*This article was updated on 9 February 2022.
Recently, the Housing and Local Government (KPKT) Ministry said that the Housing Development Act 1996 (Act 118) will be amended to help buyers of abandoned housing projects. In this article, we question why current laws for abandoned housing projects aren’t being enforced instead – it’s high time KPKT invoke Section 18A of the HDA to prosecute delinquent housing developers
In April 2021, KPKT said that they would be setting up a fund where housing developers are required to allocate a certain amount before they can develop a housing project. The fund will then be used if a developer abandons their project. This tuning of the current housing law is said to offer ‘more protection’ and safeguards for house buyers.
HBA is of the opinion that this measure would bring more harm than good. If such a ‘rehabilitation fund’ is set up, wouldn’t house prices be increased proportionately since the housing developers will always factor the ‘increase’ to house prices? Would the setting of the proposed rehabilitation fund allow developers to be reckless in launching new projects?
There’s nothing wrong with the current Housing Development Act (HDA)
The current Housing Development (Control & Licensing) Act, 1966 (HDA) was actually revamped and implemented on 1st June 2015 to plug some of the loopholes, rectify inadequacies and several questionable and grey clauses that existed in the original Act.
The procedures for control and licensing of housing developers have been made more stringent so that non-bona fide developers would be marginalized. Let me elaborate on the stringent rules and safety nets that are currently under the HDA:
Current law in HDA criminalizes housing abandonment
The pertinent amendments to the HDA in 2015 were on the issue of criminalizing abandonment. This new amendment makes it a crime for housing developers to abandon their housing projects with jail sentences.
The new Section 18A states: That any licensed housing developer who abandons or causes the abandoning of a housing development / any phase of a housing development shall be guilty of an offence and shall, on conviction, be liable to a fine which shall not be less than RM250,000 but which shall not exceed RM500,000 or to imprisonment for a term not exceeding three (3) years or to both.
The million-dollar question is that – how many wayward housing developers have been prosecuted with abandoned housing projects under this new Section, which was implemented 2015? We have not heard of any being reported in the media in the past 6 years! Have you?
It is high time that KPKT invokes Section 18A of the HDA to prosecute delinquent housing developers.
Current law requires a deposit of 3% on Construction Cost in the Housing Development Account
Section 6(1)(b) which details the Conditions or Restrictions for the grant of a Developer’s License was enhanced to make the requisite deposit (refundable) from the then RM200,000 to 3% of the construction costs.
As to whether the 3% deposit will curb abandonment, our contention is that it will indirectly reduce such incidences. Those developer-aspirants who are financially so weak that they are not able to raise the 3% deposit (it is refundable anyway) should stay out of the industry because the probability of them running into trouble is higher.
The increase in the finance cost in order to fork out the 3% deposit is negligible when measured against the potential gross development value. Furthermore, 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.
Good laws which are not being enforced is as good as ornamental pieces
However, the effectiveness of the revamped Act remains to be seen. It would only reflect its effectiveness after a period of time. However, we reiterate that this would largely depend on the degree of enforcement being carried out.
More than 5 years have passed since Section 6(1)(b)’s implementation. Why are there new abandoned housing projects littering our skyline? Where is the ‘protection’ from the defunct developers? Do the government not know that abandoned housing projects is the biggest nightmare house buyers face?
Our fundamental belief is that even the best of legislation to counter a particular situation would only remain as an ornamental piece unless strict enforcement is carried out against offenders, without fear or favour, so as to instil into them the respect and fearful feeling that the law commands.
The Housing Ministry is the guardian of the housing legislation that was passed by Parliament. Yet, how do you account for the surmounting problematic housing projects? It is not that the Ministry does not have the laws; it’s the sheer lack and lax in enforcement.
What are the existing laws under HDA meant to protect homebuyer rights?
Let’s look at some of the existing stringent rules and safety nets that are already within the existing laws:
Sec 7A – Duties to maintain Housing Development Account
- 7A (4) – The licensed housing developer shall not withdraw any money from the Housing Development Account except as authorised by regulations made under this Act.
- 7A (10) – Any housing developer who contravenes or fails to comply with this section shall be guilty of an offence and shall, on conviction, be liable to a fine which shall not be less than RM250,000 but which shall not exceed RM500,000 and shall also be liable to imprisonment for a term not exceeding three years or to both.
Sec 7C – Freezing of the Housing Development Account
If the Controller has reason to believe that a licensed housing developer is carrying on his business in a manner detrimental to the interest of the purchasers or is contravening any provision of this Act, the Controller may in writing order a freeze on the HD Account and direct the bank, not to part with, deal in or otherwise permit any withdrawal of any sums of money from the HD Account until the order is revoked or varied or unless in accordance with any conditions that may be imposed by the Controller at his absolute discretion from time to time during the currency of the order.
