HBA highlights the various existing and emerging issues in the Malaysian housing market for KPKT to overhaul, hopefully in the short term. We need to stop putting profits over people and our planet.
This article is a continuation of 12 issues I would address if I were the Minister of Housing and Local Government (KPKT) – Part 1.
13. Rein in and regulate liquidators’ conduct and fees
One of the amendments to the Housing Development (Control & Licensing) Act, 1966 (Act 118) (HDA) which took effect on 1.6.2015, namely Section 3 of the Interpretation extends the definition of ‘housing developer’ to include a person or body appointed by a court of competent jurisdiction to be the provisional liquidator or liquidator for the housing developer’. The amendment to include a liquidator as a “housing developer” was intended to fill the void when a developer is wound up before completion of its duties.
As a result of the amendment, a liquidator will be subjected to the duties imposed by Act 118 and may be liable for breaching duties of a ‘de facto housing developer’. In theory, a liquidator should not be allowed to charge or impose an administrative fee when carrying out his duties (since he is assuming the affairs and responsibility of the defunct developer) contracted in the Sales and purchase agreement (SPA). For instance, functions such as updating the record of ownership and perfecting the transfer to a purchaser when a separate individual or separate title is issued are part and parcel of a developer’s duty, issuing written confirmation of particulars (for subsale) under the HDA.
The reality is that some appointed liquidators are charging administration fees of between 2% – 3% of the property purchase price for these functions. There are no guidelines to regulate charges by liquidators. The purchaser has no choice in the appointment and is at the mercy of the appointed liquidator. The irony is that Section 22D of the HDA clearly states that a fee not exceeding RM50 may be imposed for a written confirmation of the record of the beneficial owner of the property in the housing development and consent for the assignment. Why then are liquidators granted special treatment by having their charges grossly inflated from RM50 to 2% – 3% of the purchase price?
Find out more here: What homebuyers should know about private liquidators who take over from a wound-up developer?
14. Maintain the abolishment of DIBS for first-time house buyers
Every now and then, some quarters will accept the developers’ mantra to re-introduce the Developers Interest Bearing Scheme (DIBS). It should be noted that Bank Negara Malaysia had prohibited and outlawed any form of interest capitalisation scheme since 2014.
DIBS or any other similar scheme cannot be allowed to re-surface because it risks creating a property bubble as property prices will be artificially increased and in turn, creates a snowball effect of driving prices upwards creating an unrealistic demand. It indirectly encourages speculation as it creates an easy entry to purchase without taking into account the purchaser’s ability to sustain the housing loan through good and bad economic cycles.
Whatever the economic situation, the basic facts of DIBS are the same and made worse by the economic situation – it involves a housing developer advancing the expenses of construction and other expenses which are to be collected later as debt from the purchaser with interest element factored in and therefore making the property more expensive. In the early 2010s, DIBS had created a false demand which in turn pushed up property prices making houses ‘seriously unaffordable to the average person.
15. Do not allow for En-Bloc strata sales
It seems that the Ministry of Energy and Natural Resources was and currently is exploring new ways, including changes in legislation, under the pretext of facilitating strata property renewals or redevelopments in Malaysia. They wish to introduce an ‘en-bloc strata sale’ mechanism for stratified properties.
HBA is opposed to the entire idea as we are of the opinion that it is a mere facade to hide the true intention of overriding or eroding a host of other legislation currently in place to safeguard the fundamental rights of property owners. The said legislation include Land Acquisition Act 1960, the National Land Code, the Federal Constitution (right to own property), Strata Management Act, 2013 and Strata Titles Act 1985.
16. Say no to Private Lease Schemes (PLS)
The Ministry of Energy and Natural Resources was seeking to amend the National Land Code, 1965 (NLC) by the introduction of a new proposed Chapter identified as ‘Register of Private Lease’. In a nutshell, future home buyers may find themselves “renting” in perpetuity if the proposed private lease scheme makes its way into the NLC. The new chapter into NLC would allow landowners (private corporations) to lease out their freehold land for development under a Private Lease Scheme (PLS).
Note that the term “leasehold property” is commonly used in Malaysia and refers to a State lease. This type of leasehold land is owned by State authorities, who have a moral obligation to renew the lease upon expiry. In a PLS, the land for development is a freehold property and is owned by a private corporation. The landowner/ private corporation will let lease the land to a developer for a period of say, 30 years or 60 years or 99 years with the rights given to the developer to develop and construct landed/ stratified properties for sale to the public.
