LETTER | Towards a sustainable housing industry

LETTER | We are surprised to read some of the Real Estate and Housing Developers’ Association's (Rehda) comments on issues surrounding problematic housing (PHO) projects.

Today, PHO is about an RM13 billion problem affecting 52,000 house buyers.

Regretfully, Rehda did not give any sustainable workable solution towards having a healthy housing industry. We would like to address some of the points.

The usage of EOT clause in HDA118

A commercial contract between the developer and purchasers must be honoured by the signatories. The terms are clear with both parties facing the same financial transaction risk.

Developers using the EOT clauses are actually trying to run away from their obligations to pay LAD to purchasers and have nothing to do with the ability to complete the projects. The two factors are not related but affect the company's profitability.

Giving EOT to not-for-profit developers is fair. However, all Rehda members are commercial developers. Their projects are business-driven (and not CSR projects). It is unprofessional for developers to use EOT as a bargaining chip to continue their projects.

Giving EOT does not address the issue of rising material costs and the developer's ability to complete their projects. Financial risk is a common feature in any business transaction and why should developers be given privileges in doing their business when they face problems?

The Federal Court addressed the legality and the unfairness of EOT in December 2019 (Kondominium Sri Istana’s 104 homebuyers Vs Housing Controller) and as such, this matter is no longer worth discussing in addressing problematic and abandoned projects. No one can use this clause under the present law. It is best that REHDA members accept this reality and move on.

Force majeure

The existing standard SPA does not have any force majeure (FM) (Act of God) clause. Covid was an exceptional situation where FM would have been useful had the provisions been there.

However, such a clause wasn't there in the existing SPA. Therefore it would be inappropriate for Rehda to even bring up their grievances due to Covid as this issue is not legally covered and as such it is due to business risk.

Victims Malaysia (VM) would not object to the inclusion of a well-defined FM clause in future contracts if there is a call to revise the HDA118.

Business risk

Rehda cited the issues of rising material and operational costs and Covid as issues that developers faced which contributed to sick projects.

These are business risks as a result of the developer's failure to factor them in when they do their product pricing. In reality, these factors would have been easily addressed if developers chose to do built and sell (BTS).

Under BTS, a developer can adjust the price accordingly based on their cost of doing business. Their profits would be guaranteed and subject to commercial factors.

Compliance and policies

VM agrees with Selangor Rehda that compliance processes and procedures need to be streamlined. It must be enhanced with the aim to reduce bureaucracy. It would help in reducing the cost of development provided it does not have any impact on safety and revenue generation for local authorities.

Contribution to TNB and water authorities should be abolished as these are private entities and no longer government bodies. Bumi discounts for high-end products should be abolished and a better centralise mechanism is required to manage buyer-occupied subsidised housing.

No owners should be allowed to profit from subsidised housing either from rental earnings or excessive capital gains.

Derivative contracts (DC) for housing industry

We can appreciate Rehda's scepticism for new proposals like DC because this is outside their familiar business domain. This proposal came in view of the rising number of PHO and the weakness of the existing legal framework in addressing related issues.

The presence of over 52,000 (valued at about RM13 billion) of problematic housing nationwide is a testament to this. All attempts in the past to halt the growth of PHO have failed. We need to find solutions outside the existing legal framework because it takes time to do any changes within the scope of HDA118.

DC has many benefits for both consumers and developers. It can be implemented almost immediately without the need to amend the HDA118. Rehda president’s statements reflect his misunderstanding of DC is forgivable as this is a greenfield to him and the industry.

Having a call-and-put option is not about "checking out" but rather having a "regulated commitment" to both buyers (to buy) and developers (to sell and build) if predefined terms are met.

Parties that "walk out" of such options when predefined triggers are met face defined penalties and legal consequences. This will prevent parties in the DC from "walking away". To prevent speculation and allow unscrupulous people from capitalising on the DC, additional terms are placed in the DC terms to allow limited transfer of the DC.

Owners of DC would have time to source its financing and don't have to rush in to lock their loans with financial institutions. They only need to lock in their loans once the triggers are met. This is a good solution for both developers and house buyers.

For the sake of developing a healthy housing industry, we ask Rehda to work with us and JPN in developing a standard DC. VM is more than ready to give a briefing to Rehda on the inner workings of the DC to gain their buy-in. To protect everybody's interest, JPN participation is mandatory as it controls the SPA.

Conclusion

We call upon Rehda to look beyond the developer's interest and rather work with all stakeholders towards having a vibrant housing industry that will encourage foreign and domestic investment with minimal worries.

We must change the way we look at things from the way we do in the past. VM has changed its stance towards this regard and view that the creation of a healthy housing industry helps developers, buyers and the country.

We call upon Rehda to work together with us (a not-for-profit entity) for the industry and the economic sake.

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.