Time to Phase out Sell-Then-Build

HBA argues that as the BTS was given as an option to developers, it was never seriously tested on its workability. A timeline is thus needed to compel developers to adopt it

Perennial Bane

The subject of abandoned housing projects has been a bane for the house buying public at large in Malaysia. Hundreds of thousands of house buyers and their families are left suffering in the wake of such abandoned projects where they have paid a lot of money and not get their houses. Most of them are compelled to continue servicing the housing loans that their banks had disbursed to the developers while they continue to live in rented houses! This is indeed disgusting for a country that claims to have a caring society.

So much for “People First, Performance Now.” The government had spent huge sums of taxpayers’ money to revive some of these failed projects. Some of these abandoned projects are the results of fraud and deceit. How else can we explain that in many of the cases, the land and the houses (although uncompleted), become net liabilities to the extent that the cost of reviving them requires large amount of money.  Even so-called “white knights” are reluctant to go near most of these failed projects.

In property development, any construction put onto a piece of land will progressively enhance its value. Full value is attained when the houses are completed. Thus the fact that a large number of these abandoned projects become financially not viable for revival only indicates that their developers have been paid more than what the construction stage entitles them to and/or that the money collected from buyers are channelled elsewhere instead of towards the completion of the projects. In both these cases, fraud is involved and in any case, the buyers are the ones who suffer most although the banks involved are also put in a quandary.

Home Completion Insurance?

Recently, the Real Estate Housing Developers’ Association (REHDA) has proposed the setting up of a home completion guarantee scheme (insurance). In this scheme, participating developers are required to contribute 0.25% (that is 1 quarter of a percent!) of their construction costs (not project value) so that their buyers can be assured of getting their houses. REHDA even suggested that taxpayers’ money be used to augment this insurance scheme. We have elucidated on the practicality of this proposed scheme. Then again the question to ask is which insurance company will insure against business loss?

Timeline for Mandatory BTS 10:90

In 2006, the then Deputy Prime Minister YAB Dato’ Seri Najib Tun Razak announced that the Build-Then-Sell 10-90 scheme would be put on trial for a period of 2 years. Also announced were a host of incentives to encourage developers to adopt this system that basically insulates buyers from the hazards of abandoned projects (plus a host of other advantages, little highlighted in the media). Hence the goodness of the BTS (10-90) needs no further elucidation because the government has deemed it fit to the extent of offering incentives to encourage developers to adopt the system.

But alas, the system was left to the option of developers with the present hazardous Sell-Then-Build (STB) still very much alive and creating havoc! For obvious reasons, developers are adamant about sticking to the STB despite the attractive incentives. It is high time that a firm time line be established for the industry to progress to the BTS 10-90.

Effects of Non-implementation

REHDA has repeatedly stressed that the choice of either STB or BTS (10-90) should not be compelled but to be “market driven”. We would like to point out that this present option of either STB or BTS (10-90) definitely cannot be termed as “market-driven” but more “developer-driven”! It is solely the developers who make the choice, not house buyers or any other party, for that matter.

Is it surprising then that there had been few who voluntarily chose the BTS (10-90). The reasons are obvious. REHDA went further to state that after 3 years of trial period, the system has proven to be not workable!

We would like to state that the BTS (10-90) has never be given the chance to see daylight (and industry players make sure of that!) because it was given as an option. Thus the system in effect, was never put to test against the prediction of doom and all the other frighteners put forward by interested parties in defending their turf. Thus unless the government put in a time-line for the industry to adopt the system in order to get rid of the problems once and for all, the following will prevail:

Clearly, it is time the authorities bite the bullet and set a timeline for the phasing out of this outdated and hazardous STB and to phase in the BTS (10-90) system.

Our next article will discuss on the various scare tactics and frighteners put forward to pour cold water over the BTS (10-90), so that industry players continue to operate their businesses using customers’ funds and with customers shouldering the business risks!

Source: http://www.iproperty.com.my/news/2283/Time-to-Phase-out-Sell-Then-Build