To date, there are 580 sick housing developments in Malaysia, out of 2,552 launched residential projects. This means the fates of nearly 23% of Malaysian homebuyers are in the hands of errant property development companies, including those owned by the government.
Buying a house should ideally be a happy affair. It symbolises commitment and maturity to a degree because a house is a big-ticket item. It signifies a coming of age, especially for young first-time homebuyers. Meanwhile, for a more mature buyer meanwhile, the decision to purchase underscores his/her positive sentiment over the housing market in the mid-term. However, instead of the happy occasion a homebuyer anticipates, statistics from the Housing and Local Government Ministry (KPKT) paint a grim and grievous situation.
What is a sick housing project?
According to KPKT, a new launch for a housing development is categorized as a ‘sick project’ when the construction progress is delayed by more than 30% – when compared to its scheduled progress or upon the SPA expiry/lapse of vacant possession. As per the Housing Development (Control and Licensing) Regulations 1989, developers are required to deliver vacant possession of a landed home (individual title) within 24 months and strata title properties should be delivered within 36 months.
According to Government statistics on private housing developments in Malaysia – as of March 31, 2022, the number of ‘sick’ residential property developments has risen by 59% over the past 2 years – there were 580 sick projects as of March 2022 compared to 365 projects in March 2020, just before the COVID-19 pandemic hit Malaysia.
These 580 projects are affecting a total of 51,000 house buyers – a whopping 95% increase compared to the 26,145 buyers affected in 2020. The number of housing units affected rose to 102,132 units from 48,826 units in 2020.
Some may reason that 2021 was a pandemic year and the various movement control orders (MCOs) would obviously have affected all levels of the economy, including the housing sector. To be fair, the housing market and the broader property sector have been on the dampener even before the pandemic began in March 2020.
According to the statistics provided by the National Housing Department (KPKT) – the total number of residential property projects licensed by the government marginally declined to a total of 3,535 as of March 2022 versus 3,541 in the same month two years ago.
The number of new launches also declined to 2,552 in March 2022 versus 2,831 for the same period two years ago.
This means that the rate of projects becoming problematic is rising despite a fall in total licensed and launched residential developments.
Sick residential property projects include those by government agencies
Other Housing Ministry statistics showed that there are a total of 109 sick high-rise strata projects involving both government and private developers as of the end of April 30, 2022; this being Syarikat Perumahan Negara Bhd (SPNB) and PR1MA Corporation Malaysia just to name two government developers. There may be other government-linked housing agencies and subsidiaries linked to government-linked companies as developers/ contractors normally create subsidiaries for each project they undertake to build.
Wilayah Persekutuan Kuala Lumpur has the highest number of sick high-rise strata projects at 26, followed by Selangor at 23 and Johor at 17.
The same government statistics also showed that there are 333 ailing landed housing developments, with Perak having the highest number at 58, followed by Selangor at 57 and Johor at 48. Similarly, government corporations are involved in the list of landed homes.
You can refer to the complete list of sick landed housing developments here.
What are the consequences of a ‘sick’ residential project?
These tens of thousands of hard-luck house buyers are now facing the possibility of failed dreams. They bought into housing projects that are now categorized as ‘Sick housing projects’ and will suffer at the hands of those errant developers. The devastating effects are as follows:
- Homebuyers involved still owe the Banks the amount that had been drawn down and paid to the rogue developers.
- A homebuyer will continue to suffer the faith of possible abandonment of the project. They may count their blessings if the project is ever successfully resuscitated.
- The homebuyer continues to service the partially drawn down housing loan or they face the consequences if they are unable to do so. They will risk being blacklisted by Bank Negara, Malaysia and the banking system of checks.
- They continue to stay in their rented house because the dream house that they had bought had turned into a bad nightmare.
- They, together with their spouse and their dependents will continue to suffer emotional stress and financial constrain.
- The homebuyer blames the government for allowing such a hazardous and nonsensical ‘Sell then Build’ (STB) system to exist and for being unable to help them. Do take note that the Sales and Purchase Agreement is a government statutory form where not a single word may be altered by either buyer or vendor.
- The end financing bank suffers in that the house buyer does not get their house and is, therefore, may not likely to be able to service their housing loan. Worst still, the uncompleted house has zero cashable value.
- The government continues to face the wrath of victims of ‘sick’ projects for allowing such a hazardous system to exist and subsequently for being unable to help them.
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What is causing the increase in sick residential projects?
A Berita Harian report dated May 1, 2022 said the main cause of this pain was due to financial constraints faced by property developers during the Covid-19 pandemic. The report also cited poor management, rising building material prices, lack of workers and unsuitable locations.
Unsuitable locations seem to be a poor excuse. However, whether there is a pandemic or not, a project’s location does not change. This leaves us with rising material prices, workers’ issues and poor management. When a developer embarks on a project, they would have done their costing with regards to building materials and the timeline needed to complete it as well as their feasibility and viability studies.
Home buying advice from a property consultant
Back in 2020, a property consultant, who prefers to remain anonymous said: “If there is really a need to buy a house, buy a completed unit which one can see and touch. Do not buy off-plan.”
His rationale was in a pandemic, most developers would want to make as many sales as possible because they are, after all, capitalists. And in all likelihood, they will be some who will likely over-promise and under-deliver in situations that are beyond their control.
The property consultant with more than 30 years in the real estate industry went on to say that the last two years saw many developers embarking on digital marketing. A buyer may not get what they see from these ads, nor from the attractive marketing brochures because disruptions could possibly affect work quality.
Hence, the number of ‘sick projects’ is reflective of the situation, although most of these projects started construction before the pandemic struck. The same consultant said buying off-plan versus completed units is ‘an important issue’ because a property is a big-ticket item and buying a property involves long-term commitment after signing multi tiers contracts.
“You can see the plus points and the negatives in a completed project. You know more or less what you are going to get. If the other units are already occupied, you know who your neighbours will be, whether they are tenants or owners. You can select the unit if there are many units available. Many people buy units off-plan because of the many incentives offered by developers. Conduct your proper due diligence and do not fall into the ‘getting the best choice, the best floor, the best view trap’ because the most important thing is knowing if the project will be constructed properly and what the quality of the workmanship is.
“Besides being able to see the unit instead of having to imagine it, the effective price after the various incentives may be lower than the earlier launch price,” he continued to say. The buyer will also have stronger negotiation powers over the developer, he added. And the risk of buying into a sick project is removed.
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Observations from HBA
But, are the Government statistics a true and accurate reflection of the current housing crisis?
Granted the COVID-19 pandemic was a global event and it has wrought many challenges in all sectors of the economy. It also can’t be denied that most of these projects were launched a few years before the pandemic.
Most, if not all the ongoing projects were forestalled by the disrupted supply chains and manpower due to the pandemic and it was serious enough for the Government to protect the economy that Parliament had to pass a law titled: COVID 19 (Temporary Measures for Reducing the Impact of Coronavirus Disease) Act, 2019 (ACT 829) with a provision of a ‘legal shield’ for people and businesses who are unable to fulfil their contractual obligations.
The laws offer legislative protection from legal consequences arising from inabilities to perform contractual obligations and allow time to remedy such shortcomings and hence, the ‘time freeze’. Hence, the statistics could also be read more accurately if it was tweaked to reflect the inactive ‘time frozen’ period. Perhaps, this aspect was overlooked and should be reconciled by the Housing Ministry in the pillory or attack of rogue property developers in their statistics.
This article is written by Datuk Chang Kim Loong, the Honorary Secretary-General of the National House Buyers Association (HBA). Email: [email protected]