Abandoned Housing Project/Failed Residential Project—Taman Harmoni, Lot 82, Mukim of Cheras, District of Hulu Langat, Selangor Darul Ehsan

Part One

Taman Harmoni, Lot 82, Mukim of Cheras, District of Hulu Langat, Selangor Darul Ehsan is located at Balakong, Cheras, Selangor, off Jalan Balakong (Silk Highway), adjacent to and surrounded with Taman Bukit Belimbing, Taman Sungai Besi Indah, Taman Sri Jasa, and Taman Taming Jaya, Seri Kembangan. The project is also within 5 (five) kilometer radius of The Mines, Resort City Sungai Besi, Mines Shopping Centre, and Bandar Tun Hussein Onn, Cheras, Selangor.  It is specifically located behind Nitsui Transport Services (M) Sdn. Bhd, Balakong, Taman Harmoni Indah and exactly bordering the area of jurisdiction for Majlis Perbandaran Ampang Jaya (MPAJ).

This housing estate is divided into 2 (two) phases namely–Phase I consisting of the single-store-medium-cost terraced-houses and Phase II for the development and erection of the low-cost flats.  The development of Phase I, was fully completed, albeit delayed, by the defaulting developer (K&T Development Sdn. Bhd), whilst Phase II, had not been commenced at all, except for the preliminary, piling and levelling works done, by the defaulting developer.  Phase II was considered an abandoned housing project.  This project was a joint venture between K&T Development Sdn Bhd (‘K&T’), Setiausaha Kerajaan Negeri Selangor (SUK (Incorporated)), being the land owner and Permodalan Negeri Selangor Berhad (PNSB).  The major reason leading to the abandonment of the project was the financial difficulties faced by the defaulting developer – K&T.  These difficulties arose due to lack of skills, experience and expertise of the defaulting developer, the unsuitable selling prices for the units compared to the costs of construction and unforeseen costs (earth works and piling works) faced by the defaulting developer.

Reasons Leading to the Abandonment

Phase II was abandoned without any development, due to:

a) Certain technical agencies’ requirements and contributions, for example– Department of Irrigation and Drainage (‘JPS’)) requiring the provision of larger drains.  The construction of these drains would incur additional cost to complete the drainage works.  The Department of Public Works (‘JKR’)) required the developer to contribute RM 100,000.00 for the construction of a highway, and Department of Water Supply (‘JBA’) required the construction of a separate building for water tanks (elevated water tank), one tank for water catchment, and a pump house, all of which would incur additional costs of at least RM 500,000.00.  However, the original plan approved by these technical agencies, in respect of a water provision, was only the installation of water tank on the roof of the flat buildings.

b)  Another problem faced by the developer was that they could not get any loan facility from financial institutions as the project site/land could not be charged to any bank as this was prohibited by PNSB.  The funds for the construction of the project came from Arab Malaysian Merchant Bank Berhad (AMMBB) that granted a factoring facility to the project manager.  There was no evidence that the developer obtained any banking facilities to develop the project.  The developer only obtained profits from the balance of the purchasers’ payments (end-finance) after deducting the construction costs. These profits were used to finance the extraction of slime soils and to run the preliminary works for the low-cost-flats (Phase II).

c) The developer had difficulties to service their financial obligations (especially sundry creditors).  The Return on Capital Employed (ROCE) for 1995 was negative because the developer company suffered a loss in the financial year.  The above ratios revealed that the developer company was at the preliminary stage of the development activities.

d) In addition thereto, there were many variations in and changes of the original approved building plan and planning permission made for this phase.  Thus, this had indirectly costed additional financial burden and works of the developer.

e)  Another reason which led this phase to fail to commence was the problem of the developer’s cash-flow which the developer inherited from the erection of the first phase.  In the first phase (Kenanga and Melor types), the developer had incurred additional and substantial costs such as to replace the slime soils with the appropriate soils beneath the land, on which the buildings for Phase I could be erected.

f) There was miscalculation of the project’s costs and profits as the defaulting developer (K&T) had no experience and insufficient expertise in housing development and its management.  This could be illustrated in the failure of the developer to ascertain the suitable prices for the housing units purported to be built.  The prices fixed by SUK (Incorporated) and PNSB, based on the earlier agreements (JV and profit sharing agreements) were not in accordance with the market value for the same units and were too low.  Even though, a feasibility and viability study had been undertaken by the engineers, quantity surveyors and property expert and was submitted to the developer for their consideration, seeking increase in prices, this had not been agreed to by SUK (Incorporated) and PNSB, being the JV’s partners.  Nevertheless, the developer still succumbed to and proceeded with the requests of SUK (Incorporated) and PNSB.  In the result, the revenues generated from the sale of Phase I were not enough to proceed with the subsequent development.  Furthermore, the revenues received had to be deducted against the payments made to SUK (Incorporated) being one of the terms in the JV agreement and the payments used to finance the extraction of slime soils and replacing the same with suitable soils and further certain piling works had to be carried out for supporting the soil structure and ensuring its stability.

g) There was failure to undertake soil tests over the land before commencing the project.  In the event the developer had undertaken the said tests and discovered the slime soils’ problem at the outset of the project, they would altogether re-consider the offer to develop the housing project at the prices stipulated by SUK (Incorporated) and PNSB.

h) Termination of the JV agreement and other related agreement by PNSB and SUK (Incorporated), on 6 May, 2003, resulted in the inability of the developer to proceed with the development of the low-cost project (Phase II).  According to the developer, they were willing and ready to proceed with the project, if the new prices for each unit to the said flats are increased to RM 35,000.00 and RM 42,000.00, respectively and that, the developer had found a construction method to reduce the costs of construction.  These variations in prices and the building plan could warrant the viability and feasibility of proceeding with the project.

i) Finally, the defaulting developer–K&T Development Sdn. Bhd had been wound up on 18 June, 2004, by the Shah Alam High Court on the application of a judgment creditor–Messrs Transwater Engineering Sdn. Bhd, that had commenced a winding up action against the developer, for failure to pay the last payment being the amount due and owing in respect of goods sold and delivered pursuant to a judgment obtained against the developer company in the Ampang Sessions Court.