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Saturday, July 18, 2009

A check and balance system

How can property projects be prevented from becoming abandoned in the first place?

There are two parties that can contribute to the check and balance system, says property consultant Dr Ernest Cheong of Ernest Cheong PTL Chartered Surveyors.

They are the architects who hold the key to withdrawing money from the purchasers’ account through the issuance of certificates used for progressive payment claims and the banks that disburse the money to the developers.

“If project architects act honestly and ethically when being persuaded to certify stages of construction, developers would not be able to get more money than they should be getting before the completion of the project,” says Cheong.

If there is sufficient funds available with the purchasers’ housing loan accounts with the banks, chances are higher for other developers or contractors to take over and revive the failed housing projects.

Meanwhile, the banks can also prevent projects for being abandoned by conducting further due diligence investigations and verifications of truth of the certificates issued by the project architects and presented by the developers.

“Banks should not proceed to pay without due diligence. It helps to stop the problem early if they can act as a check and balance system and prevent making excessive over-payments from the borrowers housing loan accounts,” says Cheong.

He says banks could appoint independent architects, building surveyors or even property consultants to carry out independent site inspections to verify the truth and accuracy of the certificates.

“It is an extra step that costs a little but brings immense financial benefits to the banks,” says Cheong. He says the end finance banks concerned would have saved themselves the burden of having to shoulder millions, or even billions, of ringgit in non-performing loans.

Chan Ai Cheng ... ‘Developers should resist the urge to inflate the selling and market price of their housing projects.’

According to S.K. Brothers Realty Sdn Bhd general manager Chan Ai Cheng, developers should provide for a bigger budget to allocate sufficient funds in the event the project is not a commercial success.

In addition, developers should resist the urge to inflate the selling and market price of their housing projects.

“When they fail to secure the targeted demand to break even due to high or unsuitable pricing of the product, they are forced to stop mid way through the project,” she says.

All in all, the root of the problem is the lack of political will by the authorities to prosecute or fine the guilty developers who are responsible.

“Punish severely so that others would be deterred from doing it,” she adds.

A step in the right direction is the implementation of the build-then-sell system for the property sector, which is popular overseas.

By The Star

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