Under PLS, the SPA signed by the purchaser and the developer is not for the sale of the property, but for the sale of a lease over the landed or strata parcel. This effectively makes the purchaser a lessee of the property, and not the owner of the property, as assumed by most buyers in general. The current NLC does not allow for leases to be created for more than one person but the proposed PLS will contradict this provision.
The scheme also will result in land ownership in perpetuity as private landowners would have a monopoly on merely ‘renting’ out lands where landed/ stratified properties are built and they will have the absolute right upon the expiry of the said 30 years or 60 years or 99 years not to renew or continue with the lease. It will be subjected to terms and conditions (normally) favourable to the landowner making it their prerogative.
It is disastrous to equate PLS to leasehold land. We believe that this new class of real estate ownership should be rejected: it differs from our existing culture of a titled system of ownership. There is no safeguard of ownership to buyers and HBA objects to such deceiving schemes.
MORE: What homebuyers should know about Private Lease Schemes (PLS)
17. Upgrade the archaic Uniform Building By-Laws (UBBL)
The Malaysian Uniform Building By-Laws should be up for a holistic review instead of in an ‘ad hoc’ manner, where currently a few clauses and chapters are amended/added in here and there. Having been drafted in the mid-1970s’ to regulate building design standards, implementation and construction, the UBBL is already about half a century old and is a piece of ‘archaic’ secondary legislation long overdue for a major overhaul.
The By-Laws were already struggling to cope with the rapid development of the Malaysian building industry that took place since the 1980s’. How can it be expected to cater for the 21st century where our building industry has had undergone massive changes and transformation?
During this period, the by-laws were found ill-equipped to deal with the demands of the industry – its deficiencies, inadequacies, antiqueness were all too apparent for all to see and experience. Some parts of the fire fighting provisions were revamped in the 2010s’ but clearly, the overall effort was not satisfactory. A major revamp is required to put the Building Codes / Regulations in perspective of the 21st Century building methodology.
The assumption is that since better building technology has enabled higher buildings in Malaysia, we would now have more sophisticated, environmentally sustainable and smart buildings. The sad reality is that there are tremendous numbers of property defects found even in newly constructed buildings. Water leakage has been the most common nightmare for any building occupant. The situation is worsened by greenhouse and urbanization effects that bring about heavier and more frequent precipitation and stronger winds. There should be a holistic review in the prevention of dampness. More waterproofing and damp proofing measures are needed.
18. Formulae to control house prices
If the government can control the prices of essential goods such as rice, sugar, cooking oil and other daily essentials, it should also be able to control the prices of houses, more so for the affordable housing category. Currently, the prices of raw building materials such as cement, sand and steel are regulated by the government. The same goes for the professional fees of consultants such as architects, lawyers, engineers and surveyors, whose processing fees are standardised. The price of a piece of land could also be set by the National Property Information Centre (NAPIC).
There is no excuse not to regulate certain sectors of the housing industry which affect the majority of the nation. Price controls might be necessary to allow people, especially the middle- and lower-income groups, to own their own homes. HBA suggests that the government cap the profit margins of property developers constructing “affordable” houses. This would accordingly lead to a price reduction by those involved in the building of such homes, including sub-contractors, suppliers and vendors.
19. Reduce Developers’ Compliance Costs to bring down house prices
The ‘Compliance Costs’ for housing development such as land premiums for land conversion; development charges; submission fee and upfront deposits to the local authorities cost incurred for SiFus, and other statutory contributions should be reduced. Developers will factor in Compliance Cost into their property sale price. If these Compliance Costs could be reduced or waived (where unnecessary), the price of houses should also correspondingly come down.
The cost of laying down the last mile in housing development ie. public utilities such as electricity, water, etc should also be borne by the respective utility companies (TNB, SYABAS, TELEKOM etc) and not the housing developers who obviously will factor these costs into their sales price.
20. Do not allow for the re-emergence of EOT abuse
Between 2014 to July 2019, a total of 536 housing projects were granted ‘extensions of time’ (EOT) from the Minister and his Controller of Housing, which prohibited house buyers from seeking compensation in the case that their house completion is delayed. A house buyer typically can get compensation of 10% of the purchase price, if the property developer exceeds the mandatory 36-month timeframe.
The then Housing Minister and his Controller of Housing obliged them under HDRegulation 11 (3) by granting housing developers an EOT (between 6 months – 24 months). With the EOT, compensation for late delivery is waived. Is it right for the Minister to exercise this discretion in stealth as home buyers are usually not consulted prior to such applications for EOT, and no valid basis is given, at the disadvantage of homebuyers?
