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Friday, February 11, 2011

Build-then-sell concept likely to favour big boys

PETALING JAYA: The proposed implementation of the build-then-sell (BTS) concept as a mandatory system is likely to sit well with financially sound, established developers but would be a burden on smaller, less resourceful players.

“This system means that developers have to complete the project first before they can start selling and earning profits,” said an industry observer

“This may be alright with the large players that are financially sound. But for the small ones (developers), they may not have the resources to finance the entire project and have no choice but to start selling as soon as they can,” he added.

An analyst with a local bank-backed brokerage concurred, saying that a mandatory BTS could mean smaller developers would go out of business.

“The BTS will end up burdening the developer financially and this could result in higher selling prices, as the cost of development would be more as they (developers) have to rely on full financing throughout.”

“In the worst-case scenario, housing prices could spike and bankers may not want to risk issuing loans under a concept where houses are only sold once they are completed and have been issued the certificate of fitness for occupation.”

He said one of the arguments against the BTS system was that its implementation could result in the escalation of abandoned projects. “Developers that can't finance the full project will end up abandoning it.”

However, another analyst argued otherwise, stating that projects still got abandoned even under the current “sell-then build” (STB) system.

“The BTS system will probably mean that only the fittest will survive. This means that projects will be undertaken by sound, reputable developers rather than fly-by-night ones. At the end of the day, it's the consumer that gains.”

Yesterday, a local news report claimed that the BTS mode of house ownership is expected to be made mandatory by 2015.

Citing sources, it said that the drafting of the amendments to the Housing Developers Act would include a clause calling for the gradual implementation of the BTS system.

In 2006, then-Deputy Prime Minister Datuk Seri Najib Tun Razak introduced the BTS system as a trial run alongside the STB concept but there was poor take-up among developers despite a host of incentives to make it more attractive for them.

One industry observer said the BTS system usually sat well with potential home-buyers because they would be able to see the final products that they intended to purchase.

“Potential buyers will be more confident to spend their money on something tangible than on a product that's not there,” he said, adding that the BTS system, if implemented, should be done gradually so that the small players could adapt.

“Perhaps the BTS system could be imposed on bigger companies and a more flexible concept implemented for the smaller players,” he added.

By The Star

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