Should the government provide special relief to developers?
By Sharina Ahmad |   |  Mainstream, Property

By Sharina Ahmad

THE global spread of Covid-19 is generating unprecedented delays, disruptions and uncertainty on construction projects, worsened by the movement control order (MCO).

During the MCO, all construction and maintenance work must stop, only critical works are allowed to continue as enforced by the Ministry of Works. The move has disrupted the supply chains, contractor workforce and the availability of governmental personnel for project inspections, with resulting delays and losses.

How do developers deal with projects affected by the crisis and do they need special relief to help them deliver their project on time?

Property developer Taraf Nusantara Sdn Bhd managing director Datuk Jimmy Doh said given the challenging landscape, he hoped that the government will work closely with the industry to help many stakeholders which have been affected by the situation.

“We are faced with primarily two main challenges – first, the short-term concern of increased costs which could arise from the halting of work during the MCO or the possible delivery of projects, and second, the mid- to longer-term sustainability of the property market,” he told FocusM.

Doh said the Real Estate and Housing Developers' Association Malaysia (Rehda) has submitted a list of initiatives that may help property players, as well as property owners.

“For example, to safeguard stakeholders from being penalised, Rehda has suggested a temporary measures Bill to safeguard against penalisation which will help all the stakeholders.

“For property owners, bringing the real property gains tax (RPGT) to zero rate, for instance, may help those who are looking to sell their properties for liquidity. Temporary relief from quit rent or assessment could also assist them with cash flow.”

He noted that the company is working closely with its contractors to figure out ways to speed up the construction work safely and to make up for lost time during the MCO period in order to be able to deliver the property to homeowners as promised.

“From our initial assessment, our ongoing projects Bandar Baru Setia Awan Perdana and Lagenda Teluk Intan, if the MCO is to be completely lifted on May 12, we are confident that with the assistance from our contractors, we will be able to make up for the lost time,” he said.

Doh also affirmed that as an employer, he has done his part to pay the workers' salary during the MCO period.

“We believe that the only way for the nation to pull out of the Covid-19 situation is for all Malaysians, employers and workers, to band together and be there for each other.”

Raine & Horne International Zaki + Partners Sdn Bhd associate director James Tan Keen Meng said it is certain that developers need aid from the government due to the MCO which has halted construction and the requirement for all foreign workers to be tested for the virus.

“These are all additional costs. If the project is sold more than 60% or 70%, the cost increase will be marginal. However, if they have sold a lot less, the progress payment may not be able to cover. However, the reduction in the overnight policy rate (OPR) will bring borrowing cost down,” he said.

Tan said developers may be subject to late delivery charges and can apply for a waiver due to the pandemic. “The delay may not be that long but many other factors are involved. The delay in delivery of vacant possession will have a bearing on those who bought the properties after selling theirs. They may need to find other accommodation. It is an additional cost to them.”

Strategic marketing consultant for developers, REI Group of Companies Sdn Bhd CEO Dr Daniele Gambero said the MCO has caused two types of losses with two different remedies.

“We all know that property developers have since long leveraged on public events, expos and roadshows to promote the sales of their projects. All this will not happen for the next several months and the public will be quite cautious in frequenting crowded sales galleries or malls.

“This means developers will need to re-engineer their sales and marketing strategies and use media as a platform to promote their projects,” he noted.

However, he opined that it will take at least a year for the industry to recover. “No sale means insufficient cash flow. The best way both developers and the government can resolve this issue is to accelerate digital transformation as much as possible.”

Since construction has stopped for almost two months, developers will need to pay a 10% late delivery penalty (on yearly basis, recalculated for the precise delay) to their purchasers as per the Housing Development Act.

“As we all know, Bank Negara Malaysia has granted a six-month moratorium to all housing loan borrowers. Will the government, or better the housing ministry, look into a similar moratorium for delayed delivery? In my view, it would be fair to developers and will avoid the search for cheaper building solutions to speed up the construction or to save costs.” -- May 8, 2020

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