In Malaysia, it is very common to buy a property before it has been built. This is also known as the sell-then-build (STB) concept. This concept poses a risk to buyers because there is no certainty that a project will be completed on time or at all.
The STB concept works in favour of developers who might not have enough cash flow to complete a project. A developer can use the funds obtained from the sales of units to finance the ongoing development. Under the STB concept, purchasers pay 10% of the unit price and would start servicing their loan instalments based on the construction’s different stages of completion. This is also known as the progressive payment schedule.
Due to the absence of regulations that protect home buyers, the risk here is that purchasers would have to continue financing their loans even if the project never gets completed.
READ: What is the Build-then-sell 10:90 (BTS 10:90) concept and how can it help the housing industry?
What is an abandoned or ‘sick’ property?
Abandoned properties are simply those that have not been completed. A ‘sick’ property is defined by the Housing and Local Government Ministry as a project that has been delayed by more than 30% compared to its scheduled progress or one whose sale and purchase agreement (SPA) has lapsed.
Why is this happening?
Ongoing property developments could be abandoned for several reasons, usually because of financial constraints. For example, rising material prices or manpower rates could affect the total project cost. If the launch of a project does not attract enough buyers, a developer might not have enough cash flow to complete the project.
Malaysia saw a rise in sick projects during the COVID-19 pandemic because of restrictions imposed during the Movement Control Order (MCO). On 11 June 2023, Deputy Local Government Development Minister Akmal Nasrullah Mohd Nasir announced that there are 481 sick projects and 112 abandoned projects in Malaysia.
READ: Rising number of “sick” or delayed housing developments in Malaysia: Why is this happening?
Any laws I need to be aware of?
Laws that govern property development in Malaysia is the Housing Development (Control and Licensing) Regulations 1989 (HDA), which also protects the interests of home buyers. However, do take note that this Act only covers property with a residential title. This means that industrial and commercial properties are not covered by the Act.
The only exceptions for a property with commercial titles are serviced apartments, small office home offices (SOHOs) and their equivalent types that have commercial titles but are used for residential purposes.
The Act was amended in 2015 and Section 18A of the amendments addresses the issue of abandonment by the housing developer:
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 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 or to imprisonment for a term not exceeding three years or to both.
What legal actions can you take if you bought a sick or abandoned property?
Under Section 8A, of the act, a purchaser can terminate the sales and purchase agreement (SPA) under the following circumstances:
(A) the licensed housing developer refuses to carry out or delays or suspends or ceases work for a continious period of six months or more after the execution of the sale and purchase agreement;
(B) the purchaser has obtained the written consent from the end financier; and
(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 and purchase agreement.
(2) For the purpose of this section, “abandons” means refuses to carry out or delays or suspends or ceases work continuously for a period of completion as agreed under the sale and purchase agreement.
(3) In the event that the purchaser exercises his right to terminate the sale and purchase agreement under subsection (1), the licensed housing developer shall within thirty days of such termination refund or cause to be refunded to such purchaser all monies received by the licensed housing developer from the purchaser free of any interest.
(4) Upon receipt of the refund under subsection (2), the purchaser shall immediately cause all encumbrances on the land to be removed and the cost and expenses for such removal shall be borne by the licensed housing developer and may be claimed as a civil debt from the licensed housing developer.
The tricky part here is that you will need the Controller of Housing, someone appointed by KPKT to determine that the developer refused to carry out, suspended or ceased work for six months or more.
Can I get a refund? Is it possible?
As stated in Section 8A (3) above), the developer should refund any amount received from the purchaser free of any interest.
What should I do if the property I bought ends up being sick or abandoned?
If the developer does not comply with the law, purchasers can initiate legal action. As with most legal tussles, bringing a developer to court is no small feat and could be a long-drawn-out process.
You can start off by hiring a lawyer who specialises in this issue or is well-versed in property laws. Share costs and tasks with other purchasers by forming a working group or committee. Having a collective voice will also mean more bargaining power.
