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Saturday, July 18, 2009

Grappling with abandoned projects

The Housing and Local Government Ministry is looking at further tightening the laws and punishing errant developers that do not complete their housing projects.

There is a great deal of excitement that comes with booking one’s first home – you finally own a property which you can call your own (well, technically it belongs to the bank until the loan is repaid, but you are close), the stark relief when you have secured the financing for it and later, the mounting anticipation as you wait to occupy the property.

But alas, the project is stalled and you’re left saddled with financing a house which has indefinitely been abandoned. Sounds familiar? You’re not alone – there are some 31,337 housebuyers who currently face such predicament.

For over two decades, the property sector has been grappling with the scourge of abandoned housing projects, which has understandably caused hardship to many buyers. It remains a major thorn till today.

Based on data from the Housing and Local Government Ministry, as at May 30, some 148 housing projects have been abandoned, involving a total of 48,664 housing units (of these, 31,337 units have been sold).

On its own, these numbers may not seem astonishingly high but when viewed from the perspective that there are tens of thousands of people who are aggrieved by such failed projects, it becomes a major problem that needs to be resolved urgently.

The biggest headache for housebuyers when a project is stalled is monetary losses – the victims have to settle monthly loan repayments and deal with much anguish as, more often than not, there’s little chance of reviving these projects and getting the houses completed.

Over and above that, many have to continue forking out rental for their current abode.

Needless to say, from an industry perspective, the economic cost is staggering; abandoned projects also affect many other related industries (over 140) including suppliers of construction materials, transportation companies, contractors and consultants.

Datuk Seri Kong Cho Ha ... ‘Project abandonment is serious as the casualties are consumers and their hard-earned money.’

In an interview with StarBizWeek, Housing and Local Government Minister Datuk Seri Kong Cho Ha says although only 1.8% of all projects licensed by the ministry are abandoned, project abandonment is serious as the casualties are consumers and their hard-earned money as well as many other related industries.

“We are looking at further tightening the laws and punishing errant developers that do not try their best to complete their housing projects. We do not want errant developers to spoil the reputation of the whole industry,” says Kong.

Tackling the issue

Since 1998, the ministry has been collecting data on the matter and it has also taken several measures to tackle the problem of abandoned housing projects.

There are several stages, as defined by the ministry, before a project is declared abandoned. If it has passed its promised delivery date by 10%, it’s considered late; if the delay stretches beyond 10%-30%, then it’s considered “sick”; and finally, if no work has been carried out or no workers are on the project site for up to six months, then it is deemed abandoned.

Noting that there are multiple reasons why a project is stalled, Kong points out that ultimately the responsibility lies with the developers to ensure their projects are completed on time.

“If they encounter problems, they have to take the necessary actions to overcome them and seek help if necessary. At the end of the day, the interests of all the stakeholders – developers, buyers and bankers – have to be protected,” he adds.

Kong says the Housing Development (Control and Licensing) Act, 1966 (Act 118) is meant to ensure the orderly development of the housing industry and to protect house buyers.

“The legislations are in place to ensure the success of housing schemes and to minimise abuse and quarrels between developers and buyers. Section 7 (F) of the Act stipulates that developers have to submit half-yearly reports to the ministry on the progress of their projects.

“If this requirement is duly adhered to, any work delay will raise a red flag and will be watched early on to prevent the problem from escalating into a full blown abandoned project,” Kong says. Invariably, he says, when projects are abandoned, fingers are pointed at the ministry that it should take over with the aim of reviving the projects.

But Kong says: “The ministry is not in the position to take over abandoned projects as it will cost a substantial amount of taxpayers’ money. Also, they must understand there are many unsolved problems associated with abandoned projects such as claims from buyers, bank borrowings and other liabilities, which are best left to the professionals to resolve.”

Instead, he points out that the ministry takes on the role of a mediator who looks for white knights to help revive abandoned projects.

Crunching numbers

Of the 148 abandoned projects, eight projects involving 4,591 units (4,306 units sold) are at various stages of being revived by Syarikat Perumahan Negara Sdn Bhd under the Government’s recent economic stimulus packages, 14 projects with 7,750 units (5,139 units sold) are in the process of being revived by white knights, and six projects with 1,361 units (1,262 sold) are being revived by the original developers.

But not all abandoned projects can be resuscitated. Some 12 projects involving a total of 1,601 units (554 sold) have failed to take off and the ministry is in the process of mediating a settlement between the developers and buyers.

Consumer groups and industry players are calling for the protracted problem of abandoned projects to be nipped in the bud through stricter enforcement of the laws and for punitive measures to be meted out on errant developers.

They say abandoned projects will continue to plague housebuyers unless more stringent punishments, including jail terms, are meted out to offenders.

By punishing the “few bad apples” who have failed to fulfil their obligations spelt out in the sale and purchase agreement with housebuyers, industry players that have duly performed their duties in building and delivering their projects on time to buyers will hopefully be spared the bad image.

The call for stiffer penalties has the support of the Real Estate and Housing Developers Association (Rehda), which has urged the Government to take action against these “culprits”.

Datuk Ng Seing Liong ... ‘Rehda does not condone any project abandonment caused by non compliance to the laws.’

President Datuk Ng Seing Liong says the association does not condone any project abandonment caused by non-compliance to the laws, in particular the Housing Development (Control and Licensing) Act and its subsidiary regulations.

“Developers who are facing problems completing their projects should seek help from the relevant authorities including the Housing and Local Government Ministry that has a team to help solve problems relating to delayed and ailing projects,” Ng says.

He adds that the current lull in the market provides a good opportunity for developers with the expertise to step forward to help revive abandoned projects as part of their corporate social responsibility.

“Whatever the reasons may be, it is certainly crucial for developers to uphold their responsibilitites towards housebuyers by ensuring proper feasibility studies are conducted to ascertain a project’s viability before it is launched and duly complete their projects on time.

“Developers should also adopt proper cash flow management to avoid liquidity problems and to fully abide by all the guidelines spelt out in the Housing Development Act,” Ng adds.

By The Star

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