Purchasing a Home - Part 1
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Purchasing a Home - Part 1
Posted Date: May 01, 2007
By: Chan Ai Cheng

Purchasing a Home – Part 1


In this issue, we shall take a micro look specifically at the documentation and procedures of purchasing a home from a developer.

Direct from Developer

Purchasers of homes direct from a housing developer will execute the standard agreements known as Sale and Purchase Agreement (SPA) as provided for in the Housing Developers (Control and Licensing) Act 1996.

The Housing Developer Act (Control and License) 1966 (Act 118) was enforced on 29 August 1969 while the Housing Developers Regulations came into force in April 1989.  Both are aimed at safeguarding the interest of house buyers.  As of 1 April 2007, projects classified as Service Apartments, intended for dwelling, also fall under the HDA.

Every SPA for landed housing accommodation (such as bungalows, terrace houses and semi-Ds) shall be in the form prescribed in Schedule G, while SPAs for housing in a subdivided building (condominiums, apartments and townhouses) shall be as prescribed in Schedule H.

Payments, liability periods and penalties

The Ministry of Housing and Local Government also made it compulsory in 1991 for all housing developers to open an account (Housing Development Account) with a bank or financial institution for each specific project.  If a project is developed in several phases, the developer must open and keep an account for each phase.

All payments received by the developer for the sale of housing accommodation in the project must be deposited into this account.  The developer is not allowed to withdraw money from the account except under conditions stated in the Housing Developers (Housing Development Account) Regulations 1991.

Purchasers must make the first payment of 10 per cent upon signing the SPA.  Both should be done on the same date.  Payment of the purchase price under Schedules G and H is by progressive payments based on the completion of work as certified by the architects.

For Schedule G, the expected date of completion is 24 months from signing the SPA.  For Schedule H, the date is 36 months.  The final five per cent of the purchase price is held by the solicitor as stakeholders for the Defect Liability Period – currently 18 months from the delivery of vacant possession.

If the developer fails to deliver vacant possession of the building as stipulated in the SPA, it must pay damages of 10 per cent per annum of the purchase price, calculated on a daily rest.

Apart from the SPA, a memorandum of transfer – Form 14A of the National Land Code 1965 – must be completed to transfer the title from the seller to the purchaser.  In instances where the title has not been issued, the developer will undertake in the SPA to transfer the title when the same is issued.

For subdivided buildings, a Deed of Mutual Covenant will be executed as well.  This is used to protect the rights of the individuals within the development, the usage of common property and “house rules” by which all must abide.

Encouraging “build-then-sell”

In line with its efforts to encourage the “build-then-sell” concept among developers, the Government has gazetted amendments to the Housing Development Act 1960 that came into force on 1 December 2007. The amendments, known as the Housing Development (Control and Licensing) (Amendment) Regulations 2007, do not affect the validity of any existing SPA entered into after the commencement of the Act, notwithstanding anything inconsistent with or contrary to any provisions in the Regulations.

The Government has also brought into effect two new Schedules, I & J, to cater for the “build-then-sell” concept.  Schedule I applies to completed landed property – individual title properties – and Schedule J applies to completed houses in a subdivided building – strata title properties.

It is important to note the payment method of the purchase price according to the Third Schedule, i.e. 10 per cent of the purchase price to be paid immediately upon signing and the balance of 90 per cent to be paid within 21 working days after the Purchaser receives the Vendor’s written notice of delivery of vacant possession (must be supported with the certificate of completion and compliance).

Next month: Purchasing a Home, Part 2: When do the Schedules NOT apply? And Buying from the Secondary Market.

Chan Ai Cheng is the general manager of S.K. Brothers Realty (M) Sdn Bhd and a registered real estate agent with the Board of Valuers, Appraisers and Estate Agents Malaysia, a council member of the Malaysian Institute of Estate Agents (MIEA), a member of the Institution of Surveyors Malaysia (ISM), and a registered Financial Consultant with the International Association of Registered Financial Consultants (IARFC).  If you have any questions or suggestions on property investment or feedback on this article, please write to aicheng@skbrothers.com

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