On November 26 2019, the Federal Court ruled that the Housing Controller can no longer grant an extension of time (EOT) to developers who are unable to construct or complete their projects on time. The lengthy litigation was undertaken by HBA’s team of pro bono lawyers and was a victory for all house buyers,
Unfortunately, we have been alerted that there are recent initiatives to circumvent the Federal Court’s decision by invoking a different provision in the Housing legislation to replicate the same action. Is this the Resurrection of EOT? Perhaps, home buyers need to make another trip to the Courts to rectify the injustice via a civil suit with a prayer pertaining to the act of ‘Contempt of Court’ against whoever invokes the Resurrection of EOTs.
The Housing Ministry is supposed to be the authority that aggrieved house buyers turns to in times of distress. Homebuyers rely on the Housing Ministry for protection and for all the desperately needed interventions and assistance when a housing project is delayed or abandoned.
This gross abuse of power should be checked under the new Housing Minister’s watch. Any decision which deprives the home buyers of their rights and entitlement should be exercised transparently, strictly and with open communications.
21. Make ‘Qlassic Standards’ Mandatory
The Construction Industry Development Board Malaysia (CIDB) has been promoting Quality Assessment System in Construction (QLASSIC) for quality standards in the housing industry some decades ago. It is somewhat similar to the ‘SIRIM’ endorsement in electrical appliances that we have in our kitchen.
Currently, homebuyers have to deal with shoddy workmanship and sub-standard materials in property developments, as there are no recognised standards to measure construction quality. Perhaps, a study should be made with a view to make Qlassic quality standards mandatory.
22. Fine-tune Bumiputra discounts
HBA has previously proposed the abolition of Bumiputera discounts for luxury properties. Just imagine a luxury home that costs RM3 million. A 7% Bumiputera discount is RM210,000. That money can be used to build three low-cost apartment units worth RM70,000 each for poorer Bumiputeras.
Developers are usuallu profit-oriented and forcing them to give discounts would see them raising the prices of other properties to make sure that their profit margins were met. This would invariably result in a higher cost of homeownership for non-Bumiputeras. On top of the abolition of Bumiputera discounts for luxury properties, there should also be a cap on the maximum number of properties Bumiputeras can buy at a discount. If there was no cap, more affluent Bumiputeras could buy several homes under RM1 million at discounted prices, depriving other less privileged Bumiputeras.
If there is no cap, the richer Bumiputeras can buy multiple properties at lower prices and resell them for a quick buck. That is why HBA proposes that Bumiputera discounts be limited to 2 properties per person, to prevent abuse. Bumiputera discounts should be limited to private residences, and not commercial properties.
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23. Transparent data sharing with related agencies
The Minister should have the following property datas available for the public to easily access via a ‘click of a button’:
- properties that are currently being planned/ on the drawing board;
- under construction and incoming supply; and
- available property stock, which has been completed
The data provided should be by price range within each State, and property seekers should be able to filter down to district and municipality. The database should also include fileter by housing types and by location.
NAPIC has a portal for data sharing between KPKT – DOSM (statistics) which showcases the average income of the district and towns. The integrated system called HIMS (Housing Integrated Management System) is supposed to be available by end 2021. This system would enable the rakyat to make informed decisions when it comes to purchasing or renting. There should also be data sharing on abandoned housing projects by both private and government-linked developers.
24. Get rid of speculators, bogus house buyers & Investors Club
Speculation in the housing market has grown worse with each passing day as self-glorified Investors Clubs have been mushrooming in Malaysia.
The ‘modus operandi’ of these operators is to negotiate block purchases with cash-strapped developers, where they will bargain for a pre-launch block discount of 25-40% off the property sales price. The operators then circulate amongst their members for a “bargain” early-bird discount of 15%, thus making themselves a minimum 10% clean profit. The members of the Investors Club will subsequently dispose of their “product” upon delivery of vacant possession at a further profit.
Seminars like “How to become a billionaire” and “Invest in properties without deposits” will trigger young adults into thinking that great riches can be achieved via a shortcut. This is to alert the Government that this issue was prevalent, some 3 years ago and is making a comeback.
Conclusion
HBA fully understands and appreciate the vital role played by the Ministry of Housing & Local Government in the fabric of the nation’s social and economic development. This is one industry and ministry that is the most closely connected to the nation’s heartbeat. A roof over one’s head is one of the most basic needs of life next to food, water and air. That is why HBA strongly feels that more should be done to improve and overcome the prevalent weaknesses afflicting the housing ministry and industry.