THE latest landmark decision by the Federal Court on the calculation for late delivery payment to house buyers is negative for property developers as they may now have to pay higher liquidated ascertained damages (LAD).
On Tuesday (Jan 19), the Federal Court ruled that the payment due from housing developers to purchasers for late delivery of houses should be calculated from the date the booking fee is paid and not the date the sales and purchase agreement (SPA) is signed.
As such, Maybank IB Research sees higher risks for developers which have more high-rise/mixed-use development projects.
“We are negatively surprised by the latest ruling by the Federal Court,” justified analyst Wong Wei Sum in a property sector update.
“We maintain our tactical “positive” on the sector for now pending further information from the Housing and Local Government Ministry.”
Delivering the landmark decision, Chief Justice Tengku Maimun Tuan Mat said: “Where a developer fails to deliver vacant possession according to the time stipulated in the statutory SPA, the calculation of the LAD begins from the date of payment of the booking fee and not from the date of that statutory agreement.”
This means that developers who are obliged to pay LAD, those already paid or those who are already late in delivery would now have to pay more LAD as the transition between booking and SPA could take months to complete.
“We see higher risks in developers which have more high-rise or mixed-use developments such as Malaysian Resources Corporation Bhd, Mah Sing Group Bhd and UEM Sunrise Bhd as these projects by nature have more complicated substructure and take longer time to build,” projected Wong.
“The actual damages are difficult to ascertain at this juncture as we were told that the additional LAD payment are only for specific case.”
From its channel checks with some industry players, Maybank IB Research noted that the LAD is also retrospective and this makes the overall issue (potential losses) even more complicated.
“We maintain our earnings forecasts and stock ratings for now pending further info (such as booking fee amounts) from the Housing and Local Government Ministry,” added the research house. – Jan 21, 2021
