Risk of buying to be completed properties 1
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Homebuyers take on financial risk when purchasing homes that are unfinished or have yet to be built. Potential buyers of properties that are still under construction, face the possibility of a developer suddenly abandoning the project once payment from buyers have already been made.

When properties are abandoned or sold by unscrupulous developers, any money paid is difficult, if not impossible, to recoup. But just how likely are property projects to be abandoned in Malaysia? Well, a research revealed that in 2014 alone, there were a total of 68 abandoned housing developments in Peninsula Malaysia, that affected 17,468 buyers.

As such, there is definitely a need for buyers to be protected when purchasing to-be-completed properties. The Housing Development Act (HDA) is one way to provide some security for buyers.



So What Exactly Is The Housing Development Act?

In a basic sense, the Housing Development Act (HDA), protects buyers of residential properties that are under construction. Under the terms of the HDA, the advertising, permits, developer licences, the Sale and Purchase Agreement (SPA), as well as the trusting of monies paid to the developers (Control and Licensing) are regulated.

The act does not extend to cover homes that are marketed as ‘build-then-sell’ (BTS), where the developer only sells the property once it is fully completed, taking no prior payment. These homes make for a less risky purchase since the property is already finished (i.e. has obtained its Certificate of Completion and Compliance).

Currently, very few developers practice the BTS mode. However, prominent developer, SP Setia, offers BTS properties where the buyer only has to pay 10% upon signing the SPA, and the remaining 90% when the property is completed. These types of BTS properties are typically covered by the HDA (Schedules I and J) as well.

The government proposed a similar concept (BTS 10:90) to be made mandatory in 2015, but it has yet to come into full effect and its current status is apparently uncertain.



What about Commercial Properties?

Fully commercial properties built on commercial land (titles) won’t enjoy the protection of the HDA. On the other hand, buyers of partially commercial properties (e.g. some SOHOs and serviced residences) may still be covered by the act.

Moreover, in terms of utility tariffs and other payments, if a property built on commercial land is protected by the HDA, you might be able to apply for a conversion to (cheaper) residential rates.

Bonus Tip: How to know if your property is covered by the HDA? Look for these wordings on the first page of your SPA: “HOUSING DEVELOPMENT (CONTROL AND LICENSING) ACT 1966” & “HOUSING DEVELOPMENT (CONTROL AND LICENSING) REGULATIONS 1989”.



How Does The HDA Protect Buyers?

There are several parts of this act that work to shield the buyer from the effects of developers who might take off and leave them in the lurch.


Here are three main ways the HDA safeguards the buyers’ interests:


1. Mandatory Supply of Important Information

To make an informed decision when buying a new home, you’ll first need the facts and figures. The HDA makes it a must (where applicable) for developers to clearly communicate accurate property details. This includes, but is not limited to, the expected date of completion, the minimum and maximum selling price of the property, as well as the developer’s licences.

This information is especially crucial during the advertising phase of a project. Because of the act, the developers have a responsibility to deliver as promised. When advertising, a developer will need to give a precise description of the property being built, for instance, the number of carparks allotted, and the property size.



2. Holding Funds in A Special Account

This represents a major financial protection for buyers as any money paid to the developer by buyers will need to be held in a trust called the Housing Development Account.

The money cannot be withdrawn, with exception to certain clauses where it is allowed. For instance, they may withdraw to pay property taxes (quit rent and assessment tax), stamp duty as well as insurance premiums and architect fees.

Placing payments in a trust account can help reduce the incidence of unscrupulous developers making off with the buyers’ funds without completing the property. There’s also more accountability and transparency when it comes to utilising the purchasers’ payments. In fact, the Controller may freeze the account if they believe that the developer is acting in a manner that is “detrimental” to purchasers (section 7c of the 2007 amendment).



3. Fair Sale and Purchase Agreement

The HDA requires that developers adapt the terms of a scheduled SPA in order to protect the buyer from potentially lopsided agreements that favour the developer.

The contracts are separated by title; properties like apartments and condos that are under strata titles will follow Schedule H whereas residences under individual titles will be adapted from Schedule G.

A notable term in both Schedule H and G that provides more protection to buyers states that developers are liable for shoddy workmanship and material defects. In addition, the schedule also dictates the maximum completion time allowed, where developers will need to pay the buyer a late delivery interest, if exceeding.

