How effective is the new amendments to the HDA? Part 1

This time around, the amendments to Housing Development (Control & Licensing) were tabled in Parliament and debated through December 2011. The amendments have received its royal assent on 30th January 2012 and gazetted on 9th February 2012.


Sean Prior/rf123

Its implementation was inordinately delayed because of the governing HD Regulations, 2015 (HDR) and a host of other crossed referred laws that related to strata management and maintenance. It finally was implemented by the Housing Minister and came into operation on 1st June 2015.

But has the amendments to the principal legislation and its governing regulations with a new set of sales & purchase agreements plugged some of the loopholes; rectified inadequacies and even some questionable and grey clauses that existed in the original Act and its regulations? The procedures for control and licensing of housing developers have now been made more stringent so that non bona-fide developers would be marginalized. The effectiveness of the revamped Act remains to be seen. It would only reflect its effectiveness after a period of time. However, it must be reiterated that much would depend on the degree of enforcement to be carried out.

Below are some of the pertinent amendments to the HDA:

Criminalizing Abandonment 

The new amendments make it a crime for housing developers to abandon their housing projects with jail sentences. This is with the proviso that they are charged for the criminal offence and brought to Court of Law in the first place. The clause defining ‘abandonment’ is clear and precise.

New Section 18A – Offences relating to abandonment of housing development by a licensed housing developer

18A. (1) Any licensed housing developer who abandons or causes to be abandoned a housing development or any phase of a housing development which the licensed housing developer is engaged in, carries on, undertakes or causes to be undertaken shall be guilty of an offence and shall, on conviction, be liable to a fine which shall not be less than two hundred and fifty thousand ringgit (RM250,000) but which shall not exceed five hundred thousand ringgit (RM500,000) or to imprisonment for a term not exceeding three (3) years or to both.

(2) For the purpose of this section, ‘abandons’ means refuses to carry out or delays or suspends or cease work continuously for a period of six months or more or beyond the stipulated period of completion as agreed under the sale and purchase agreement.

However, an important aspect is with regards as to who should be brought to court and punished? Is it the directors – the person having control or the employed managers of any abandoned project?

The amendments do not have retrospective effect. They apply only to new housing projects. If the amendments were retrospective, the number of developers who would be caught by them and face criminal prosecution would expectedly be high. Consequently, this may cause a big ripple of distress in the housing development industry. It may also result in purchasers terminating the contract of sale and possibly causing the number of sick, late and abandoned projects to increase bearing in mind that developers may have cash flow problems paying back the purchase moneys to the house buyers. For this reason, it is agreed that the amendments would apply only to new housing projects.

While the amendments apply to new housing projects, enforcement on developers of abandoned project prior to the new legislation must be seen to be done and publicized. These efforts would complement the new amendments in that they would suggest that the government is serious and pro-active in addressing housing problems caused by errant developers.

In other words, while the new law seeks to deter “new criminals”, it ought not be seen that “old criminals” could get away scot-free. Prosecution of “old criminals” would be equally important.

Imposition of 3% refundable deposit to be a Housing Developer

The National House Buyers Association (HBA) is pleased that the Government has heeded our call to have Section 6(1)(b) (Conditions or restrictions for the grant of a developer’s license) of the HDA amended. The HDA has been enhanced to make the requisite deposit (refundable) from the current RM200,000 to three (3) % of the Construction Costs.

Firstly, we will not even use the word “increase”. This is because in the case of small developers who build a small number of houses in the smaller towns and where total construction cost is RM2 million or less, the RM200,000 that they are currently forking out actually represents over 10%. Thus for them, the new 3% is actually a vast reduction! Compare this to a big project developer whose construction cost is, say, RM20million.

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” that clearly does not fit them. The introduction of 3% formula is (to an extent and compromised figure) a realistic and a fair figure 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. 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 (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 Urban Wellbeing, Housing and 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 number of funds made dormant (and in many cases, written off) is far more devastating and adverse than the number 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 safety net. The introduction of the pre-requisite 3% deposit can, to a larger degree, assist in revival efforts by the Government compared to the present insignificant RM200,000.

The tightening of the housing laws revised in the year 2002 and 2007 has failed to arrest the problem of abandoned housing projects. The statistics speak for itself. 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. HBA has stated that the imposition of 3% is the minimum norm and that the Controller of Housing should be given the discretion to increase this percentage to the proposed 5%, if deemed necessary due to high risk or whatever other reasons.

This article is continued in Part 2.