LETTER | Let's work together to address housing development issues

LETTER | The National House Buyers Association (NHBA) has proposed extending the various warranties between developers and subcontractors to house buyers by amending the SPA and the Housing Development (Control and Licensing) Act (Act 118).

Real Estate and Housing Developers’ Association Malaysia (Rehda) president has responded by saying vendors may consider increasing prices if they have to deal with individual buyers instead of just the developer.

Contrary to what Rehda claims, extending warranties from contractors to developers does not require the contractors to deal with the purchasers. It has been done previously by Metrolux who gave a 10 years warranty beyond the standard defect liability period (DLP) on many aspects of the development including termites issues.

It was done as a measure to promote sales at the time of the financial crisis in 1998 and has proven to help their sales. The warranty was done in such a way that it is still within the responsibility of the developer and the developer function as an intermediary between all parties. The warranty was assigned by having a simple additional clause in the SPA with the approval of the National Housing Department (JPN).

Currently, the housing industry formula of "sell first and build later" (SAB) has led to many issues. Problematic projects (sick and abandoned) have led to nearly RM100 billion in direct liquidity problems. If the financial impact on the purchasers is taken into account, then the value would be significantly much higher.

Many have gone into poverty as a result of project failures. By any standards, this implies that the current HDA118, influenced by Rehda since its inception is defective and needs a total revamp. Foreign and domestic buyers are concerned about buying properties in Malaysia.

In reality, there is no peace of mind when SPA is signed. Purchasers worry that their projects will not go smoothly. They don't get the same peace of mind as putting money in the bank or buying insurance. A sick industry does not benefit anyone.

We call upon Rehda to work with Victims Malaysia and other stakeholders at improving the housing industry's image in totality so that it will attract domestic and foreign buyers with confidence.

We request that Rehda stop raising objections to every suggestion made to improve purchasers' rights and industry standards and professionalism but instead offer a workaround solution. Rehda must accept that a large number of developers are not Rehda members and Rehda does not represent them.

Rehda said a two-year DLP was enough, as construction defects would show up within that period, and suggested that DLP can be viewed as a trade-off between consumer protection and keeping homes affordable. Rehda's points here can be interpreted in another way. If indeed most defects appear within 24 months, Rehda shouldn't have any concerns with extended DLP as almost zero defects are likely to surface.

In fact, it is good for business as extending DLP would encourage sales. We can learn from the auto industry where for a long time the warranty period lasted for 12 months but today, car manufacturers are giving a five-year warranty as they know their products are good and the consumer takes this point in their decision-making when buying a car.

We ask Rehda to move away from the traditional approach of raising the threat of rising costs and to provide solutions towards improving the image and problems within the industry. Despite years of Rehda resistance to change on many proposals put forward by NHBA and Victims Malaysia, house prices have been escalating.

It is no longer appropriate to use this excuse. We should apply all reasonable proposals and let the market dictates. Price will adjust itself on the basis of supply and demand.

There are quality issues related to latent defects which are not covered under the existing SPAs. A building life span is typically good for 33 years but some latent defects occur within the first 12 years. This can be seen even in new buildings as developers begin to cut corners.

This is caused by structural, subsoil issues that resulted in building movement. Developers can address this problem by expanding the benefits of their construction all risk insurance programme to cover latent defects which is a standard in many countries including the UK and the USA. The insurance cost is minimal and purchasers would want to have this.

In many industries (auto and other consumer products), players go out of their way in winning customer confidence. They accept that customers are important and that getting customer confidence is key and they accept customer complaints positively.

Regrettably, these are not happening in totality in the housing industry. Developers avoid risk by entering into contracts with purchasers by using SPVs and ring-fenced the parent company and Ultimate Beneficial Owner from any legal risk. This must change.

Having a fair clause gives confidence to the market and will enhance business penetration. Purchasers must be able to exercise their rights without terminating the SPA. If developers are good, they would not face any legal risk and hence should not have any worries.

Any useless and meaningless sections and regulations should be removed if it is detrimental to the housing industry. One such example is the three percent deposit based on construction value. This money has not been used in project rehabilitation and the deposit has not been forfeited.

In conclusion, Rehda must change its approach and mindset of one to being protective of its members from any legal risk and start contributing positively to enhance the legislation with the aim of improving the industry image and creating confidence in the market.

RM100 billion worth of issues does not help to create confidence. The cost impact of any new prohibition of legislation must be evaluated by an independent party.

We must move from the mindset that purchasers and developers are two antagonistic stakeholders. It must be seen as one for the betterment of the industry and country.

MOHAMED RAFICK KHAN ABDUL RAHMAN 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.