Even with the existing HD Account, no great measure at preventing misappropriation of buyers’ money, has proved to be a great ‘burden’ to those errant developers, going by their determination to avoid it. Meantime, we wonder whether the safety net was cast out if ever at all, to salvage the failing projects – How many of these defaulting developers have been prosecuted?
Sec 7 – Duties of a licensed housing developer
According to Sec. 7(f), housing developers are required to send to the Controller a correct and complete statement in writing, not later 21st of January and 21st of July of each year – containing information on the progress of the housing project which the housing developer is engaged in, carries on or undertakes until the certificate of completion and compliance have been issued for all the housing accommodation in that housing development.
If this has been constantly and effectively monitored by the Housing Minister and qualified personnel under his charge, symptoms of sickness (of a failing housing project) would have been diagnosed. Is something lacking in the supervisory role vide Form 7(f)?
Sec 10A – Powers of entry, search and seizure.
This Section was copied en-bloc from the Income Tax Act and was included in the HD Act amended in the year 2002; but has this Section been invoked to instill fear to the spine of those errant developers? If so, how do you account for those recalcitrant / repeat offenders? It can’t possibly be that the Housing Ministry is shy of publicity by not highlighting their achievement to the mass media.
Sec 11 – Powers of the Minister to give directions for the purpose of safeguarding the interests of purchasers
The Housing Minister may without prejudice give directions under section 12 for the purpose of safeguarding the interests of the property purchasers under this instances:
- Where on his own volition a licensed housing developer informs the Controller
- As a result of an investigation made under section 10
- For any other reason the Controller is of the opinion that the licensed housing developer becomes unable to meet his obligations or is about to suspend his building operations, or is carrying on his business in a manner detrimental to the interests of his purchasers
The directions issued include the following:
(a) direct the licensed housing developer in question to take such steps as he may consider necessary to rectify any matter or circumstance;
(b) direct that a person be appointed or himself appoint a person to advise the licensed housing developer in the conduct of his business;
(c) direct a company to assume control and carry on the business of the housing developer upon such terms and conditions as the Minister may determine;
(d) certify that the licensed housing developer has abandoned the housing development;
(e) direct that the licensed housing developer present a petition to the High Court for the winding up of his business; or
(f) take such action as the Minister may consider necessary in the circumstances of the case for carrying into effect the provisions of this Act.
Stories of developers ‘falling sick’ and incapable of continuing with their housing project is not something new. Just recently, local media highlighted yet another outcry of buyers suffering from another abandoned housing scheme. Sympathies for these affected buyers are all written on the walls but what possibly can they do?
Under Section 10 of the HDA, it is stipulated that the Minister may direct the Controller or an Inspector to make an investigation – under the condition of secrecy investigate the commission of any offence under this Act / investigate into the affairs of or into the accounting or other records of any housing developer if he has reason to believe that the housing developer in question is carrying on his business in a manner detrimental to his purchaser’ or ‘has assets insufficient to meet his liability’.
This Section is further enhanced and amplified with the inclusion of Sections 11 and 10A (Power of entry, search and seizure) and all the Sections aforementioned. The Housing Ministry have wide-ranging powers to intervene and salvage a ‘sick and problematic project’ and to offer a solution.
Yet, look at the numbers of abandoned projects which emerges a dire financial picture for naïve and innocent buyers. Individuals and the community are being harmed by the lax enforcement and monitoring mechanism.
Stop amending Housing laws and look into enforcement instead
The prolonged Covid-19 pandemic has forestalled the property industry and continues to beset stakeholders with massive problems that could run to billions of ringgit. The number of abandoned projects is expected to rise due to the economic slowdown and cash-strapped property developers. The possibility of a spike in distressed projects post-pandemic cannot be discounted. Not only developers will experience cash hiccups; buyers too will be affected especially the M40 and B40 household groups, which have become more vulnerable with many facing job losses and salary cuts. At the same time, new graduates are finding it tough to secure full-time jobs.
Consumers who rely on legislation often get let down by the enforcers. It is only good on paper and it will continue to remain in our archives unless the existing laws are used to their full capacity. The problem of enforcement was not because of the lack of laws. Enforcement programs must be organized. Do we honestly need new laws to purportedly ‘offer more protection’ for the house buyers when the existing ones are adequate? Or are the Government blaming the ‘insufficient housing laws’?
The public has been relying on the housing legislation and the enforcers to protect, police, monitor and supervise the housing developers (whom they licensed) in their quest for homeownership and many are fed up with the lack of enforcement when problems surfaced. Lack of enforcement and monitoring weaken the provisions of the Act.
Lets’ face it: there is no solution to abandonment. We just have to prevent it from happening. Could pre-emptive measures be adopted and enforcement organized to avoid future abandonments? Your guess is as good as mine!
As the saying goes: ‘Prevention is better than Cure’. After the horses have bolted, you now close the stable doors?
This article is written by Datuk Chang Kim Loong, Hon. Sec-Gen of the National House Buyers Association (HBA), a non-governmental and not-for-profit Organisation manned wholly by volunteers.