The Housing Development Act (amendment) Bill was debated in Parliament on 1 December 2011 and HBA was invited to brief the Members of Parliament (MPs) prior to its debate. The National House Buyers Association (HBA) lauds the positive engagement from YB Dato’ Seri Chor Chee Heung, Minister of Housing & Local Government in addressing the cumulative problems faced within the housing industry with the intention of providing further protection to house buyers against errant developers.
Within the parameters of this Act, there were a number of points brought up for discussion, we now turn our focus on refundable deposits and the Sales & Purchase Agreement (SPA). This is the continuation from last month’s first installment.
Imposing a 3% Refundable Deposit
We are pleased that the Government heeded our call to have Section 6(1)(b) (Conditions or Restrictions for the grant of a (developer’s license) of the Housing Development (Control & Licensing) Act, 1966 (Act 118) to be amended. The Minister recently announced that laws will be enhanced to make the requisite deposit (refundable) from the current RM200,000 to 3% of the Construction Costs.
Firstly, we will not even use the word “increase” as it is due to the case of small developers who build a small number of houses in the smaller towns, where total construction cost is RM2 million or less, the RM200,000 that they are currently forking out actually represents over 10%. Thus, the new 3% is actually a vast reduction! Compare this to a big project developer whose construction cost is, say, RM20 million. The present RM200,000 represents a miserable 1%!! Thus, any contention that the 3% will weigh down on the smaller developers is incorrect. The present RM200,000 is flawed because it assumes a “one-size-fits-all” formula, where small developers are compelled to wear the “big size shoes” that clearly do not fit them. The proposed introduction of the 3% formula (HBA’s proposal was for 5% imposition on GDV) is a realistic and a fair figure (and to an extent, a compromised one) because the actual deposit sum is dependent on the size of the project.
As to whether the new 3% deposit will curb abandonment, our contention is that it will indirectly reduce such incidences. Developer-aspirants who are financially so weak that they are unable to raise the 3% deposit (which is refundable) should stay out of the industry because the probability of them running into trouble is higher. The increased finance cost to fork out the 3% deposit is negligible when measured against the potential gross development value (GDV). Further, any additional cost (interests) is only incurred during the construction phase because upon project completion, the 3% is fully refunded by the Controller of Housing. In a small way, it also serves as insurance for the Ministry of Housing & Local Government to have a source of funding in the event of unforeseen eventualities caused by developers where immediate expenses need to be incurred. The havoc created by abandoned projects and the amount of funds made dormant (and in many cases, written off) is far more devastating and adverse than the amount of funds held in refundable security deposits. Project abandonment cannot be totally prevented but the 3% deposit only acts as proof of commitment, seriousness, financial standing and a safety net. The proposed 3% deposit can, to a larger degree, assist in the revival efforts by the Government compared to the present insignificant RM200,000.
The tightening of the Housing Development (Control & Licensing) Act, 1966 which was revised in the years 2002 and 2007 has failed to arrest the problem of abandoned housing projects. The statistics speaks for itself. The situation of Enforcement needs to be tightened up regardless of the amount of security deposit(s) demanded. The 3% deposit represents only a minute factor in the whole risk equation. We would like to state that the proposed 3% is the minimum norm and that Controller of Housing should be empowered to increase this percentage to our proposed 5%, if deemed necessary due to higher risk or whatever other reasons.
Sec 8A: Statutory Termination of Sales & Purchase Agreement (SPA)
The clause reflects the severity of house buyers’ problems such that it entitles them to terminate the contract of sale after a delay of 6 months after the execution of the Sales & Purchase Agreement’. By this amendment, any house buyer would have the equitable right to get out of the agreement which present legislation fails to allow. However, instead of ‘6 months after execution’, it should be, at the least, read as ‘at any continued period of six (6) months during the subsistence of the Sales & Purchase Agreement’. There have been numerous situations where a developer resumes works and then stops for a period of time only to restart to the frustration of the buyers.
However, to ensure public confidence in the termination mechanism which among others, requires the Controller’s certification before the homebuyer may terminate the contract, we propose that express provisions on the issuance of the Controller’s certificate is important. This is to ensure that the certification is issued in a prompt and transparent manner. Another glaring weakness not addressed by the amendment is the question of where can buyers claim back whatever they have paid when a project is abandoned and the developer becomes insolvent?
The proposed amendment to Section 8A (1) (c) may be as follows:
c) the Controller has certified that the licensed housing developer has refused to carry out or delayed or suspended or ceased work for a continuous period of six months or more after the execution of the Sale & Purchase Agreement in reliance upon any act, omission, failure or neglect of the Developer or documents available to the Controller at the material time.
Section 8A (6) – The word ‘lawfully’ in line 1 creates unnecessary confusion and argument. It should not matter whether the Sale & Purchase Agreement was ‘lawfully’ entered or not because we do not wish parties to take advantage of his/ their own wrongdoing.
In the next issue, we will look at other points raised in the amendment to this Act including the definitions of the Act and the parameters set within it.
NATIONAL HOUSE BUYERS ASSOCIATION [HBA]
No. 31, Level 3, Jalan Barat, Off Jalan Imbi, 55100, Kuala Lumpur
Tel: 03-2142 2225 | 012- 334 5676 | Fax: 03-22601803