Adopt build-then-sell model for affordable houses

Let’s admit it – the government has no solution to solve abandoned housing projects. As it is, the Housing Ministry has listed “problematic housing projects” in three categories: “late”, “sick” and “abandoned”. The only way is to eradicate them through a build-then-sell (BTS) 10:90 model.

Even the reasonably well-off suffer because of the lopsided sale & purchase agreement (SPA) provided by the Housing Ministry and exploited by developers. The National House Buyers Association’s (HBA) long campaign against the sell-then-build (STB) system should be vindicated in the case of buyers of affordable houses. These are people of modest means and deserve to be protected.

BTS 10:90 vs STB

The current STB system has caused abandonment and, worst, foreclosure of the purchaser’s property by the developer’s bank.

The STB is the housing developer’s dream as it allows the developer to enjoy the instalment payments of the purchase price as he builds so that he really does not need to borrow.

If the developer has over-extended his commitments, he may borrow sums on the security of the purchaser’s beneficially owned house, a sum much in excess of what he needs to build the purchaser’s house – and if he squanders it, or is tempted to cheat, even where the purchaser has paid the full purchase price, he can walk off with his pockets bulging with the purchaser’s money and the loans, and let the developer’s bank auction off the purchaser’s house. The housing developer has all to gain and nothing to lose.

And even when the house is built, there are other problems for purchasers:

  • unauthorised changes
  • substitution of sub-standard materials
  • shoddy workmanship and unsatisfactory rectification works
  • unfair settlements taking full advantage of the increasingly straightened financial circumstances of the purchaser
  • taking physical possession of the property without water and electricity supply
  • the Controller of Housing invoking the Regulation 11(3) of the Housing Development (Control and Licensing) Regulations 1989 by unilaterally granting extension of time to housing developers to complete the project purportedly to safeguard the interest of the purchasers which in fact waived the “late delivery compensation” that the developer had to bear.

Protection for buyers

The purchase of affordable houses must be made safer. The affordable house purchaser’s profile is such:

  • He has a low income and is a young graduate.
  • He is recently married with young children.
  • He has no other house.
  • He certainly cannot afford to have the house abandoned by the developer and foreclosed by the developer’s bank because of the developer’s failure to settle his loans even after he had paid the purchase price; and yet be saddled with a house purchase loan to be serviced and settled even though he is never going to see his house.

A much safer model

The BTS 10:90 concept, a hybrid between STB and absolute BTS (0:100), proposed by HBA was legislated in 2007 under the SPA schedules – Schedule I (landed property) and J (stratified property).

It involves a much safer model for the affordable house buyer as it requires the buyer to make only an initial payment of 10% of the agreed purchase price, and pay the remaining 90% only upon completion of construction with the relevant Certificate of Completion and Compliance.

It will also include connected utilities supply, along with the ownership papers. Once the transaction is completed, the developer is bound to transfer the house to the buyer at the previously agreed price unless the buyer decides otherwise – for instance, he is not satisfied with the standard of workmanship, in which case he loses the initial payment of 10%.

The developer is expected to meet the entire cost of construction, presumably by raising project loans from banks on the yet-to-be-built house. Unlike the current STB mode, the developer does not get to use the instalments of the purchase price for construction. If, as old habits die hard, the developer abandons the construction, the purchase stands to lose only the 10% deposit which, strictly speaking, should be recoverable from the developer.

Pledges fulfilled?

The benefits and advantages of the BTS 10:90 system has been more than adequately expounded by HBA. In fact, the pros and cons have been deliberated at the highest level of government, ie the Chief Secretary to the Government of Malaysia, through the Special Task Force for the revival of abandoned housing projects. Presentations, workshops and mini labs were conducted by all relevant players in the industry including academicians for the last 10 years.

The shift to the BTS 10:90 system had been unanimously concurred except by the Real Estate and Housing Developers’ Association (Rehda), the developer’s outfit. Rehda simply doesn’t seem to want to accept a level playing field for both the house buyers and housing developers, and has not ceased to oppose it.

