[FOR IMMEDIATE MEDIA RELEASE]
10 Feb 2011
We refer to the articles in The Sun dated 7th and 8th of Feb 2011 with regards to issues surrounding housing development in this country and the impending amendments to the Housing Development ACT (i.e. ACT 118).
The Association of Building Owners Malaysia (VICTIMS) appreciate actions taken by Kementerian Perumahan dan Kerajaan Tempatan (KPKT) and the Selangor State Government Task Force for Abandoned Houses in trying to bring a resolution to issues surrounding the resurrection of abandon houses in Selangor. They are playing their respective roles but are curtailed by the current HDA Act .
The phrase Abandoned Houses used by KPKT has not done justice to house buyers in this country. The classifications and statistics have sent a wrong message to the Malaysian public and gave a misleading impression that all is well with the Housing Industry in Malaysia.
In addressing problematic houses, one must also include projects that are defined as delayed or sick by KPKT definition as all these houses create the same social issues to the general public. The following table summarized the malady affecting the housing industry in 2009( extracted from KPKT website). It shows that for every 3 units of houses that are progressing well 2 are problematic.
It shows how bad the housing industry scenario actually is. The data shows that situation has worsened drastically over the years. In financial terms this is a RM 20B problem.
At the moment the ministry action of black listing developers and directors appears to be a futile exercise because the businessman hides behind the corporate veil. ! Develope rs simply create new companies using proxy directors. We have seen developers whose directors are security guards.
On the proposed amendments of the HD Act we note that there are some good and bad points. Unfortunately from the overall perspectives purchasers are still exposed to the risk of becoming a victim. The law must be reviewed with the objective of minimizing the risk exposure to purchasers and at the same time will not hamper the growth of the housing industry. The Act must also cover issues on equitable risk sharing of the developer, purchaser and financier and having an enforceable dispute resolution system.
Unfortunately from what we gather these elements are missing in the new proposed amendments. VICTIMS agree that BTS is a reasonable option to consider but we also acknowledge that it has its own set of weaknesses. Among others these include the followings:
- We agree with REHDA that the 5% deposit with KPKT is an added cost of doing business to developers. Furthermore, it does not give the purchasers the necessary comfort and protection that the project will be completed. A quantum of 5 % invariably will not be enough to cover for any rehabilitation works in the event a project failed.
- REHDA in our view has not done anything significant on its part in preventing or rehabilitating projects that in almost all cases are due to its members faults. While they object to the BTS proposal from HBA, they have not come out with a reasonable counter proposition. We agree with REHDA that formation of subsidiary companies do improve the mechanics on doing business but in todays context it has been misused legally to limit the liability of the shareholders due to their own folly, which had created problems to thousands house buyers of abandoned, delayed and sick projects. The loss of reputation to the developer is nothing compared to the sufferings and the social! issues that it creates to the society.
- The solution lies in a mechanism where risks are shared and spread between developers and banks and apart from purchasers who are the true stakeholders in any housing development. The ROC must step in and create a new set of rules where liabilities to property development companies are not limited to directors of the operating company only but jointly and severally to directors of the holding companies and guarantors.
Under the current sell and built system purchasers are exposed to the risk of failure by developers/contractors. By right purchasers should not be exposed to such risk as it is outside their control. In all Agreements dealing with housing development, purchasers have no direct role and no adequate safeguard mechanism to protect their interest. The parties that have real direct control are the financiers and the developers. Therefore they must be made to bear the risk of any project failure equitably.
In an attempt to protect purchasers interest and also to encourage the progress of the housing industry, we should look at Islamic Financing principle. This has been proven to be successful in Canada and in the Middle East .The proposed concept is best explained via an illustration.
Let say, we have a case of a purchaser who intents to buy a house that is being developed by a developer. The purchaser needs to bring his request to a bank/financial institution. If in the banks assessment, the project is considered viable than it will undertake the principal sale/purchase contract between the bank and the developer on behalf of the purchaser.
Upon completion of the house the bank sells the house back to the purchaser with a financing scheme. This is covered under a separate sales and purchase agreement which is successor bound.
To ensure that a purchaser ! do not b ack out from a contract, the purchaser will have to pay 10% deposit to the bank before the bank goes into an agreement with the developer. This deposit will be forfeited if the purchaser changes his mind if he rescinds his agreement.
In this approach we can see that risks to the bank are minimal and manageable. Usually banks/financial institutions being the end-financiers are in a better position to mitigate the risk as they have many risk management instruments at their disposal. Furthermore banks can easily revive any failed project as it has the necessary financial capacity.
Comparatively in the current context where a balance is needed between risk exposure to purchasers and growth of housing development is needed in this country, BTS is an inferior solution. BTS may be successful in smaller projects but can be risky for big projects. Our approach will automatically address the issue of LAD. The bank will own any LAD if any.
Any dispute between a developer and a purchaser must be settled via a structured mechanism. The courts are not the best solution as it creates delays in any dispute resolution. The court processes are too complex and costly for the ordinary people. The use of arbitration/mediation process provides a less cumbersome approach. The housing tribunal is an established system whose role should be expanded. Its decision should be final and binding. Both parties cannot pursue via any other legal system. Failure to comply with any tribunal decision should be dealt with swiftly and painfully.
In conclusion, the current review of the HDA Act do not seems to likely bring the desired effects of risk protection to purchasers. We urged the government to review the entire process of implementing housing business in Malaysia from a holistic approach and not looking at it via a piecemeal approach. The impact of failure of housing projects does not only burden purchasers but al! so creat es extended social issues. Reduced in disposable income has led purchasers to the extent that they could not support their families and led to breakup of a family unit. It also creates an image and responsibility problem to the government. We ask the government to rise to the challenge for the interest of the people especially when the government says that the people interest is first.
Dr Mohamed Rafick Khan bin Abdul Rahman
Persatuan Pemilik Bangunan Terbengkalai Malaysia (VICTIMS)