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Saturday, March 12, 2011

Build-then-sell concept gives buyers more protection


Gevanantham Marimuthu (Geva) has been waiting for over a decade to move into his Lembah Beringin home he bought in the late 1990s, 50km from Kuala Lumpur. Today, Geva, alongside some 2,000 others in that area, have not moved into their dream homes because the project has been abandoned. Geva started paying his mortgage in 1998. He stopped in 2006.

“Why should we pay for something we did not own. In fact, I want them to take me to court!”


S.M. Mohamed Idris ... ‘CAP has been advocating for the BTS system

Geva is also the chairman of the Lembah Beringin House Buyer's Association, a group comprising the victims of that project. He is currently living at rented premises.

The project's developer was a subsidiary of Land & General Bhd (L&G), Lembah Beringin Sdn Bhd. L&G was badly hit during the Asian financial crisis in 1997/98 while Lembah Beringin has been under receivership since 2005.

For decades, the sell-then-build (STB) delivery system has managed to deliver homes to meet the housing needs of Malaysia's young and growing population. But along the way, due to unforeseen circumstances, this model of buying houses has met with undesirable outcomes.

Projects have been delayed, stalled or worse still, abandoned. National House Buyers Association (HBA) secretary-general Chang Kim Loong feels that the STB system is the crux of the “abandoned project” problem.


Muhammad Sha√ćani Abdullah ... ‘Buying a house is a lifetime commitment to most buyers

“Buyers are exposed to the business risks (and are at the) mercy of developers. Why should the buyers share in the developer's business risk through this progressive payment mode?” he asked.

Chang admits that any housing project can fail, regardless of the type of delivery system, adding

that no amount of legislation can guarantee the success of any housing project.

“Only the Government can institute a system that to a large extend, insulates house buyers from risks and uncertainties,” he says.

Consumers Association of Penang (CAP) president S.M. Mohamed Idris believes that non-enforcement of the Housing Developers Act is the problem .“If projects are detected when they are delayed', or sick', they may not be eventually abandoned'. We have the laws but not the enforcement.

“In a 10:90 BTS model, buyers get to see the actual product. A house is the biggest purchase that a buyer will make. It is not right that he cannot see what he will be committing himself to for the next 30 years.” Mohamed Idris says.

Federation of Malaysian Consumer Associations secretary-general Muhammad Shaani Abdullah says given the failure of respective authorities to improve the current delivery system, it is justifiable to implement the 10:90 build-then-sell (10:90 BTS) system.


Susan Tan believes both the STB and BTS systems should exist to provide buyers a choice.

An absolute BTS system would be too big a paradigm shift for the local players. Six years ago, the House Buyers Association, under the stewardship of Chang, proposed a variant to the STB system, namely the “BTS 10:90” model. Buyers pay a 10% deposit, sign the sales and purchase agreement and pay the rest when the house is completed and occupiable. Chang says the BTS 10:90 concept has become a reality with the amendments to the Housing Development (Control & Licensing) Regulations, 2007 which was implemented on Dec 1, 2007.

“The Government proposed to let the two systems (STB and BTS 10:90) run concurrently and was supposed to review the situation after two years from August 2006, which has long lapsed. Nevertheless, it remains an option,” says Chang.

Perdana ParkCity Sdn Bhd marketing and sales director Susan Tan believes that both systems should co-exist to provide buyers with a choice.

“Generally, property investors will prefer the STB to reduce their commitment and they can quickly flip the property for a gain when it is completed.. Only the seasoned ones with sufficient capital will invest in completed properties and will look at yields instead of capital gains,” she says.

Chang believes that the quality of houses will improve with the proposed “BTS 10:90” system as developers will not risk dispute with buyers over quality, come full payment time.


“With the 10:90, developers have to seriously focus more on building better quality houses and execute greater care and responsibilities to ensure that the houses are constructed in accordance with specification and proper workmanship manner if they harbour hope of their finished product' being saleable upon completion of the house.”

Chang says the risk faced by developers that buyers may refuse to complete the sales when property prices have dropped at the time of hand-over is negated by the forfeiture of the initial 10% paid upon the signing of the SPA, as well as other possible specific performance liabilities.

“Today due to the prevailing system in the housing industry, house buyers are facing serious risks when they make purchases. Indeed, even car buyers have more protection than house buyers.”


M. Gevanantham says the agony was beyond just ‘financial’.

Learning from past mistakes

For Christopher John who bought into abandoned Bandar Golden Valley Golf Resort in Jasin, Malacca, the road towards finding a solution seems endless.

The RM380mil resort township started out as a joint-venture between Yeng Chong Realty Sdn Bhd and MBSB Development Sdn Bhd, a unit of listed Malaysia Building Society Bhd, which is a subsidiary of the Employees Provident Fund.

Construction was to begin in 1999 and the properties handed over to buyers in 2002. That did not happen. Today, the site remains an oil palm estate. In 2009, Christopher and others in the same dilemma met up with the Public Complaints Bureau, Yeng Chong and MBSB for the first time. There are about 200 buyers. There was no solution.

“We are thinking about litigation but that is a long, tedious procedure. We want to settle this amicably. We want our money back at market value and with interest, which we believe is fair,” he says.

“Over the past few months, we've had two purchasers passing on,” he laments, adding that the BTS delivery system is definitely a better alternative when it comes to buying a house.

By The Star

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