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Saturday, July 26, 2014

Homebuyer due diligence

A COMMERCIAL transaction normally commences with due diligence being conducted prior to much consideration being put into the written agreement. This measure has two effects – it prevents the parties from sealing a detrimental deal and also time wastage over unfruitful discussions.

Essentially, this is an important process to ensure the parties get what they exactly bargained for. The same is applicable in the purchase of new residential properties from developers.

While there have been incidents of abandoned housing projects all over Malaysia that impacted the homebuyers who spent their hard-earned money but did not get their dream home in return, generally the housing authorities had been successful in protecting the interest of house buyers.

Many of these projects were abandoned by illegal developers who did not possess any valid licences to commence the development in the first place.

The Urban Wellbeing, Housing and Local Government Ministry’s website showed there were 82 developers without licence and 116 developers who have abandoned their projects as of June 30, 2014.

The question that remains is how could the homebuying public be so ignorant that they are incapable of doing the basic due diligence when making the biggest life-long investment of buying a dream home.

Under the Housing Development (Control and Licensing) Act 1966 (HDA), any developer who constructs and sells more than four units of housing accommodation comes under the purview of the HDA.

Section 18 of the HDA states that any housing developer who carries out housing development without having been duly licensed shall be guilty of an offence and shall, on conviction, be liable to a fine which shall not be less than RM250,000 but not exceeding RM500,000 or jailed not more than five years or both.

Thus, it is compulsory for a developer, prior to developing a housing project, to fulfill the following:

·Obtain the necessary approvals from the relevant authorities such as development order and building plan;

·Apply a developer licence from the Controller of Housing whereby the Controller has the discretion to grant with or without further conditions or to refuse granting the licence;

·Deposit a sum of not less than RM200,000 with the Controller for the grant of the licence which is refundable upon the completion and expiry of the defect liability period of the project (there is an amendment to adjust the deposit sum in line with the gross development cost in 2013 but it has yet to come into force); and

·Apply for a sales and advertisement permit to start selling the units of the development.

Thus, a licensed developer would pass the first stage, with checks by the relevant authorities. A unlicensed development would mean these authorities are out of the picture and that development had not been discovered for breach yet.

As such, the next level of due diligence will be significant: the homebuyer himself.

With the advancement in wireless technology today, we “google” for everything for which we need clarification and information. The same applies for home purchasing. You will be amazed over the amount of information available online: ranging from the developer’s own website, property reviews to forums started by other homebuyers on the same development.

While it is not advisable to believe everything from the world wide web, it serves as a good starting point to know better the product you are buying before signing the sales and purchase agreement.

A minor website checklist is as follow:


·Developer’s website

·News websites

·Ministry of Urban Wellbeing, Housing and Local Government

·Real Estate and Housing Developers’ Association (Rehda) and

·National House Buyers Association.

In addition to that, you may personally pay a visit to the development itself and make your own observation. If possible, asking around for details would also build up the confidence in buying the right home.

Normally, at the entrance, there will be a white signboard feeding you details of the construction such as the details of the development, landowner, developer, contractor and completion date.

Your lawyer or banker also serve as another filter of due diligence. Before you sign any agreement, it is advisable to ask them on any doubt that you are suspicious about and to be comfortable with what you sign.

Even if you have questions on the credibility of the lawyers, the Bar Council has a website for you to do the checks or even its friendly help desk in its office.

The above due diligence process does not guarantee a 100% smooth property transaction but it minimises the risk of buying a project which could be abandoned. Besides conducting a detailed research, the purchase of a house from reputable developers may diminish your homebuying risk further.

And for any of you who think you might be a victim of unlicensed developer, it is time to call your lawyer and banker for clarification. Owning a house is a lifetime commitment; its protection starts with you.

By The Star

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