Reviving sick projects

Awaiting completion: The 500-unit Taman Selayang Mutiara (Kristal Apartments) housing project has been abandoned since February 2013. A new contractor has been appointed to revive the project. — SS KANESAN/ The Star

VARIOUS factors have contributed to the malady of abandoned or “sick” housing projects plaguing peninsular Malaysia, particularly Selangor.

These include the movement control order (MCO) restrictions when the Covid-19 pandemic started in 2020, labour shortage and rise in construction cost, according to Real Estate and Housing Developers Association Malaysia (Rehda).

StarMetro caught up with Rehda president Datuk NK Tong and Selangor Rehda chairman Datuk Zaini Yusoff for insights into this issue.

Tong said, “We went through three phases of the MCO during the pandemic which caused a lot of delays in construction.

“It was no surprise there were housing projects that could not be completed according to schedule.

“We need to play catch-up now.”

However, the Extension of Time (EoT) clause has helped housing development projects to continue.

EoT is a mechanism to adjust the completion date of a construction project when necessary while offering protection to housebuyers.

It is designed to ensure that a contract is in place to deal with unforeseen delays caused by resourcing issues, overruns on key construction elements, and the MCO.

“Developers have applied to the government to be given more time to complete their projects. Some of them have received approval and some have yet to receive it.

“Projects that have received this permission will no longer be considered ‘sick’,” said Tong.

The stalled Sungai Chinchin Residency housing project in Gombak was supposed to be completed in 2015. There are two blocks with 350 units. — SS KANESAN/The Star

Labour and cost issues

The construction, manufacturing and agriculture sectors have been battling labour shortages for some time.

“This problem is still lingering, and we hope the new government can solve this quickly,” said Tong.

“Our Rehda members who want to start new housing projects have contractors who do not want to take up the jobs.

“It is because the contractors just don’t have the workers to finish the jobs even though they are willing to pay the workers more,” he said.

Construction cost has gone up tremendously due to rising prices of building materials, he added, and that is something that developers have to manage.

A Rehda survey has found that aluminium has the highest increase in price, as much as 55%, followed by timber at 52%, steel at 38%, cement at 19%, sand at 18% and concrete at 16%.

“Some prices went up and came down in the last six months but at some point last year, developers were faced with all these sharp increases,” said Tong.

“In this situation, even if you have already locked in your contractors, the developers won’t build if they are going to lose money.

“The profit margin is unfortunately squeezed between the rising cost of building materials and the fixed prices of homes, and this caused a pause in construction,” he elaborated.

The developers found themselves trapped as they had to deliver the units to the purchasers as promised, but due to the increase in building cost, certain contractors were not willing to proceed even with the EoT.

“The developers are bound to pay liquidated damages to the purchasers because the delivery period has been extended,” Tong noted.

It all boils down to a negotiation between the developer and contractor to continue at the said cost or top up further, he said.

“Of course, you still have to factor in the labour shortage.

“This is deemed a supply chain disruption,” he said.

He also pointed out the long gestation period of a housing project.

“It takes about three years to deliver a project, or longer in some cases, so if you stop something along the way, it will have effects down the line.”

He highlighted that the labour problems were aggravated by the MCO.

“When something like the MCO happens, foreign workers leave and go back to their own country because they have no income or revenue.

“Then later, we have to bring in new foreign workers and deal with getting work permits and retraining them,” he added.

Zaini said the increased demand for workers in the construction industry had also led to increases in the salary scale.

“We used to pay RM120 a day per worker but this went up to almost RM170.

“The shortage of workers has also resulted in a lot of poaching.

“Some workers leave the construction sector and go into manufacturing, for example,” he said.

Would putting a price control on building materials alleviate the problem?

“We don’t want to encourage a price control on building materials because that will result in unintended consequences,” said Tong.

“The manufacturers will not agree to sell if we put a cap on the price against their cost price.

“The government can help by waiving import levies temporarily, so that the price can come down. Then it will still be profitable for the manufacturer or importers to bring materials into the country,” he added.

Easing compliance policies

On Nov 28, StarMetro reported that Selangor had the most number of abandoned or “sick” housing projects based on statistics released by the National Housing Department.

A total of 73 “sick” housing projects consisting of 14,774 units were listed for Selangor, involving 7,423 buyers.

Zaini said, “As far as Selangor Rehda is concerned, we have only two or three members affected by ‘sick’ projects.

“After a certain period, most of these projects are not considered ‘sick’ anymore as they will receive EoT. This gives the developers time to complete their projects.”

He urged the government to ease its policies on compliance.

“This requirement to provide roads and utilities contributes a lot to the property selling price.

“It prevents us from selling the property at a lower and more attractive price in the open market,” he said, referring to subsidies on affordable housing (“Rumah Mampu Milik”).

“It is good if government agencies don’t work in silos but instead work together to reduce compliance cost and increase efficiency so we can give back to the rakyat,” said Zaini.He said certain states and local authorities required additional compliance, so this issue was not unique to Selangor.

“Some may increase the bumiputra quota to 30% or more, and some states insist on 70% bumiputra quota for commercial lots.

“So every time we comply, the cost goes up for some units,” he explained.

Protecting buyers

To prevent future homebuyers from being affected by abandoned or problematic housing projects, National Association for Abandoned Property Owners (Victims Malaysia) chairman Dr Mohamed Rafick Khan Abdul Rahman has proposed a pre-SPA Derivative Financial Contract (DFC).

He said that under the DFC proposal, the purchaser and developer would sign a 12-month agreement to give the purchaser the exclusive right to buy a pre-defined house only if the developer managed to sell 80% of DFC contracts within 12 months of signing the first DFC.

“This DFC is not transferable but can be assigned to the buyer’s next of kin.

“The purchaser pays a small option fee of RM1,000 to the developer.

“If the 80% DFC sales figure is met, the developer applies for the Advertising Permit and Developer Licence (APDL permit) and enters into an SPA with the purchaser within 60 days.

“If the purchaser changes his or her mind, they lose the option fee and may be subject to further legal actions. This will protect the developer’s interests and the housing industry,” Dr Mohamed Rafick told StarMetro.

He said that based on this agreement, if all pre-determined terms were met, the developer could begin construction.

“If 80% DFC sales are not achieved within the period, the DFC is automatically annulled and the developer refunds the option fee with 10% penalty (RM900) to the purchaser.

“By adopting this approach, the risk of the buyer owning a unit at a problematic or abandoned project due to the developer’s financial liquidity problem is addressed and reduced,” he said.

Dr Mohamed Rafick said the DFC was currently regulated by the Securities Commission and the law allowed developers to use it.

“However, to ensure the housing industry remains vibrant, Rehda and National Registration Department (JPN) must develop a standard DFC including the processes and procedures.

“Developers that sell DFCs without approval from JPN will not be given the APDL, and as such, they cannot enter into an SPA legally with the purchaser, allowing authorities to take action,” he said.

Tong, however, remained sceptical of this idea.

“For every proposal, there will be unintended consequences and in this case, it may encourage speculation.

“I can understand where the association is coming from, to make sure the housing delivery system works.

“If too many people jump in to buy properties with only RM1,000 on the line because they want to check out the situation first and then pull out to challenge the developer, that will not look good.

“It will give the developer false signals and they don’t want to go after purchasers just for the sake of it,” said Tong.