indepth

Abandoned housing projects: enforcement of existing laws, not new laws, needed

Time and again, every minister of housing desires to tweak and fine-tune the housing laws, claiming to champion more protection and safeguards for house buyers, as if it is customary to do so.

This time around, the current Malaysian Housing and Local Government Minister Datuk Zuraida Kamaruddin has been reported to propose a “fund” purportedly to revive abandoned housing projects.

If such a “rehabilitation fund” is set up, wouldn’t house prices be increased proportionately, since the housing developers will always factor in the increase to the house prices? Wouldn’t the setting of the proposed fund allow developers to be reckless in launching new projects?

The current Housing Development (Control & Licensing) Act, 1966 (HDA) was revamped and implemented on June 1, 2015 to plug some of the loopholes and rectify inadequacies and even some questionable and grey clauses that existed in the original Act. The procedures for control and licensing of housing developers were made more stringent so that non bona fide developers would be reduced, if not eradicated.

Let me elaborate on the new stringent rules and safety nets that are currently under the HDA.

Criminalising abandonment

The pertinent amendments to the HDA were on the issue of criminalising abandonment. This new amendment makes it a crime for housing developers to abandon their housing projects.

The new Section 18A states that any licensed housing developer who abandons or causes to be abandoned a housing development or any phase of a housing development which the licensed housing developer is engaged in, carries on, undertakes or causes to be undertaken shall be guilty of an offence and shall, on conviction, be liable to a fine which shall not be less than RM250,000 but which shall not exceed RM500,000 or to imprisonment for a term not exceeding three years or to both.

However, since its enactment in 2015, there has not been any news of developers being prosecuted under this new Section, although cases of abandonment abound. Enforcement is still the key on whether the law is effective in protecting property buyers.

Deposit of 3% on construction cost in the HD Acc

Section 6(1)(b) (Conditions or Restrictions for the grant of a Developer’s Licence) was enhanced to make the requisite deposit (refundable) from the then RM200,000 to 3% of the construction cost.

As to whether the 3% deposit will curb abandonment, our contention is that it will indirectly reduce such incidents. Those developer-aspirants who are financially so weak that they are not able to raise the 3% deposit (it is refundable anyway) should stay out of the industry because the probability of them running into trouble is higher.

The increase in the finance cost in order to fork out the 3% deposit is negligible when measured against the potential gross development value. Furthermore, any additional cost (interests) is only incurred during the construction phase because upon project completion, the 3% is fully refunded by the Controller of Housing.

However, the effectiveness of the revamped Act remains to be seen. It would only reflect its effectiveness after a period of time. However, we reiterate that much would depend on the degree of enforcement to be carried out.

Although the law has been implemented for over five years, we are still seeing still new abandoned housing projects. Where is the “protection” from the defunct developers? Don’t they know that abandoned housing projects are the biggest nightmares to house buyers?

The housing ministry is the guardian of the housing legislation that was passed by Parliament. Yet, how do we account for the surmounting problematic housing projects? It is not that the ministry does not have the laws; it’s the sheer lack and lax in enforcement.

Let’s look at some of the existing stringent rules and safety nets that are already within the existing laws.

  1. Sec 7A – Duties to maintain HD Acc

7A (4) The licensed housing developer shall not withdraw any money from the Housing Development Account (HD Acc) except as authorised by regulations made under this Act.

7A (10) Any housing developer who contravenes or fails to comply with this section shall be guilty of an offence and shall, on conviction, be liable to a fine which shall not be less than RM250,000 but which shall not exceed RM500,000 and shall also be liable to imprisonment for a term not exceeding three years or to both.

  1. Sec 7C – Freezing of the HD Acc

(1) If the Controller has reason to believe that a licensed housing developer is carrying on his business in a manner detrimental to the interest of the purchasers or is contravening any of the provision of this Act, the Controller may in writing order a freeze on the HD Acc and direct the bank or finance company, as the case may be, not to part with, deal in or otherwise permit any withdrawal of any moneys from the HD Acc until the order is revoked or varied or unless in accordance with any conditions as may be imposed by the Controller at his absolute discretion from time to time during the currency of the order.

Even with the HD Acc, there is a need for measures in preventing misappropriation of buyers’ money. We are wondering whether the safety net has ever been cast out to salvage the failing projects.

  1. Sec 7 Duties of a licensed housing developer

7(f) not later than the 21st day of January and the 21st day of July of each year or at such frequency as may be determined by the Controller from time to time or upon the request of the Controller, send to the Controller a correct and complete statement in writing made on oath or affirmation, in such form and containing such information as the Controller may from time to time determine, on the progress of the housing development which the housing developer is engaged in, carries on or undertakes or causes to be undertaken until certificate of completion and compliance has been issued for all the housing accommodation in that housing development

If this has been constantly and effectively monitored by the housing ministry, but abandoned projects still keeps recurring, does it mean there is lack in supervisory role vide Form 7(f)?       

  1. Sec 10A  Powers of entry, search and seizure

This Section was copied en-bloc from the Income Tax Act and was included in the HD Act amended in the year 2002; but has this Section been invoked to instill fear to the spine of those errant developers? If so, how do you account for those recalcitrant and repeat offenders? It can’t possibly be that the Ministry is shy of publicity by not highlighting its achievement to the mass media.

        Sec 11 – Powers of the Minister to give directions for the purpose of safeguarding the interests of purchasers

(1) Where on his own volition a licensed housing developer informs the Controller or where as a result of an investigation made under section 10 or for any other reason the Controller is of the opinion that the licensed housing developer becomes unable to meet his obligations to his purchasers or is about to suspend his building operations or is carrying on his business in a manner detrimental to the interests of his purchasers, the Minister may without prejudice to the generality of the powers of the Minister to give directions under section 12 for the purpose of safeguarding the interests of the purchasers of the licensed housing developer –

(a) Direct the licensed housing developer in question to take such steps as he may consider necessary to rectify any matter or circumstance;

(b) Direct that a person be appointed or himself appoint a person to advise the licensed housing developer in the conduct of his business;

(c) Direct a company to assume control and carry on the business of the housing developer upon such terms and conditions as the Minister may determine;

(d) Certify that the licensed housing developer has abandoned the housing development;

(e) Direct that the licensed housing developer present a petition to the High Court for the winding up of his business; or

(f) Take such action as the Minister may consider necessary in the circumstances of the case for carrying into effect the provisions of this Act.

Stories of developers “falling sick” and becoming incapable of continuing with their housing projects are not something new. Property buyers are the biggest victims in such incidents but what could they do?

Conclusion

The public relying on the legislation is often let down by the enforcers. It is only good on paper and it will continue to remain in our archives unless the existing laws are used to their full capacity.

The problem of abandoned housing projects is not because of the lack of laws. Do we honestly need new laws to purportedly “offer more protection” for house buyers when the existing ones are adequate? Or is the Government blaming the “insufficient tools” vis-à-vis housing laws?

Lets’ face it: there is no solution to abandonment. We just have to prevent it from happening. Could pre-emptive measures be adopted and enforcement organised to avoid future abandonments? Your guess is as good as mine!

As the saying goes, prevention is better than cure, because it is too late to close the stable doors after the horses have bolted.

Datuk Chang Kim Loong is the Honourary Secretary-General of the National House Buyers

Association (HBA). HBA could be contacted at:

Email: [email protected]

Website: www.hba.org.my

Tel: +6012 334 5676

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