act and its subsidiary
regulations.
“Developers who are facing problems completing their projects should seek
help from the relevant authorities including the Housing and Local
Government Ministry that has a team to help solve problems relating to
delayed and ailing projects,” Ng says.
He adds that the current lull in the market provides a good opportunity
for developers with the expertise to step forward to help revive abandoned
projects as part of their corporate social responsibility.
“Whatever the reasons may be, it is certainly crucial for developers to
uphold their responsibilitites towards housebuyers by ensuring proper
feasibility studies are conducted to ascertain a project’s viability
before it is launched and duly complete their projects on time.
“Developers should also adopt proper cash flow management to avoid
liquidity problems and to fully abide by all the guidelines spelt out in
the Housing Development Act,” Ng adds.
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