However, the Housing Buyers Association had received complaints last year that related governing ministries had extended the delivery time frame, and buyers weren’t allowed to collect compensation. Thus, it’s important to note that while the HDA protects buyers to an extent, it isn’t perfect.

Read more about SPA here.



A Little Good News for HDA Properties

As of March 15, 2017, the Solicitors’ Remuneration Amended Order 2017, increased the allowable legal fee that lawyers can charge for SPAs on land and property purchases. HDA properties however, will be charged a lower legal fee, which is estimated to amount to a rebate of 25% to 35% !

To put simply, the HDA is there to protect your interest as a buyer. So if you’re looking to snap up a unit of a newly-launched development that promises completion in 2020, be sure to do your due diligence and find out whether the property is covered under the HDA before handing over your hard-earned money!


Do you think the Housing Development Act provides ample protection for home buyers? Share your thoughts with us in the comments below!


(Written by: Desiree Nair, 20th April 2017)

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Great article for new home buyers on their rights. I believe there is also an important protection towards buyers whereby a certain % of the sales is withheld by a third party during developer Warranty Defects period. 

Jonathan de ho half body small

To comply on this topic. I have this project where you can inspect the unit you interest straight away. No risk.


I have very great own stay project for sale. Location is Bukit Jalil

RM450psf ONLY (Below Market Price) 低于市场价格

Spacious Living 1100sf-1900sf 舒适广阔的空间

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High Rebates and come with 2 Carpark 高折扣, 两个车位

High End Environment with Great Lifestyle & Privacy within a Township

高隐私, 高级住宅区

500m to Existing LRT Station 步行可达地铁站

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Great Accessibility with Links to Major Highways 出入方便, 四通八达

Reputable Developer 高知名度发展商

Can Contact Jonathan 012-3760864 to view the unit

The good thing is its almost handover, so for subsale buyer you can save Lawyer Fee, Low Downpayment, Free Warranty on defects, brand new unit. Also no need to pay for loan interest during Construction Period.

For investor, you can get return immediately and no need to pay for loan interest during Construction Period.

Can Contact Jonathan 012-3760864 to view the unit  

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@domng I agreed. Not only first home buyer, even some of my existing client, ask me what is HDA too. And some of them heard HDA for the first time, they said never been heard it from any other agent or staff. >"<

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Ofcourse the developer would not want the buyers to know too much of their rights. It may not benefit the developers.

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@domng Actually i would say it's depends on developer and staff as well, because it's either benefits yourself or the buyer. For me, honesty is the most important, what is the disadvantage what is the down side, what is the legal issue, i will tell my customer too. And that's why my few customer asked me "are you really working for money? very less agent will be so honest."...lolx

My believe "Honest can bring you more unexpected outcome" agreed?

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@windzneom 

Honestly is the best policy. However something you may need to filter out some facts that your clients may not want to hear. And answer with the truth only when asked. Agree? 

Own dp small

Always do a thorough research before getting one as this is not a 5 years or 10 years investment. It will get your cashflow stuck in a sense.

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@domng agreed. That's why some of those client that very strong minded (as if they know everything), then i will just let them be, no need explain too much on some of the truth that they seems not care about.

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@windzneom 

If the owners know everything and everyone... no need to engage agents anymore. :^P

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Well nowadays condominium with commercial land title comes with HDA.

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@domng normally owner engage agent coz they got not much time to search for buyer and reach wider market and network

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@6011_3531_5354 

In my opinion, "if the price is right"... there is always a willing tenant/buyer...

The owner just need to price it right, in order to reach the correct audience.

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@domng try online social media to reach out target audiences before you engage agents maybe~ 

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Maybe need to join a closed group in social media to reach the correct audience more effectively. 

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@domng yes, certain group is really useful

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@windzneom 

Can you recommend any social media groups? 

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depends which area your property is, i would say normally is full with agents in the group, but certain area have group like KL吹水站, JB吹水站, or for example, TARC area you can find TARC house renting group and all that, sometime you can get buyer.

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@windzneom 

Thanks for your recommendation. I will try JB吹水站 since it is closer to my area.

James bond craig junio2006 small

Well, pros and cons of buying to-be-completed properties. Some people can't buy completed property because they can't afford the upfront 10% downpayment, stamp duty, legal fees and other fees upfront. 

