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Thursday October 29, 2009

Sell-then-build system badly flawed


I REFER to the report: “Kong: Housing revival fund a one-off allocation” (Sunday Star, Oct 25).

I would like to look at the reasons why RM200mil of public funds have to be used to revive abandoned housing projects, one-off or otherwise. Abandoned housing projects are essentially failed businesses where the developers are no longer able to complete the houses they set out to build.

Thus, it is a situation of “profits privatised” while losses are nationalised!

By the way, the RM200mil represents only a small proportion of the total sum required. In Selangor alone, it was reported that RM4bil to RM5bil is required if the abandoned projects in the state were to be revived.

Why does the Government have to intervene and dump in vast amounts of public funds to revive these abandoned housing projects? The answer is because innocent house buyers are suffering the effects of paying a lot of their savings to the developers and not getting their houses. Their dream houses have turned into nightmares!

How does this situation come about? I would like to shed some light on the cause of this pathetic situation.

The main culprit is the present sell-then-build (STB) system. The badly flawed system compels buyers to make progressive payments while the houses are being built.

The National House Buyers Association (HBA) has over the past few years been appealing to the Government to do away with the progressive payment system and to adopt the 10-90 build-then-sell (BTS) system.

Opponents warn that the 10-90 BTS will shrink the industry because smaller developers will be put out of business while the big ones will downsize their projects. They argue that there will be shortages and house prices will go up by up to 50%!

The HBA has adequately rebutted all those arguments. A flawed system cannot be a sustainable system. If we do not phase out the current obnoxious progressive payment system, house buyers will continue to face hazards in buying houses and Malaysian taxpayers will forever have to shoulder the burden of paying for the revival of failed housing projects.

We believe the proposed 10-90 BTS not only benefits house buyers but it actually benefits all parties involved in the housing industry as follows:

> For the bridging financiers, collaterals will not be progressively fragmented. Revival is less complicated and speedier.

> Developers need not have to rely so critically on their sales to meet their cashflows.

> Joint-venture land owners’ interests are better protected and there will be more land owners who will be willing to go into joint-venture partnership with developers.

> House buyers are insulated from the effects of project abandonment. There will be better quality houses and less substan­dard materials used because come payment time, the buyers will conduct a prior delivery inspection with their developer.

> For the end-financing banks, the risks are much lower as they now finance completed houses that are readily cashable in the event of defaults.

Furthermore, the Government need not get involved with and spend a vast amount of money to bail out what are essentially failed businesses. The industry will be more self-regulating with less governmental policing and enforcement.

The STB progressive payment system has outlived its usefulness and is now creating havoc to the industry. The switch to the 10-90 BTS is long overdue.

CHANG KIM LOONG,
Honorary Secretary-General,
National House Buyers Association.

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