Robert Tan, author of “Buying Property From Developers: What You Need To Know And Do” reveals a common developers’ trick to avoid paying house buyers for late delivery of houses.
The Sell-Then-Build (“STB”) system of building and selling houses is unique and has controlled the housing development industry in Malaysia for many years.
In summary, this system allows houses to be built in stages and paid for progressively after each stage of work is done.
The system sounds simple. But it is ridden with a host of problems. Stories are told about house buyers being “robbed” under the system, not once or twice but many times over and in many ways.
Basically, the system is based on the business concept of using house buyers’ money to fund the housing development.
In business jargon, it is about using other people’s money (OPM) to make profits, which means developers under the system leverage on OPM to make business plan and profit goals.
The obvious pitfall of the system is the potential risk of a housing project being stalled or abandoned.
Project abandonment is a serious problem to the country such that the Government has had to intervene and pour in big funds to revive abandoned projects for the rakyat’s sake.
Apart from such problems, the STB system
exposes house buyers to manipulation and tricks of greedy developers.
This article seeks to highlight one method often used by greedy developers to hoodwink buyers into giving up their rights under the law. It’s called “The Late Damages Trick”.
Late damages are about giving the house buyer damages when the developer delays delivering vacant possession of the house to the buyer.
The damages are calculated at the rate of 10% per annum of the purchase price on a daily basis from the day of expected delivery to the day of actual delivery.
The damages are claimable when they accrue i.e. when actual delivery of vacant possession happens.
The problem with late damages is that the developer would often seek to avoid paying it.
The following story illustrates the point.
Mr & Mrs Nobody bought an apartment from a housing developer.
Under the STB system, the housing developer was to deliver vacant possession of the apartment
within 36 months from the date of the sale and purchase agreement.
The developer failed to do so. When the house was finally delivered, Mr. & Mrs. Nobody claimed for the late damages. They sought to set-off the damages against the outstanding progressive installments.
The developer’s ego was challenged. It rejected the set-off and asked the couple to pay the full progressive installments.
It threatened to charge interest for late payment, terminate the agreement, forfeit the deposit and take back the apartment if the couple didn’t make the full payment.
The couple shook their heads in disbelief.
“How could the developer do this?” Mrs. Nobody said to her husband.
Mr. Nobody was an experienced man. He knew that the developer was greedy. Also, fighting the developer was far from their minds because they were in their golden years. He kept his peace.
“But we spoke to the managing director who assured us that our matter would be resolved. He was on his way out of the office to play golf but he assured us not to worry,” the wife continued.
“Don’t worry dear. Let karma get them,” he consoled his wife.
Later, Mr. & Mrs. Nobody got a letter from the developer. The letter asked them to pay fully the progressive installments and asked for a 50% discount on the late damages.
If they did this, the couple would immediately get the keys to the apartment.
Being nobodies, Mr. and Mrs. Nobody withdrew the set-off, paid the full progressive installments and gave the 50% discount on the late damages.
And being nobodies, very few people took their loss seriously.
Why have things gone so wrong? Are the authorities blind?
Some greedy developers get bolder and more cunning when they realise that it is fairly simple to play the Late Damages Trick.
For the education of house buyers, here is one way the trick is played.
The trick is based on a mantra. To be effective, the mantra would be repeated in unison by the developer’s employees.
The mantra is: Delay paying damages. Get a discount.
How does the mantra materialise? Here is the step-by-step process.
First, the developer delivers vacant possession of the property to the house buyer and demands the buyer to pay the full progressive installment.
Second, because of delay in the delivery of vacant possession, the developer knows that late damages are to be paid, but they stay silent on it.
If the buyer exercises the right to set-off the damages against the progressive installment, the developer would reject it. It would demand that the buyer pay the full payment first.
Third, the buyer pays the full amount.
Fourth, the buyer then asks the developer to pay the late damages.
The developer shrewdly offers to pay the buyer a lesser amount on the late damages sometimes up to 70% lesser of the total damages.
The developer would inform the buyer about the long delay, inconvenience and expense of going to court for legal redress.
Occasionally, the developer may mock the buyer for going to the homebuyers’ tribunal although the tribunal has generally offered fast, cheap and efficient legal redress to house buyers.
The developer seems arrogant possibly because the tribunal’s award may be a mere show.
For example, some tribunal awards for late damages have been set aside for unprecedented reasons when the developer applies for judicial review of
Lastly, the buyer is hard-pressed. Under the circumstances, he or she relents to the
The mantra materialises with a homerun in malpractice for the greedy developer.
Many years ago, a now retired engineer who worked in Singapore told me that while Singapore was growing her city, her ex-Prime Minister, Mr. Lee Kuan Yew, was asked what ought to be done to developers who flout the law. The honourable Minister purportedly said, “Whip them!”
In Malaysia, the laws allow for strict enforcement against errant developers. Even directors of errant developers can be personally charged and sent to jail for misconduct.
But whether there has been any successful prosecution and deterrent sentence given to
errant developers and their directors seems to be a moot point.
While this seems to be the state of things now, house buyers ought to be aware of the Late Damages Trick.
When it happens, hopefully they would recognise it as they have been educated about it here.
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