In last month’s instalment, HBA delved into the banking sector’s involvement in unlicensed housing developers and their contribution to the national track record of abandoned housing projects. This month we hear from the affected public, an ABM’s response to widespread media reports on the housing malaise.
In a letter to the Editor of a local English Language daily, the Association of Bankers Malaysia (ABM) has clarified on two articles entitled “No Licence! – 195 housing projects undertaken by illegal developers” and “Breaches allowed to go on at all stages”. We have taken a few salient excerpts as a background to the voices of dissent from affected homebuyers which follow the letter.
1. ABM mentions that their members, comprising 25 licenced commercial banks in Malaysia, are all law-abiding institutions that co-operated when ABM circulated the list of 195 “unlicensed” projects in which banks had allegedly provided purchasers of said units with end-financing facilities. These were not bridging loans and thus no contractual bond between developers and banks had been forged. As such, no security and debenture was extended and /or created.
2. A majority of 193 projects straddled the period of 1997 – 2005 with one project each developed in 2007 and 2010 apparently. Based on this, ABM mentions:
• 6 member banks were identified as end-financiers to buyers in 46 projects, whereby 4 banks confirmed end-financing purchasers of 40 aforementioned projects. The remaining 2 have no such records of end-financing
• The remaining 6 projects had no traceable records of alleged end-financing
• 15 other projects were financed by non-ABM members
• As for the remaining 134 projects which had no identifiable end-financiers, 6 member banks had indicated that they had provided end-financing for purchasers of 64 of the projects
• Legacy cases – cases with no traceable records and banks involved had ceased operations
3. Where records were traceable, explanations on end-financing undertakings involved:
a. Ad-hoc application for end-financing involved individual credit worthiness or credit standing
whereby the banks relied on the Sales & Purchase Agreement (SPA) between developer and
purchaser as the banks were not panel end-financiers. There was no suspicion that the SPAs
were invalid and/or falsified
b. 20 highlighted projects were not under the purview of the Housing Development (Control and Licensing) Act 1966
c. 7 projects were serviced apartments built on commercial land. These do not fall under the
requirements of the Act and a housing developer’s license was not necessary
4. Time and effort of the banks would be better utilised in engaging the respective purchasers to extend aid and ABM and its members are working with the relevant agencies to realise this. Member banks have appointed a dedicated officer as a single reference channel for affected purchasers with assistance done on a case by case basis and rescheduling loans and/or lowering the instalment amount/interest rate for borrowers.
Direct Response to “ABM Clarifies”
The floodgates opened right after ABM’s letter to the daily was published. A certain Mr Robert Tan, author of “Buying Property from Developers: What You Need To Know and Do” wrote in to HBA to give us his take on this issue. He begins by expounding old school values such as integrity, hard work, patience, responsibility and commitment which are deemphasised by a more modern society as it is time-intensive to inculcate. In the context of the housing development industry, old school methods of financing seem archaic yet they are vastly appealing to entice borrowers to the financiers.
All the while, the flaws in the banking system are hidden from purchasers, with the Letter of Undertaking (LOU) being one of them. After a developer’s property is purchased, the end-financier requires the LOU from the developer before releasing the loan to the developer with the developer undertaking (promising) to refund the money to the end-financier should the project be delayed or abandoned. This is a form of guarantee that is as legally-binding as a contract, forming a check and balance mechanism between the two parties.
However, when a developer is in a weak or doubtful financial position, banks would not sue a developer to pay up, instead asking the buyer for the sum borrowed. This effectively shifts the financial risk to the buyers and negates the LOU between banker and developer. It is this cause that many unsuspecting buyers are bankrupted as they cry foul about this situation. While old school bankers scrutinise details before approving a loan to the developer, a modern and fast fix, would be to sue the buyers for payment instead.
In Robert Tan’s response to ABM’s reply, he pointed out that the bankers have totally missed the point in ensuring better recoverability of money lent to developers and instead propagate ‘profits privatized, losses nationalized’. He ends by asking for a more responsible financing system that promotes housing development laws to protect house buyers.
Another unsuspecting victim of an unlicensed housing project which became abandoned midway was a couple who purchased a house with one of the panel banks providing end-financing services to them. They were asked to sign two separate agreements for the housing lot and the house respectively and began making progressive payments to the developer. When the project was abandoned, the couple were sued by the bank for not settling the monthly interest and the loan recalled with the bank obtaining judgement against the couple. Despite pleas for a grace period and leniency, the bank proceeded bankruptcy charges against the couple with Bank Negara Malaysia and CTOS blacklisting them, preventing a loan to be obtained from another business or for another house.
In the midst of this chaos, they discovered that the land belonged to another owner and the title was of agricultural status. The agreements signed were not compliant with the law and there was no conversion of land to building let alone approval for sub-division and building plans. The worst thing was the lawyer had migrated and the developer wound up. It was as if the whole transaction did not happen. The couple continued getting legal aid in defending themselves against the bank’s actions and in response to ABM’s letter pointed out the following:
1. When banks grant loans to purchasers of unlicensed projects, are the banks law compliant?
2. To say that banks do not have a ‘direct contractual relationship’ with the unlicensed developers is to negate the letters written between both parties when a property purchase takes place as well as the security of the bank based on these purchases.
3. ABM has admitted to some members providing loans to purchasers of unlicensed housing projects and will classifying these as ‘legacies’ mean they are free from penalties of law? Also, does the phrase ‘time will be better spent to provide assistance to affected purchasers’ allow the wrongdoers from getting away scot free?
4. ABM’s reply to banks that cease operations seem like a cruel joke as there are Vesting Orders when banks are acquired and what is BNM’s role in supervising this?
5. When ABM says that their members rely solely on the SPA on the credit-worthiness of the purchaser, are they also admitting that there is no check and balance?
Theirs is not the only case as HBA also provided another correspondence that had featured another victim of an unlicensed developer that is now getting help from AKPK and Malaysian Housing Association to stop the financial and legal recriminations against him when the project was abandoned nearly 10 years ago. Finally, an Australian-based Malaysian lawyer asked if indeed the affected parties can move on when they are still bound with financial commitments on a virtually non-existent property. He asked if ABM was indeed just sweeping the whole issue under the rug while the financial issues remain unresolved.
While the whole debacle continues to play out, HBA maintains our vigilance to watch out for the cases and the feedback from the public on the response for this issue. This just proves the need to slowly move towards the Build-then-Sell (BTS) concept as proposed to the Parliament earlier in the year.
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