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What happens when a property development changes ownership?

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Unfortunately, there have been cases of residential property development being delayed or even abandoned by the developer before completion. As a result, a housing project could change hands before it is completed. In this article, we cover what you need to know should this happen to you, including advice from legal experts.

abandoned-housing-project-malaysia
© Zhonghui Bao | Getty Images

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From the moment they put in the deposit, home buyers would look forward to getting the vacant possession to their new home. The expectation is that the property gets completed in time and delivered as promised by the developer. Things don’t always go according to plan though as there have been quite a few cases of developers who run into financing or mismanagement issues when constructing properties. 

Read on to find out your legal rights as a homebuyer and what your next course of action should be.

Does a developer own the property?

At the beginning of the development process, the property developer owns the land and holds the master title. Upon completion of the property development, the homeowners will receive an individual title (landed properties) or strata title (strata properties such as apartments and condominiums) for their unit.

Once the units are handed over and individual or strata titles are issued, the developer no longer owns the property. Common areas like swimming pools, community halls and corridors (for strata properties) will be handed over to the Joint Management Body (JMB). For landed properties, amenities like public roads and playgrounds will be handed over to the local council.

What are the responsibilities of a property developer anyway?

Every developer starts a property development project with the aim of making profits. They source the land, plan the development and secure funding for the project. Their responsibility to house buyers is to build the property project as promised and deliver it on time. As per the Housing Development (Control and Licensing) Regulations 1989, housing developers are required to deliver vacant possession of a landed home with an individual title within 24 months and within 36 months for strata-titled properties.

What are the stages of a real estate development and why are they important?

abandoned-property-development
©SOPA Images /LightRocket | Getty Images

In terms of construction, real estate development can be divided into these stages:

  • Land purchase and land title conversion
  • Application for planning permission
  • Building plan approval
  • Application for Advertising Permit and Developer’s License (APDL)
  • Construction
  • Delivery of vacant possession

Buyers of residential property can look at the stages of construction in terms of when they need to start servicing their loan instalment, also known as the progressive payment schedule.

Progressive payment schedule for under construction properties

Instalments Payable

% of Payment
Signing of SPA10%
Piling and foundation10%
Reinforced concrete framework and floor slab15%
Walls and window frame10%
Roofing/ceiling, electrical wiring, plumbing, gas piping and internal telephone trunking and cabling to the unit10%
Internal and external plastering10%
Sewerage works serving the building5%
Drains serving the building5%
Roads serving the Building5%
On the date the buyer takes possession of unit with water and electricity supply ready for connection12.5%
Within 21 working days after receipt of written confirmation of submission & acceptance of application for subdivision of the building2.5%
Upon taking vacant possession, on the 6th month2.5%
Upon taking vacant possession, on the 18th month2.5%

What happens if the developer goes bust or bankrupt?

If a developer is not able to complete a project, it could be taken over by another developer, SPNB (a national housing development company owned by the Ministry of Finance Incorporated) or a liquidator.

developer-homebuyer-rights-buy
© baranq | 123rf

When a property development changes hands, Datuk Chang Kim Loong, the Honorary Secretary-General of the National House Buyers Association (HBA) advised buyers to do the following:

Chang Kim Loong
Datuk Chang Kim Loong, Honorary Sec-General of National House Buyers Association

1. Form a group with other buyers

By having a collective voice, buyers will have more bargaining power to negotiate with the new developer, who is also known ad the ‘white knight’. The other advantage of acting in a group is that costs and tasks can be shared among the homebuyers throughout the process. A united group with a common interest generates synergy that equips them to better resolve outstanding issues. Even political pressures may be generated because as the saying goes, “politics is a game of numbers”.

2. Decide on what is important

Buyers need to collectively agree to the new proposed terms of revival of the abandoned housing project. Some buyers might insist that the new developer pay the late delivery fees, or Liquidated Ascertained Damages (LAD), but forgoing it could mean that they get the house they paid for earlier instead of dragging on with negotiations. The group should also check the track record and financial capabilities of the ‘white knight’ company and its directors.

3. Get professional advice

Buyers should hire a lawyer well versed in the revival of abandoned housing projects who is able to help them through the process. The HBA also provides advice for such cases on a voluntary basis and can be contacted through email at [email protected].

