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Reviving Abandoned Projects (Part 1)

The housing industry in Malaysia is regulated by the Housing Development Act which has undergone series of changes and inception. Based on data from the Housing and Local Government Ministry, as at May 2009, some 155 housing projects have been abandoned, involving a total of 48,664 housing units (of these, 31,337 units have been sold) and effecting more than 25,000 house buyers. But not all abandoned projects can be resuscitated. Some 12 projects involving a total of 1,601 units (554 sold) have failed to take off and the ministry is in the process of mediating a settlement between the developers and buyers.

An abandoned project is defined by the Ministry of Housing as projects that meets the following criteria:

  1. The project is not completed within or later than the delivery date stated in the Sale and Purchase Agreement (SPA) and no significant activity is noticed at the construction site for six (6) continuous months, or

  2. Notice of winding up or ‘Petisyen Penggulungan’ has been registered in the High Court under Section 218 of the Companies Act 1966, or

  3. Company is under the Receiver and Manager, or

  4. Developer’s are not able to acknowledge in writing to the’ Housing Controller’, and

  5. Confirmed as abandoned projects by the Ministry of Housing and Local Government under Section 11(1) of Act 118.

There are a number of factors behind the abandonment of a housing project. One of the main reason is the financial problem of the developer, caused by incidences such as the 1997-1998 economic crisis. Poor marketing and sales strategies is another reason, so too technical problems faced during construction, as well as crisis within the development company, including disputes between shareholders and embezzlement progress payment collections, problems involving contractors and even disagreement even with landowner. There are also problems of developer who did not carry out feasibilities and market study prior to the development. The Ministry of Housing and Local Government’s finding have shown that 70% of the project abandoned were due to financial problems of developers. Another 14% arose from poor marketing and sales strategies while 16% failed over problems arising from squatter resettlement, poor company management and disputes between developers and contractors or with landowners.

But while some abandoned projects are caused by unanticipated market conditions and economic uncertainty, including rise in building materials and labour costs, there are many cases where developers have only themselves to blame. Industry observers say there are cases where developers have channelled purchasers’ deposit money for personal use while some others deliberately hold back their projects for better resale prices.

There are also instances where developers inflate progress payment claims to draw more money from purchasers and the banks. Observers say this can be done with the help of architects, who are responsible for issuing certificates on the construction progress of the purchased houses, which are then used for progress payment claims.

The biggest headache for housebuyers when a project is stalled is monetary losses – the victims have to settle monthly loan repayments and deal with much anguish as, more often than not, there’s little chance of reviving these projects and getting the houses completed.

The crux of the problems in our housing industry is simply put down to one factor. Purchasers have to be well aware of their legal rights as a purchaser and demand for the conditions and terms set by the housing ministry. Unfortunately, most purchasers do not have an idea of their legal standing in any contracts either with the developers or the bank. This gave ways to developers the loopholes on claims and damages from the purchasers each time any payment is sought from them. Developers too, have come to accept that standards and quality are something to be forgiven knowing the eagerness of purchasers to take over the premises and will not waste time seeking compensation if the project is delayed in handing over.

The main purpose of the Housing Development Act 1966 is to protect purchasers. They should use this act to protect them. In SEA Housing Sdn Bhd vs Lee Poh Choo, the purchaser sued the developer for breach of contract and for delivery of the title to a house he has purchased. The property in question was completed after 23 months instead of 18 months as stated in the SPA. The issue before the court was whether the developer could be excused for the delay due to acute shortage of building materials, a state of affair which was at that time public knowledge. The developer relied on Clause 32 of the agreement which purported to exempt it if non fulfillment of any term was caused by circumstances beyond its control. The High Court trial judge held that the 1966 Act and 1970 Rules were passes by the authorities to protect the interest of the public and the developer could not contract out of the Rules. The developer’s appeal to the Federal Court was dismissed.

The built then sell (BTS) concept which was mooted in the 80s faced stiff resistant from developers. In some countries, the concept of built and sell have proven to be successful that it have become that it has become a standard to see a property of certain reasonable percentage of structure before any agreement is made and signed on and these are from financially healthy developer’s who are able to sustain the projects till completion with accurate forecast of timeframe and material cost fluctuations. The built and sell concept is actually workable if the government regulate, implement and enforce it. What we normally have here i.e. the sell then built concept, purchasers are actually the financier of the project. They are the investors who are giving the developer the money first to build something for them before they even see the finish product and the completed house in their return.

Whatever the reasons may be, it is certainly crucial for developers to uphold their responsibilities towards housebuyers by ensuring proper feasibility studies are conducted to ascertain a project’s viability before it is launched and duly complete their projects on time.

#Abandoned #Development

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