Errant developers face stiff penalties

Straits Times: Thu, Nov 24
KUALA LUMPUR: Ms Suzlina Kusnen and her husband made a RM50,000 (S$20,500) down payment and waited for their hilltop bungalow to be built. Twelve years and two developers later, the Desa Kerayong Indah project in the Klang suburb in Selangor is …
KUALA LUMPUR: Ms Suzlina Kusnen and her husband made a RM50,000 (S$20,500) down payment and waited for their hilltop bungalow to be built.

Twelve years and two developers later, the Desa Kerayong Indah project in the Klang suburb in Selangor is still nowhere near completion.

The couple are among thousands of house buyers, including a number of Singaporeans, who are left in the lurch and often with no recourse by developers who failed to deliver their projects.

According to the Housing and Local Government Ministry, there were 116 abandoned housing projects around the country as of Oct 31 and 1,292 developers have been blacklisted.

In a bid to end such rampant cases of abandoned projects, the government is pushing through new legislation to punish errant developers with fines of up to RM500,000 (S$200,000) and jail terms of up to three years.

Housing Minister Chor Chee Heung set the wheels in motion when he tabled a Bill last week.

Under the proposed law, legal action can be taken against a developer that refuses to continue a project, has postponed or suspended or stopped a project for at least six months, or has busted the scheduled date of completion.

The buyer will have the right to terminate the deal if the developer refuses to continue with the project after six months from the date on the sales and purchase agreement.

The deposit that a developer has to pay to get a housing development licence will be raised from RM200,000 to 3 per cent of the estimated cost of the project. This is to weed out developers that do not have sufficient financial resources.

Developers that abandon their projects often claim they have run out of funds or blame the economy for causing them to go bust.

A senior official of the Federation of Malaysian Consumers Association (Fomca) said buyers often suffer a double whammy: paying rent for temporary housing while servicing their bank loan for the new property.

‘We hope this law will help consumers and that developers will not take it so easy,’ Fomca communications director Mohd Yusof Abdul Rahman told The Straits Times.

Datuk Seri Michael Yam, president of the Real Estate and Housing Developers’ Association Malaysia (Rehda), told The Straits Times that while it did not condone fraudulent cases of abandoned housing projects, developers which suffer genuine business failures due to unforeseen economic circumstances should not be punished unfairly.

The government has tried over the years, albeit with little success, to resolve the problem of abandoned projects. Industry insiders say blacklisting developers is not always effective.

Under its budget for 2012, the government will spend RM63 million next year to revive 1,270 units of abandoned housing.

A build-then-sell (BTS) scheme is also expected to be made mandatory by 2015.

Property analyst Steve Tan of TA Research said the tougher measures, including jail terms, are a good move to protect house buyers.

He also said that while the BTS scheme was a good one, it could cause difficulties for property developers.

Agreeing, Mr Yam said the BTS units could eventually translate into higher prices for buyers.

‘Mandatory implementation of this system would render many developers, especially the smaller ones, unable to raise capital and cause them to fold. This would result in a housing shortage, higher delivery cost due to lack of scale and lack of competition, which would surely cause undesirable property price increases,’ he said.

Developers have complained in the past that steep upfront costs and a lack of progressive income, in the form of progress payments from buyers, would cause a drop in the number of developers, if the BTS scheme is implemented.

Still, the government’s move is good news for would-be buyers.

Said Ms Suzlina: ‘Something has to be done to compensate the victims.’

hazlinh@sph.com.sg

Source: The Straits Times © Singapore Press Holdings Ltd

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