Wednesday, July 02, 2008

Build Then Sell

One of the biggest complaints that representatives in the Klang Valley, and probably in many cities throughout the country, is the issue of abandoned housing. I've written earlier about the problem of house-buying and I'll quote here:
Just for the purposes of comparison, when you do go out and buy your dream car, be it a Proton or a BMW, worth RM50,000 or RM500,000, what's the process like? Typically, you'll pay 5% to 10% downpayment and the balance once your car is ready for delivery in a week or two.

The question then is, why is it that we as house-buyers have to pay a 10% upfront, and subsequently continue making progressive payments over a period of two years or so, before finally gaining 'vacant possession'? Often, our banks would have disbursed some 90% of our housing loan facility for the purchase, before the house or apartment is even completed!
So when I read that the Selangor state government intends to implement the "build then sell" concept of housing, I'll all hands in support. The Star reported that
SELANGOR aims to take the lead in the “build-and-then-sell” concept for housing projects to reduce the incidence of house buyers who are cheated by unscrupulous developers.

[Tan Sri Khalid Ibrahim noted that] “In most developed countries, there is no such thing as you paying as the house is being constructed. For example, in Australia, you have the right to sell only when the project is completed. But in Malaysia, you can sell your housing project even before you complete it.”It was reported earlier that there are 141 abandoned projects in the state, 108 of them housing projects.

“We don’t want this to be done immediately, but it has to be done in stages so that in the future, there will be a lot more people who will build first before selling.The state and local governments are now facing a lot of problems as people are demanding to know why we allow buildings or houses to be built in a shoddy manner.”
I certainly hope to see the day in Selangor whereby houses are made before they are sold, for the protection of hard-earned savings of our Malaysian workers and families must be given absolute priority against weak and unscrupulous developers.

And I fully support the move by the state to "blacklist the directors and owners of the companies" so that they will not be able to 'return' under the guise of a different company resulting in more housing victims.


johnny cheah said...

So shocking to know that there are more than 100 abandoned housing projects. Thousands upon thousands of house buyers must be effected by this. What is the BN government doing about this. How come all this have happened I am sure this is not the first incident. The question is how come the government allow this to happen. Are they not suppose to monitor the project. Who are the developers? Where have they gone? I am sure a government department must have the full details of the developers. How come the government is not going after them. This is as good as cheating the public. The developers must be brought to justice at all cost and it is the duty of the BN government to do so

__mars said...

your blog has no trackback feature! All the more reason to migrate to wordpress!

Anonymous said...

i fully agree with this.

may i add that rules also be changed to allow easy trading of the property before it is completed. while this may raise the risk of speculation, the ability to sell before completion also ensures that house buyers have the right to fulfill liquidity needs, take advantage of current property price movements or change their investment risk profile while at the same time ensuring efficient property pricing. furthermore the singapore HDB model can be adopted to have a two-tiered market where low cost housing is protected from speculation.

Kean Hong said...

besides, there is a Retention Period of maybe 18 months, where bank still hold 5% or so of payment. During this period, buyer cant start their monthly installment, but only paying interest of what ever sum of money that has been paid to developer. Is it fair?

of course buyer can always write to bank and request to start early installment, but how many people are aware of it and how to do it?

Mr. Smith said...

Tony, I hope you take up this issue all the way till it is finally implemented.
I know many friends who have lost thousands of ringgit when their houses were abandoned by the developers.
House building is big business where a good chunk of the house price goes to grease palms of government officials. From the time the advertising permit is obtained till the issuance of CF, it is corruption all the way.
We house buyers end up getting shoddy workmanship and most often we need to repaint and repair the house before we move in.

Anonymous said...

"Build Then Sell" can be implemented, but the house buyers have to pay more for the financing cost during the construction stage.

There are pros and cons, it's something like risk and return, or getting insurance coverage. One has to pay the premium to transfer the risk.

"Build then sell" or "sell then build" better, it is subjective.

Anonymous said...

looks like can spend more budget on buying car now ; as buying house is OUT OF REACH with house prices now expected to tripple with this build & sell concept coupled with high costs of land, steel, cement, labour etc.

happy go lucky gal ~

Anonymous said...

Build then sell has its own pros and cons.

The pros are mostly for the consumers of course. You can see what you are really buying.

The cons, is business related. It's expensive to build a block of houses. Without down and progressive payment, the block may never be built, or built with less standards than what the buyers may eventually want.

Remember, you take 2-4 years to build a project. And market changes in those years. Customers may be rich now, but poor those years later, or poor now and rich later, due to government policies too.

