ABANDONED HOUSES: Bravo to the housing ministry

From: http://www.nst.com.my/opinion/letters-to-the-editor/abandoned-houses-bravo-to-the-housing-ministry-1.7463 (accessed 22 November 2011).

18 November 2011

By Chang Kim Loong, honorary secretary-general, National House Buyers Association, Kuala Lumpur

Letter to Editor

The National House Buyers Association (HBA) congratulates the Housing and Local Government Ministry for proposing amendments to the Housing Development (Control & Licensing) Act 1966 to make it a crime for housing developers to abandon their housing projects.

This is with the proviso that they are charged for the criminal offence and brought to court in the first place.

The clause defining “abandonment” is clear and precise. However, an important aspect is with regard to who should be brought to court and punished.

Is it the directors or the employed managers of abandoned projects?

The act has been tweaked and tuned many times over the years, but still it has been unable to resolve a lot of problems.

In fact, the problems are so serious that the government had to establish a Special Task Force (STF), headed by the Chief Secretary to the Government Tan Sri Mohd Sidek Hassan.

Due to his dynamic leadership, scores of stalled projects have been or are being revived.

However, the effort of the STF has been, to an extent, negated by fresh projects getting into trouble and which may eventually get abandoned.

Those previously categorised as “sick” and “delayed” housing projects have since turned into abandoned ones and continue to haunt the housing industry.

We have repeatedly stated that laws are only as effective as the degree of enforcement. This has been the bane of the whole situation.

Wayward developers know well that the chances of them getting away with their  deeds are extremely good. Thus, enforcement is the key to more protection.

Our fundamental belief is that even the best of legislation to counter a particular situation would just remain as an ornamental piece unless strict enforcement is carried out against offenders, without fear or favour against big or small developers, so as to instil in them the respect and fear that the law commands.

We feel encouraged by the recent announcement by the minister that the build-then-sell (BTS) system will be made mandatory (100 per cent participation) effectively by 2015.  

The HBA would like to propose that a road map be drawn so that the shift to BTS 10:90 is fully completed, come 2015.

HBA had proposed that there should be a gradual “phase-in” of the concept by promoting BTS 10:90 participation, starting with 10 per cent participation by developers and increasing that until it becomes 100 per cent participation by 2015.  This way, the developers will not suddenly suffer a total paradigm shift come 2015.

HBA proposes that to make the BTS 10:90 concept effective, a special committee be initiated immediately with all the related players and stakeholders roped in to plan and chart the road map.

We are pleased that the government heeded our call to amend Section 6(1)(b) (conditions or restrictions for the grant of a (developer’s licence) of the Housing Development (Control & Licensing) Act 1966 (Act 118).

The minister recently announced that laws would  be enhanced to make the requisite deposit (refundable) from the current RM200,000 to three per cent of the construction cost.

We will not even use the word “increase”. This is because, in the case of small developers who build a small number of houses in  smaller towns and where total construction cost is RM2 million or less, the RM200,000 that they are currently forking out actually represents more than  10 per cent.

Thus, for them, the new three per cent is a vast reduction.

Compare this with a big project developer whose construction cost is, say, RM20 million. The present RM200,000 represents a miserable one per cent.

Thus, any contention that the three per cent will weigh down on the smaller developers is not correct.

The present RM200,000 is  flawed because it assumes a “one-size-fits-all” formula, where small developers are compelled to wear the “big size” that clearly does not fit them.

The proposed introduction of the three per cent formula (HBA’s proposal was for five per cent imposition on gross development value) is a fair figure because the actual deposit sum is dependent on the size of the project.

The statistics speak for themselves. Enforcement needs to be tightened regardless of the amount of security deposit demanded.

The three per cent deposit represents only a minute factor in the whole risk equation.

Therefore, we propose that the proposed three per cent be the minimum,  and that the controller of housing should be given the discretion to increase this percentage to our proposed five per cent, if deemed necessary, due to high risk or whatever other reasons.

As to whether the new three per cent deposit will curb abandonment, our contention is that it will indirectly reduce such incidences.

Those developer-aspirants who are financially so weak that they are not able to raise the three per cent deposit (it is refundable, anyway) should stay out of the industry because the probability of them running into trouble is high.

The increased finance cost in order to fork out the three per cent deposit is negligible when measured against the potential gross development value.

Furthermore, any additional cost (interests) is only incurred during the construction phase because upon project completion, the three per cent is fully refunded by the controller of housing.

Project abandonment cannot be totally prevented, but the three per cent  deposit only acts as proof of commitment, seriousness, financial standing and a safety net.

The proposed three per cent deposit can, to a larger degree, assist in revival efforts by the government compared with the present insignificant RM200,000.

The tightening of the Housing Development (Control and Licensing) Act 1966, and revised in   2002 and 2007, has failed to arrest the problem of abandoned housing projects.

The amendment to include a person or body appointed by a court of competent jurisdiction to be the provisional liquidators or liquidators for the housing developer in a situation of a housing developer’s company under liquidation is “like a breath of fresh air”.

This area of uncertainty has been suffocated by wayward liquidators who defy the housing legislation though they assume the affairs of a de facto developer.

Their unbecoming conduct has to be curbed so that legal obligations of the wound-up developer will be fulfilled by the liquidators.

Currently, such wayward liquidators say they are regulated by the Companies Act 1965 and refuse to abide by the directives of the controller of housing.

This redefining will put to rest unfounded arguments by such defiant liquidators and will make it clear that all parties who carry on with the role of the housing developer shall expressly be bound and fall under the purview of the Act, including liquidators or provisional liquidators.
However, the minister could have omitted to include “receivers and managers” appointed by contract (under a debenture) who carry on a project in succession and who are supposed to perform or undertake to perform the statutory and contractual obligations of such a financially impaired housing developer.

Perhaps this point could be brought to Parliament for clarification. The doubling of the fines and punishment would surely make frequent wrongdoers think twice before they embark on their wayward ways.

Thanks to the minister for being people-centric and caring. (emphasis added).

2 responses to “ABANDONED HOUSES: Bravo to the housing ministry

  1. I fully support that the government would adopt full build then sell for all housing development carried out by the licensed housing developers. Under this concept, the developer needs to complete constructing the houses with full compliance of all the legal requirements. Only after duly completion, the houses would be sold to public. Thus, the issue of abandonment would not occur at all.

  2. Regarding the sick project in TAMAN LANGAT JAYA in Banting, Kuala Langat..This project has been delayed by 5 years and has caused the house buyers. They have to service their house loan and cannot move into their houses.Now it is in the final stage, the laying of premix for the roads serving the said project.Paper work for this has been submitted by the developer to Majlis Daerah more than a month ago.
    To date they ae still sitting on the project and not making an afford to visit and approve he laying of pre-mix.
    Please help the house buyers. Thank you

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