Property Guru, Photo Credit to Property Guru
clock 19-04-2017
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Abandoned Homes, Abandoned Dreams?

More often than not, being able to save up for your first down payment on your soon-to-be home is something most of us strive for. The exhilaration of signing your S&P becomes a fond memory, not just among home buyers, but also for investors.

So for all that to be taken away, because the developer abandoned the construction of your dream home midway, is a devastation few can imagine.

As of June 2015, Malaysia recorded 10,403 house buyers who were affected, with a total of 15,206 abandoned housing units from 53 housing projects. Selangor, Perak and Johor recorded the highest number of abandoned housing projects.

The Ministry of Urban Wellbeing, Housing and Local Government regards abandoned housing projects as a serious problem.

If a developer is blacklisted, the company and its board of directors will not be able to apply for licences and advertising permits. It will also not be able to renew its advertising and sales permits, and the company name will be added to the ministry's website.

A project is considered abandoned if:

1. There is no significant construction activity at the site for six consecutive months. 2. The developer is under the control of the Official Receiver. 3. The developer admits in writing to the Housing Controller that it is unable to complete the project.

Dire Straights Under amendments to the Housing Development (Control and Licensing) Act 1966, all licensed housing developers who fail to complete a housing project or have caused a project to be abandoned is deemed to have committed a criminal offense. The latter is punishable, with a fine of not less than RM250,000 and not more than RM500,000 or jail up to three years, or both.

There are several reasons why housing projects are abandoned, and these include poor management, lack of finances, low buyer response, legal disputes and the rising cost of materials.

Inadequate Laws "The latest round of amendments to the Housing Development (Control & Licensing) Act were tabled in Parliament and debated in December 2011", said Chang Kim Loong, National House Buyers Association secretary-general (HBA).

The crux of the problem lies in the system of delivery, such as the sell-then-build (STB) concept. It exposes buyers to the business risks that developers face, which should not be the case. This is the key reason why the government has to enact laws in its attempt to protect house buyers.

Yet, looking at the number of abandoned projects and house buyers involved who are suffering various degrees of financial hardship, it seems that no amount of legislations would be able to totally eradicate the problems brought by wayward developers.

In the majority of cases, the projects are successfully completed and the house buyers can count their blessings. When a housing project fails, the buyers are left in the lurch.

Lengthy Process An appointed liquidator becomes the de facto developer or land proprietor when a project is declared abandoned.

This means the liquidator assumes the pivotal role in liaising with purchasers, financier, authorities, utility providers, contractors, consultants and the courts.

The sale and purchase agreement, previously signed with the defunct developer remains in force, and the liquidator, after taking note of the legal, technical and commercial considerations, will have to make a decision on whether rehabilitation is a viable option.

Necessary Action Buyer need to be wary of recent practices by developers providing ‘free legal service' as a carrot to entice purchasers as this predicts the problems highlighted above when common lawyers are engaged.

To avoid being penny wise pound foolish, purchasers should engage their own lawyers to ensure that the sale and purchase agreement is properly drafted; the charge on the property by the bridging financier is discharged; the land in which the project is being developed has been properly converted, and the relevant premium is paid.

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