It is noteworthy that the Housing and Local Government is providing further protection to house buyers against the antics of irresponsible developers.
The recent amendments to the Housing Development Act comes to mind. One of the most pertinent clause that was amended is Section 6(1)(b) of the Housing Development (Control & Licensing) Act, 1966.
The matter refers to the amendment to the requisite deposit, which is refundable, from the current RM200,000 to 3% of the construction cost.
Small developers who build small number of houses in the smaller towns and where total construction cost is RM2mil or less, the RM200,000 that they are currently forking out actually represents over 10%. Therefore, for them the new 3% is actually a vast reduction!
To a big project developer whose construction cost is, say, RM20mil, the present RM200,000 represents a miserable 1%!
The present RM200,000 is, therefore, flawed because it assumes a “one-size-fits-all” formula where small developers are compelled to wear the “big size” that clearly does not fit them. The proposed introduction of the 3% formula is a realistic and fair figure because the actual deposit sum is dependent on the size of the project.
One may wonder, how would this proposed 3% help house buyers? Our contention is that it will indirectly help to reduce abandoned projects.
One may ask how? Aspiring developers, who are financially so weak that they are unable to raise the 3% deposit, should stay out of the industry. The probability of them running into trouble, and abandoning the project, is higher.
That 3% represents an increase in cost for them, although this 3% deposit is negligible when measured against the potential gross development value.
This 3% deposit is parked in the Housing Development Account and cannot be utilised, in any form or substance during the entire construction period. It can only be refunded on completion of the housing development. It can also be used to “ensure the completion of the development” when it has been satisfied that the developer is acting in a manner detrimental to the interest of the purchasers.
In a small way, it also serves as insurance for the Housing and Local Government Ministry as it represents a source of funding in the event of unforeseen eventualities caused by wayward developers where immediate expenses need to be incurred.
The havoc created by abandoned projects and the amount of funds made dormant (and in many cases, written off) is far more devastating and adverse than the amount of funds held in refundable security deposits.
While project abandonment cannot be totally prevented, that 3% deposit acts as proof of commitment, seriousness, financial standing and safety net.
The proposed 3% deposit can, to a larger degree, also assist in the revival efforts by the Government, as compared to the present insignificant RM200,000.
The tightening of the Housing Development (Control & Licensing) Act, 1966, and revised in the year 2002 and 2007, has failed to arrest the problem of abandoned housing projects. The statistics speaks for itself. The situation of ENFORCEMENT need to be tightened regardless of the amount of security deposit(s) demanded.
The 3% deposit represents only a minute factor in the whole risk equation. The proposed 3% is the minimum norm and should be increased to 5%, as proposed by the National House Buyers Assocation, if deemed necessary due to high risk or whatever other reasons.
Chang Kim Loong is the honorary secretary-general of the National House Buyers Association. He is also a third term councillor of Subang Jaya Municipal Council. For more information, you are welcome to visit: www.hba.org.my