In lean times, one of Rehda’s favourite counter argument was that the industry was already suffering and that the system should not be changed to further aggravate it. In better times, the argument was that the “boat should not be rocked” since the industry was doing well and contributed substantially to the nation’s GDP. These arguments are based on the intentionally and cunningly concocted premise that the industry will shrink if or when the BTS 10:90 system is implemented.

Having heard all the arguments on the pros and cons of the BTS 10:90 concept, in February 2012, then Housing and Local Government Minister Tan Sri Chor Chee Heung had tabled in Parliament that, come 2015, the housing industry would mandatorily progress to the BTS 10:90 system of purchase and delivery.

This had been recorded in the Parliament’s Hansard on two occasions – next only to legislation. That would have put the housing industry on a more orderly footing and ensured that house buyers are better protected while in the process of buying their houses. SPA Schedule I and J shall be the order of the day.

But alas, fast forward to 2014: the housing minister was changed. A new minister, Datuk Seri Abdul Rahman Dahlan took over the helm, baulked and made a U-turn for reasons only known to himself and those under his charge. This has drawn flak from the house-buying public and consumer associations, especially the victims of unlicensed developers and abandoned projects. The year 2015 has come and gone, and the promise remains.

Fast forward again to 2019 (post GE14), a new government was installed: The housing industry, on the pretext of the global slowdown and due to intentional governmental cooling measures against unbridled price escalations, experienced price stabilisation and reduced rates of sales.

There are now developers’ cry for government intervention of completed and unsold high-end overhang properties. A new housing minister was appointed post-GE14, and BTS 10:90 still has not become a reality.

HBA has reiterated our call for a gradual “phase-in”period to implement the BTS 10:90 system. We hope Housing Minister Zuraida Kamaruddin will have the courage to make BTS 10:90 a reality, not just for the first-time buyers but also under the affordable housing category.

Blue Ocean Strategy

Several big housing developers have initiated the BTS 10:90 system and HBA appreciates it as its Blue Ocean Strategy – BTS 10:90 model.

In the middle of such uncertainties, it is most encouraging to see several government-linked housing developers embarking on the BTS 10:90 model.

The most recent case is a particular housing developer, a listed company and a government-linked company, entirely on their own volition, adopted the BTS 10:90 system in their niche market developments pricing above RM1 mil.

The BTS 10:90 strategy has already tasted success in the form of overwhelming response.

The developer has made the model an integral part of its marketing for the immediate future in a big way. We are informed that 90% of its units from the first phase of a project were snapped up during the launch period. What is even more encouraging and proven beyond doubt is that the BTS 10:90 strategy is totally viable and beneficial to all. The units in this project were almost completely sold.

If, for whatever reason, a buyer wants to exit from the purchase, he loses 10% of the payment, but the likelihood of buyers opting for an exit is minimal. In three years, the prices of these properties would have moved up.

The success of this developer is indeed encouraging; HBA wants BTS 10:90 to be the norm, not niche.

Mind-boggling questions

This leads to some questions that need to be addressed:

  • Why is it that only the buyers in this particular mid-to-high-end project get to enjoy the safety and advantages offered by BTS 10:90?
  • Why aren’t the buyers of lower-end and affordable houses (in fact, buyers of all categories of houses) accorded this same advantage?
  • Why is the government stifling Parliament’s injunction (since 2015) that the whole housing industry should progress to BTS 10:90 so that every house buyer in this country gets to benefit from this fairer and safer mode of buying houses?
  • Does the current minister have the courage to make BTS 10:90 a reality and to fulfil the aspiration of the Pakatan Harapan government and the rakyat? Although the government has early this year launched the National Housing Policy 2018-2025, we have yet to see any mention of the BTS 10:90 concept.

There should be no abandoned, low-end affordable houses. It is imperative – the law must ensure that the purchaser gets what he has paid for, or get his money back! 

Datuk Chang Kim Loong is secretary-general of the National House Buyers Association (HBA)

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