With the huge investment and lengthy wait/lag time, our country does not have sufficient or suitable talents trained in managing such investment risks. Unless we hire from Singapore (nearest). And our people will grumble why we hire Singaporeans on jealousy and hurt ego.

It is a difficult balance. Very difficult. I trust you may wish to think through the details first, then table a solution. Those from the other side can never have brains enough to think through such complexities.

Anonymous said...

left leg , what you say is illogical. are you a lousy developer yourself? why shd consumers be made to finance rich developers? if the developers can't finance this "huge" investment, either seek financing from shareholders, banks, and a myriad of other financing instruments or don't be in the business at all...there are many competitive developers out there who can give a good product plus protect home buyers' rights. it's not a difficult balance at all! i think you are the one without the brains.

Anonymous said...

YB with all due respect i disagree with build-then-sell concept. whilst socially it may sound great for the working class (of which i am one) practically it will not work as what it will happen is it will end up favouring the bigger, richer developers as the smaller developers will not be able to sustain their projects with no cashflow. This will only result in the bigger richer developer getting richer aka an oligopoly and it will only worsen house prices for the ordinary worker.

I have no alternative solution for you but if I do i will certainly comment so in your blog

Anonymous said...

With so many abandoned projects, yet we still see many more new developments. What's going on? At same time, there are many poor people who near a decent roof over their head. Would the state government consider reviving these projects and use them to provide accomodation for these poor and needy group to help them tide over these hard times.

Anonymous said...

Most abandoned developments were due to greedy-corruption & brainless-town-planning by previous town-councils. Whatever the consequence, the rakyat will eventually have to bear for it.

Build-Then-Sell is a concept in most developed nations. Not only does it mean the developer is financially strong (so, hopefully, no more 2 ringgit developer companies), it will also create better competition to build better QUALITY homes. Developers should also take advantage of this to provide renovation package to home buyer.

Anonymous said...

Why are banks not financing these construction projects? (i.e. do Malaysian banks not lend money to contractors to build their houses?)

Anonymous said...

Hey Tony,

No comment on your Pasir Salak friend?

Anonymous said...

I am one of those who are affected by the "sell-then-build" developers. S&P for Condo unit in KL was signed in 1993 and 10% deposited. (yes, 1993). I thought that I had mitigated the construction risk, lured by the sales pitch of "no payment until CF issued".

To make a long story short, litigation was initiated in 1999 for specific performance but lo and behold, temporary CF was mysteriously issued in 2002 (after 10 yrs !) but physical inspection would leave no doubt that the whole project was not ready for occupation. I say "mysteriously" as none of the unit owners have seen this document but has been recognised by the banks and the local authoritiy.

Original developer has been liquidated, banks are chasing for loan repayments, units are not habitable & the block has been shut down for safety reasons. Some of the unit owners filed the suit against the developers, selling agents, banks and statutory body for fraud and negligence, ensuring that Statute of Limitations was not out of time.

As owner, I cannot move in or take possession of the property as it may endanger my family.

As investor, without possession and/or amenities, I cannot rent the unit out.

As debtor, I face the possibility of being on Bank Negara's black list due to non-payment of credit facility. I would definitely honour my commitment to the bank if I can at least make use of the unit. And I am sure that the bank has already written this off but keeps pursuing the much maligned owners.

As litigant, case management has been ongoing for the past 2-3 years.

So, for the past 15 years, resources have been put in to obtain value for the purchase but as owner, we seem to have no recourse - the developer is non-existent, the banks are relentless, the local authority keeps adding on to the quit rent every 6 months and the worse part is that I cannot even access the unit.

"Build-then-sell" is the way to go.

Anonymous said...

I just cannot see the logic. In the good old days one is almost retiring or retired in order to buy a car or a house.

Now barely got a job, (albeit temporary) start buying a car and behaving like millionaires spending money at mamak and coffee bean.

Blame it on the people! Blame it on investors and speculators that changed the market!

The ordinary poor man suffers!

To add insult to injury a car is about the cost of a house yet why do buying houses cost so much problems?

If only all these stupid people cut a coat according to the cloth, If the BN and UNMO govt dont encourage this type of market all of us would not be in the economic dumps!

Now it seems I reliably heard all those unwanted or unsold cars are going to be forced on the taxi drivers!


Anonymous said...

Dear Left Leg Visiting,
Hiring S'porean will not solve the problem, I have some S'porean friends working on projects in Malaysia and they find it difficult to manage because there are many unclear rules & laws imposed by the various authorities. Getting approval is very difficult unless you do the 'right' thing with the 'right' people. Hence the building authority & the various government department has to be revamped
first before you can see improvement in efficiency.

Anonymous said...