⏩ WATCH: What Are The Consequences of Abandoned Project to House Buyers?

What happens when a property development changes hands?

According to Chris Tan from Chur Associates, it is important for house buyers to be aware of the type of property they are buying as only residential properties are protected under the Housing Development Act (HDA).

Chris Tan
Chris Tan – Managing Partner, Chur Associates

“The HDA serves as a form of consumer protection for house buyers. Some property developments like SoFo (Small Office Flexible Office) and SoVo (Small Office Versatile Office) are considered commercial and therefore not protected under the HDA,” he said.

As residential properties are governed by the HDA, Tan said that it is not easy for a housing project to change hands as any changes have to be approved by the Ministry of Housing and Local Government (KPKT). Therefore, it is highly unlikely for a project to change hands midway through a project unless the developer has gone bust. A new party taking over would have to consider the profit it can make.

There are two ways that a property development can change hands:

  1. Complete take over by another company
  2. Share buyout of existing company

“Regardless of how it changes hands, they would still need approval from the regulators before it can happen. If the developer has gone bust, the housing project would most likely be taken over by Syarikat Perumahan Negara (SPNB) or a private liquidator,” said Tan.

FIND OUT: What homebuyers should know about private liquidators who take over from a wound-up developer?

What measure is to be taken (by the new developer) to revive an abandoned property project?

Chang said the developer taking over a residential project has to deliver it as promised in the Sales and Purchase Agreement (SPA). Any deviation from the original plans has to be approved by the local council and agreed upon by the buyers. To make enough gains from taking over an abandoned project, the new developer will conduct their own feasibility and viability studies taking into account the unsold stocks of the defaulting developer.

The situation is different for commercial projects not protected by the HDA. In most cases, the new developer may make changes without buyers’ consent. These SPAs are not regulated and are drafted lopsided in favour of the developers with lots of room to manoeuvre.

What should I look out for in a property developer?

No one wants to end up with a property that is abandoned before completion. According to Chang, there are a few things buyers can look out for before buying property from a developer:

  • The developer must have a valid APDL from KPKT. This license number will be (finely) printed in their sales brochure.
  • Check the reputation of a developer’s past housing projects and the financial standing of its directors.
  • Seek verification from KPKT to check if the developer or any of their board of directors have been blacklisted. Bankruptcy status can be checked via the e-Insolvensi portal of the Malaysian Department of Insolvency (MDI) with a fee of RM10.
  • Check for history of complaints against the developer.
  • Do a search of the developer and housing project on the KPKT website.
  • Do a check on the land title, whether the title has restrictions against ‘Transfer’ and ‘Charge’ which hampers dealings. Is the developer the registered owner of the land or is it selling pursuant to a joint venture with the land proprietor? Have separate titles been issued? Is the land encumbered or charged to a bridging financier? If the developer has charged the title, find out the amount outstanding for redemption due to the bridging financier.
  • If possible, visit the site of the proposed property development.
  • Read the SPA carefully! The SPA supersedes the glossy sales brochure with its artist’s impressions.
  • Appoint your own lawyer from the onset.

Where can I complain about a bad developer?

Buyers facing problems with a developer can make a complaint with KPKT’s Jabatan Perumahan Negara.

KPKT Complaint bad developer
© kpkt.gov.my

  • Select the type of complaint you wish to file and click “Seterusnya”
  • Fill in your details and click “Seterusnya” and you can continue filling in the details required by the system.
  • You will be given a reference number and you can check the status of your complaint under “Semak Status Aduan”,

To get a manual form:

  • Under the “Awam/Public” tab, go to “Muat Turung Borang/Download Form” and click on “Borang Aduan”
  • At the “Penguatkuasa” page, click on the “Borang Aduan” link that will bring you to a PDF form

READ: 5 agencies that could help with your real estate problems

Where can I get a list of abandoned property development projects in Malaysia?

Buyers can get a list of blacklisted developers without a license, who did not honour the Tribunal for Homebuyer Claims (TTPR) Award, who failed to settle compounds, and with abandoned projects at the Jabatan Perumahan Negara website.

Alternatively, you can also easily check this list of blacklisted property developers before buying a new launch property in Malaysia

Owning a unit in an abandoned development is a nightmare for home buyers. To minimise the risk of being in such situations, buyers should do due diligence on a developer and the housing project before committing to purchase.

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