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@james_bob 

Not to mentioned resale units which you need even more cash Upfront. 

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Yes agree with james & dominic..10pc upfront..sales & purchase agreement & loan agreement fees & stamp duty...have to pay.

But at the end of t day, nothing beats the thrill & excitement of standing on the actual floor that one will be initiating payment for; as opposed to waiting 1.5 years to see the floor.

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@maytanfair 

Pros and cons of taking immediate possession of a unit... if there are tenants standing by to rent your unit, you are in luck! 

Also need to note that buying resale or fully completed units, your loan will be disbursed in one lump sump as opposed to gradual release for under construction projects.


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@domng so true!@

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Agree with James, futhermore  nowadays developers are giving attractive packages , that can help first home buyers in purchasing a unit. The risk of to- be completed proeprties are lower when you purchase with good and well known developers. 

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@domng Agreed with what you said. 

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@windzneom 

The nightmare comes when you are stuck with a bank loan to serve installments and no tenants to rent your unit... worst case, can't even sell.

Is it said that it is often easy to buy, difficult to sell and even more difficult to sell with a profit!

Kate chew small

Yup, totally agree. Subsale would be good for some buyers who need to move into a house urgently or cash buyer or rich investors who don't want to be caught in the risks of buying incomplete projects. 

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@domng "easy to buy, difficult to sell and even more difficult to sell with a profit! "

couldn't agreed more on this!! 

few of my client was having the same problem now, can't find tenant, can't find buyer...

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@windzneom 

That is why... Holding Power, Holding Power, and more Holding Power... No Regrets. :^)

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@domng yea...that's why must reserved more backup money before buying any property. 

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@windzneom 

Yeah, at least 10% more as contingency fund, which is not considering renovation and furniture expenses.

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@domng agreed. this is the things that buyer should know.

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@windzneom 

I remember last time when banks still use our Gross Income when they compute the maximum loan amount eligibility. They have since changed it to using Nett Income after EPF and other compulsory deductions. Any bankers here can confirm this is true?

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Those who are very experienced in the property industry, do you know if there's more people buying subsale or new development? Just curious.

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@veron 

 New development because of the ease of entry/purchasing in terms of quantity of people.

However quantity of actual transacted properties; subsale properties vs new development properties in our recent market is left to be questioned. I find that many investors who have a solid financial background tend to buy sub sale properties to immediately start their rental income and these people can buy a few properties almost at one go.  

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@chienyinkoh 

Wow, buying a few property almost at one go... really wish i can do that with cash money... and be able to start earning from rental income...

New or Subsale... if you buy at the right time at the right place with the correct method of financing... the ROI sure will be greater!

Kate chew small

@veron I would say 50-50. Those who need to move in asap, those who has enough $$$ for downpayment and other hidden cost, those who feel unsafe buying a to-be-completed properties, then they will go for subsale. Those who is attracted to the developer's perks and rebates, those who is looking to move in in 2 - 3 years time, those will small budget for downpayment will go for new launches.

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@kate_chew 

When buying subsales... it is also prudent to check with the immediate neighbors who knows about the previous tenants or owner staying in the unit. Or totally unoccupied since day one!

From my personal experience, if you are one of the first initial buyers from new launches. You may even not know the actual unit number and street number, only the PTD number is disclosed.

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@domng agreed with your opinion: if you buy at the right time at the right place with the correct method of financing... the ROI sure will be greater! 

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@windzneom 

I believe If you can hit two out of three from the time, place, financing.  Consider good ROI. 

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@domng  Well if buying a subsale unit and I am the 1st tenant who moved in after many year, I don't mind that :)

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@kate_chew 

I don't really get what you mean. You are subsales owners or tenant for many years???

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SRAO 2017 applies to sub sales as well.

For investment point of view, it's also advisable to look into sub sales at this juncture. It's cheaper psf and larger space unlike the new development of 250sf ?? pigeon hole cum with hefty monthly service charges surprises you (after the formation of Management Committee.)

Most matured investment properties are located close to matured infrastructures. These ready move in products are at some bargains with reasonable returns unlike the new GRR schemes (cost incurred in purchase - be wary of those schemes), having not completed soon on time and when not met your signed SPA be at thy mercy after which waiting on ministerial decision and toothless HDA....

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@admin_ps thanks for sharing