I was told by a friend yesterday when they approached the building authority to get a plan approved, they were told to pay RM 1 million. And when they wanted to pay the sum, the officer advised them to appeal instead. When asked how to appeal, the officer asked them to talk 'outside'. you can guess the story now ??... :)

Malaysia180 said...

There has been a build then sell exercise going on here in Damansara jaya.

Well, that's what the developers call it. I call it a farce trying to discredit the concept of B then S

The houses, on sale for 1.3 mill. Now I would think that if you had 1.3 mill to spend on a house you would build your own. These facical excuses for houses have too many bedrooms ( how many kids does the average family have these days?). for each massive bedroom there is a pokey 6'x6' bathroom... now that's what I call real luxury. The poor designs means there is wasted space everywhere and meanwhile the kitchen is hardly big enough to mix a cocktail. The air conditioners are hanging off the outside of the building as tho they were an afterthought. The security cell is situated right on the roadside outside the housing compound and I'm sure that's illegal plus you have to be a rally driver to negotiate the entrance

In Australia where the concept of B then S is well established. You have a choice ( I know that sounds ridiculous to a Malaysian) You choose your house from a plan, and at the same time you choose all the finishes you want, type of bricks, types of roofing, tiles, floor treatments etc... you can choose the stated plan or its mirror image

Its clear that Malaysian developers do not want such an approach and they are doing everything they can to make the BnS concept unworkable

Their gripe that they cant afford to underwrite that concept is pure bollocks... Why dont they get into their gold plated Mercs and go visit their bankers

wyatmeng said...

it is the responsibilities to ensure the consumers are protected from being left behind helpless.they must be helped out

boonseng said...

These days, bank are offering first year 0 % package. This will be alternative for consumer to save interest payments during construction period.

Anonymous said...


You should bring this topic and question Ong Ka Chuan in the Parliament.

But be careful, make sure you do your research throughly beforehand, don't let him shoot you back!

Remember they have REHDA, spin doctor for Kementerian Perumahan dan Kerajaan Tempatan to back them all the time.

That's why developers in Malaysia always at the upper hand to suppress house buyers in Malaysia.

Tony, Build & Sell concept has been said many times but it has never been materialize?

Please work smart on it and breakthrough my fellow MP.

Good Luck!

Anonymous said...

The build-then-sell will not favour the corrupt for many reasons. Our Housing Minister tai-kor will come out with many many reasons / excuses not to favour it as this will hurt all the BN-cronies pocket. He may favour it for public attention/support but will blame others (in Cabinet) for not supporting, hence will not go ahead - show is over - he still walk away being the hero.

Build-then-sell concept obviously favour the home-buyer. One of the reasons the BN will give is that it will stagnate growth...I don't buy that. First of all, we must have credible developers - all of them. This build-then-sell concept encourages that. Look at the quality of our homes. Which development in the entire Malaysia does not have a single complain. Some maybe minor, some are totally major. Both of which cannot be ignored by the housing minister or is it because his bungalow is nice &, the rest of malaysian homes are like that as well.

Some form of rating system should be established to categorise the "health" of the developer & be held liable for giving the rating. But the rating must not be construed to pricing of the house. The gov must also take some responsibility - this is because in the first place, who are the authorisation body for the project? Who gain from the taxes?

Too many fraudulent developers out there & they always get away with it. From what I heard, all they need is to make sure 20% of the launch is sold then it's go ahead. They get their a bit of digging here & there...then close shop. Do a search, it's a RM2 company & the directors have fled the country - Australia, UK, USA, Bahamas...come back after 10 years when everyone sudah lupa. Gov will not pursue anymore. Who is to be blamed here & who is victimised? The authorities get $ out of it but wash their hands clean. Home-buyers must be allowed to take legal action against the ministry for allowing this to happen, which is the root cause.

Some may say "got penalty for late VP mah". The penalty for late VP is also a farce. Yes, there is but as soon as there is VP, the developers will keep silent...pretend not to know anything & if there is a claim, will come up with all sorts of reasons/excuse not to pay or reduce the penalty substantially. There will always be a clause somewhere in the S&P to protect their interest.

In boleh-land, it is always the rakyat that's victimised. By who?

No offence, not all developers are like that. But it takes only a rotten apple to spoil the basket.

Boon said...

I am also the victim of a sell-then-build scenario. The apartment is Flora Damansara.

The project saw one bankrupt sub-contractor, poor management, and things built not according to plan.

Because of this, the project was delayed, there was shoddy maintenance, and the value dropped.

I am in favor of a build-then-sell policy.

I always tell my friends to buy an already-built property, to avoid problems like this, even though it may be more expensive.

There are pros and cons, but Build-then-sell has better value overall. It protects people. Corporations will come and go.
That's what policies should do.