READ: What happens when a property development changes ownership?
Is there any assistance available?
In January 2023, Local Government Development Minister Nga Kor Ming announced that buyers of sick projects can apply for loan restructuring with supporting letters from the government to help ease their burden.
How to protect yourself from ending up with an abandoned property?
While there is no way to guarantee that a project will be completed, there are several ways to protect yourself from ending up with an abandoned or sick project.
1. Buy completed projects
Either look at projects that have been completed or even consider sub-sale properties. While the price of completed projects could cost a bit more than buying it from the developer, you will at least have peace of mind that the property is already ready for you to move into.
2. Check for reputable developers
There are certain things that you can look out for. First of all, the developer must have a valid Application for Advertising Permit and Developer’s License (APDL) from KPKT. This license number is usually printer in their sales brochure in the very fine print.
3. Check for blacklisted developers
Developers could be blacklisted by KPKT for offences under the Housing Development (Control and Licensing) Act 1966. You can check for blacklisted developers, as well as a list of developers without licenses on the National Housing Department website.
4. Conduct a check on the land title
If you have details of the land where a potential development would be built (title number, title type, mukim/pekan/bandar, district, and state), you can conduct a land search. A land search can reveal some details such as the landowner, type of title, status of title (freehold or leasehold), current registered owners, restrictions in interest and current encumbrances. Find out how to conduct a land title search here.
5. Visit the physical location
If the property you are planning to buy is located near you, consider visiting the actual site of the planned development. More often than not, most buyers would visit the sales gallery which may not even be located near the site. You can at least see the condition of the site, and whether the progress of construction is as promised by the developer. It is also a good way of checking out the neighbourhood.
6. Review your legal documents carefully
The key document you would have to sign is the sales and purchase agreement. It is the legal document that contains all details of the transaction between buyer and seller. Make sure you read and understand the clauses stipulated in the agreement. The safest way would be to appoint a lawyer who can help protect your interest. Avoid using the same lawyer representing the developer.
7. Purchase a home in these top areas
Picking a location is key not only for easy accessibility but there is less chance that a project located within a sought-after location will be abandoned. Property in a good location would most likely be taken up once it is launched, thus eliminating the risk of the developer not having enough cash flow. Check out some of the listed properties in the top areas within the Klang Valley.
Petaling Jaya
1. Megah Rise
Megah Rise was developed on the site of the popular Meng Tien food court, just next to the Taman Megah wet market. The development located in the mature neighbourhood of Taman Megah is surrounded by retail shop lots and a ten-minute walk to the Taman Bahagia LRT station. It offers easy access to the LDP highway just next to it.
2. ATWATER
ATWATER serviced residence is located within the former industrial area of Section 13, Petaling Jaya, which has since been revitalised into a commercial area. It is a stone’s throw away from the Jaya One commercial centre and Columbia Asia Hospital. The development is within a ten-minute drive to the Phileo Damansara MRT station and Taman Paramount LRT station.
3. Sunway Serene
A project by established developer Sunway Property, Sunway Serene is a serviced residence that boasts a spectacular view of a serene lake and the Subang National Golf Club (KGNS). One of its unique selling points is a care centre with facilities supported by Sunway Medical Centre. The development offers easy accessibility to two major highways, the LDP and the Federal Highway.
4. Pinnacle
Pinnacle Petaling Jaya is a mixed development located in the heart of the Petaling Jaya business district. Besides an office tower and retail mall, one of its two towers also houses the Sheraton Hotel. It is just a five-minute walk from the Asia Jaya LRT station and around the corner from the Federal Highway.
Cheras
1. EkoCheras
EkoCheras is a mixed development with three blocks of serviced residences built on top of the EkoCheras mall. Situated very near the Taman Mutiara MRT station, it offers easy access to public transportation. There is a variety of built-ups available, ranging from 596 to 1,328 sq ft.
2. Aster Residence
Just next to the Taman Connaught MRT station, Aster Residence is another property with easy access to public transportation. The development consists of serviced residences between 650 and 1,009 sq ft.
