LETTER | SPA amendments needed for housing industry to remain vibrant

LETTER | The existing sale and purchase agreement (SPA) which forms part of the Housing Development Act has been in place for over 30 years.

It is not perfect but despite being tweaked many times, problems persisted and consumers face the financial brunt of not getting their property or getting a low-quality product.

The existing agreement does not reflect a true spirit of sale and purchase agreement because, at the time of the SPA being signed, there is no product.

What is shown to purchasers are models, brochures and sample houses. By any standards, this is against a fair trade principle.

It has strong elements of uncertainty, putting purchasers at risk of deception from irresponsible developers and there is a high risk of non-deliverables of contract commitment. It creates lots of worries for the purchasers.

A strong and equitable SPA will ensure the development of a vibrant housing industry that will attract domestic and international purchasers.

In the current SPA, individual purchasers are minnows compared to the developers as they don’t have the legal and financial strength as the developer.

The current SPA being equal must be changed and made equitable. An equitable SPA will give purchasers peace of mind as it considers the purchaser's handicaps compared to a corporation.

Consumer protection must be a default feature of a SPA. Among purchasers, worries relate to delayed or incompletion of the development at the end of the SPA period and poor quality of the final product.

Project delays and incompletion mostly are due to developers' weak finances or financial management. Poor quality is due to poor quality control measures taken by the developer's appointed consultants.

Therefore, several aspects of the SPA need to be amended:

1. The developer should be allowed to earn its profit only after it delivers the final product at the vacant possession (VC) stage. Typically profits are about 30 percent of the contract value and this sum is to be spread post VP according to certain defined deliverables and some amounts are held by the regulator and released at the end of the defect liability period (DLP). This will force the developer to work towards earning his keep.

2. Defects are inherently common in construction. The issue is quantity and severity. Major symptoms of poor workmanship sometimes take a longer time to appear. Hence the current 24-month DLP must be extended to match the VP period subject to a minimum of 24 months. Matching the DLP and VP date is important as it encourages the developer to apply the latest project management tool and the usage of the latest construction technologies in construction. It will discourage developers from signing a SPA with a long-term contract completion period.

3. Backing out from a contract cannot be a matter of a simple refund for either party. An “act of God (AOG)” clause can be defined to cater for a simple refund neither party is at fault and the project needs to be terminated. The insurance industry has a robust AOG definition which can be adopted. For other situations, appropriate defined penalties must be included in addition to SPA cost, loan termination, MRTA (Mortgage Reducing Term Assurance), and payments made to the developer. An exemplary cost must be included if the developer backs out due to the financial issues that it faces.

4. Contract variation affecting parcels cannot be done unilaterally by the developer or with the regulator's permission. It must be a mutual consensus between the SPA signatories. However, when it involves common areas, it requires the consent of the authorities and notification to the affected purchasers.

These changes are aimed at protecting the small man against a large corporation in buying a “promise to build a house”.

Using the courts for dispute resolution should be the last step in dispute resolution. The regulator (JPN) should be the arbiter in dispute management and must be empowered to take action to ensure all decisions are complied with.

It is time to move forward to a more dynamic industry that is healthy and has minimal risk to consumers.

Consumer interest protection is paramount to developing a healthy industry.

The writer is the chairperson of Victims Malaysia.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.