Better Protection Against Abandoned Projects

Better Protection Against Abandoned Projects

According to Urban Wellbeing, Housing and Local Government Deputy Minister Datuk Halimah Mohamed Sadique, there were over 100 abandoned private housing projects recorded in Peninsular Malaysia between 2013 and 2016.

Not all is lost as home buyers have the Housing Development (Control & Licensing) Act, 1966 (HDA) to address the issue of abandonment. However, is it enough to protect them?

Here, we will elaborate the stringent rules and safety nets that are under HDA. Recently, the revamped Act has plugged some of the loopholes, rectified inadequacies, and questionable and grey clauses that existed in the original one. The procedures for control and licensing of housing developers have been made more stringent so that non-bona fide developers would be marginalised.

EFFECTS OF THE NEW LAW

The pertinent amendments to the HDA were on the issue of criminalising abandonment. This new amendment makes it a crime for housing developers to abandon their housing projects with jail sentences.

1. Criminalising Abandonment

Section 18A states: 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. Deposit of 3% on Construction Cost in the HD Acc for a Developer’s Licence

Section 6(1)(b) (Conditions or Restrictions for the grant of a Developer’s Licence) was enhanced to make the requisite deposit (refundable) from the current RM200,000 to 3% of the construction costs,

As to whether the new 3% deposit will curb abandonment, our debate is that it will indirectly reduce such incidences. Developer-aspirants who are financially weak that they are not able to raise the refundable deposit should stay out of the industry because the probability of them running into trouble is higher. Further, the increase in finance cost in order to fork out the 3% deposit is negligible when measured against the potential gross development value. Any additional cost is only incurred during the construction phase. Upon project completion, the 3% is fully refunded by the Controller of Housing.

However, the effectiveness of the revamped Act remains to be seen. Its effectiveness is only accessible after a period of time. However, we reiterate that much would depend on the degree of enforcement to be carried out.

ORNAMENTAL PIECES

Our fundamental belief is that even the best of legislation to counter a particular situation would remain as an ornamental piece. Strict enforcement needs to be carried out against offenders, without fear or favour for them to respect the law.

Moreover, the Housing Ministry is the guardian of the principal HDA legislation that was passed by Parliament. Yet, how do you account for the surmounting problematic housing projects? It’s the sheer lack and lax in enforcement. Let’s look at some of the existing stringent rules and safety nets that are already within the ‘Old Laws’:

(i) Sec 7A – Duties to maintain HD Acc 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 two hundred and fifty thousand ringgit but which shall not exceed five hundred thousand ringgit and shall also be liable to imprisonment for a term not exceeding three years or to both

(ii) Sec 7C. – Freezing of the Housing Development Account. (1) 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 of the provision of this Act, the Controller may in writing order a freeze on the Housing Development Account and direct the bank or finance company, as the case may be, not to part with, deal in or otherwise permit any withdrawal of any moneys from the Housing Development Account until the order is revoked or varied or unless in accordance with any conditions as may be imposed by the Controller at his absolute discretion from time to time during the currency of the order.

(iii) Sec 7 – Duties of a licensed housing developer Sec. 7(f) not later than the 21st day of January and the 21st day of July of each year or at such frequency as may be determined by the Controller from time to time or upon the request of the Controller, send to the Controller a correct and complete statement in writing made on oath or affirmation, in such form and containing such information as the Controller may from time to time determine, on the progress of the housing development which the housing developer is engaged in, carries on or undertakes or causes to be undertaken until certificate of completion and compliance have been issued for all the housing accommodation in that housing development

(iv) 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 2002.

(v) Sec 11 – Powers of the Minister to give directions for the purpose of safeguarding the interests of purchasers. (1) Where on his own volition a licensed housing developer informs the Controller or where as a result of an investigation made under section 10 or for any other reason the Controller is of the opinion that the licensed housing developer becomes unable to meet his obligations to his purchasers 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 Minister may without prejudice to the generality of the powers of the Minister to give directions under section 12 for the purpose of safeguarding the interests of the purchasers of the licensed housing developer

(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;

(ca) certify that the licensed housing developer has abandoned the housing development;

(d) direct that the licensed housing developer present a petition to the High Court for the winding up of his business; or

(e) take such action as the Minister may consider necessary in the circumstances of the case for carrying into effect the provisions of this Act.

Even with the HD Acc in Sec 7A, there was no great measure at preventing misappropriation of buyer’s money. It has proved to be a great ‘burden’ to errant developers, looking at their determination to avoid it. Meanwhile, we wonder whether the safety net was cast out to salvage the failing projects. How many of these defaulting developers have been prosecuted?

Also, in 2015, YAB Abdullah Badawi was quoted: “If the projects have been monitored on a regular basis from the start, any sign of them being abandoned could have been detected and the projects salvaged”

The situation aptly applies to the lack in supervisory role vide Form 7(f). If it has been constantly and effectively monitored by the Minister and those under his charge with qualified personnel, signs of a failing housing project would have been found. Was Section 10A invoked to instill fear to those errant developers? If so, how do you account for those wayward or repeat offenders? It can’t be that the Ministry is shy of publicity by not highlighting their ‘achievement’ to the mass media.

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 investigation (under condition of secrecy investigate the commission of any offence under this Act or 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 Section 11 and 10A and all the Sections as I earlier referred. The Minister and his Ministry have powers to intervene and salvage a ‘sick project’ and to offer ‘treatment to provide cure’. Yet, look at the numbers of abandoned projects that develops a dire financial picture for naïve and innocent buyers. Individuals and communities are being harmed by the lax in enforcement and monitoring system.

CONCLUSION

The public relies on the legislation but they are often disappointed by the enforcers. It is only good on paper and will remain like that unless existing laws are used to their fullest capacity. The problem of enforcement is not because of the lack of laws and that’s why enforcement programmes must be organised.

People have been relying on this Act and the enforcers to protect them in their quest for homeownership and many are fed-up with the lack of execution when problems surfaced. Without enforcement and lax in monitoring, there is no solution to abandonment. We have to prevent it from happening.

Could pre-emptive measures be adopted and enforcement organised to avoid future abandonments? Your guess is as good as mine!

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