3. Majestic Maxim
Majestic Maxim is located strategically next to the Cheras Sentral Mall and several minutes away from the Taman Connaught MRT station. This serviced residence is equipped with facilities such as a wading pool, gymnasium, basketball court and badminton court.
4. Lavile Kuala Lumpur
Laville Kuala Lumpur is another development that is conveniently located next to the AEON Maluri shopping centre and the Maluri MRT station. Its facilities a lap pool, a leisure play pool and a gymnasium. There are also retail shops on the ground floor of the building. With sleek architecture and interior landscaping, Laville offers a stylish lifestyle with easy accessibility to the nearby amenities within the Taman Maluri town.
Mont Kiara
1. Pavilion Hilltop
Mont Kiara is one of the sought-after addresses in Kuala Lumpur. Pavilion Hilltop consists of three blocks of residential condominium units with built-up sizes between 1,200 and 1,830 sq ft.
2. Arte Mont Kiara
As its name suggests, Arte Mont Kiara is like a work of art, with the building decorated with wavy lines. It is conveniently located next to the Publika shopping mall and the MATRADE Exhibition and Convention Centre. This development consists of three towers of serviced residence units.
3. Seni Mont Kiara
Seni means “art” in Malay and the four blocks of the condominium are aptly named after famous artists: Dali, Monet, Picasso and Van Gogh. The most unique feature of this development is a 2,000 sq ft art gallery while the lush landscaping adds to the serenity of the property.
4. Agile Mont Kiara
Located very close to the Publika shopping centre, Agile Mont Kiara is a massive development consisting of 11 towers of varying heights with units ranging from 1,215 to 2, 766 sq ft. It boasts a 6.5-acre park within the development.
Johor Bahru
1. R&F Princess Cove
Located just a few minutes’ drive from the Johor Bahru Customs, Immigration and Quarantine (CIQ) Complex, R&F Princess Cove is a good location for those travelling often to and from Singapore. The JB Sentral Bus Terminal and KTM JB Sentral Railway Station are also nearby. The massive development consists of 15 blocks of serviced residences.
2. TriTower Residence
Another property located close to the CIQ Complex, the TriTower Residence is developed by SKS Group and consists of two blocks of 55-storey serviced apartments. It features modern and unique architecture, with two blocks connected by a sky bridge on the 35th floor.
3. Twin Tower Residence
Another development by SKS Group, the Twin Tower Residence is a stone’s throw away from the TriTower Residence. This development consists of 27-storey and 31-storey serviced apartments. The units within this property range from 599 to 1,216 sq ft in size.
4. Setia Sky 88
Developed by SP Setia, Setia Sky 88 consists of three blocks of serviced residences and is located within the Johor Bahru City Centre. There are many choices for food nearby and nearby shopping options include the Plaza Pelangi and KSL City Mall.
Puchong
1. Setiawalk
Developed by S P Setia, SetiaWalk is a mixed development located strategically along the LDP in Puchong. The LRT Pusat Bandar Puchong is located across the road, not too far away. Besides the 27-storey serviced apartments, the development has office blocks and retail units. Facilities at SetiaWalk include a gymnasium, swimming pool and playground.
2. Koi Kinrara
Koi Kinrara is an option for those who want to be in Puchong but away from the hustle and bustle of the Puchong town centre. The property consists of four blocks of serviced apartments with built-ups between 908 to 3,164 sq ft.
3. Le Pavilion
Developed by Flora Development, a subsidiary of IOI Properties, Le Pavillion is a freehold serviced residence in Bandar Puteri Puchong. It is located near the Columbia Asia Hospital and the Bandar Puteri Puchong commercial area with its variety of food options is nearby.
4. Skypod Residence
Located in the heart of Puchong, Skypod Residence is another IOI Properties development just opposite IOI Mall. It is easily accessible from major highways such as LDP and KESAS. It has two blocks of residential serviced apartments with three floors of shop lots.