Legalising 'booking fees': a case for reform — and its limits

Part 1: The case for legalising and regulating booking fees

The law prohibits collection of booking fees — but no one is enforcing it.

For many naïve and unwary purchasers, signing a booking pro-forma with a housing developer or its agent or lawyer, and paying a booking fee before the formal sale and purchase agreement (SPA) is signed, are considered part and parcel of the standard operating procedure to purchase a residential property.

So it seems.

Contrary to such popular belief, this practice is prohibited by the Housing Development (Control and Licensing) Regulations 1989 (HDR). The HDR provides, inter alia:

HDR Regulation 11(2): "No person including parties acting as stakeholders shall collect any payment by whatever name called except as prescribed by the contract of sale."

The statutory form of SPA provides that the first 10% of the purchase price is only payable immediately upon signing of the SPA. The scope of prohibition is wide enough to include estate agents, lawyers, and any third parties purportedly acting as stakeholders for a housing developer in the collection of booking fees.

This prohibition, first introduced in the early 1980s, was designed as a protective measure — to prevent errant developers from treating a booking pro-forma as a binding contract and gaining a contractual right to forfeit the booking fee paid by a purchaser who failed or refused to sign the SPA.

Stories of abuse abound — and prosecution is virtually absent

Stories of purchasers crying foul when denied a refund of their booking fee are all too common. In too many cases, promises by sales representatives that the booking fee is "fully refundable" if the buyer cannot secure a bank loan are simply not honoured.

Vulnerable buyers are left with no recourse but to forfeit the fee, deterred by the cost and legal complexity of pursuing the matter.

Notably, in the landmark case of PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor 2 CLJ 441, a five-member Federal Court bench led by Chief Justice Tun Tengku Maimun Tuan Mat ruled unanimously that liquidated ascertained damages (LAD) for late delivery of vacant possession must be calculated from the date the booking fee is paid — not from the date the SPA is signed. 

In arriving at its decision, the court applied the concept of "social legislation," holding that the Housing Development (Control and Licensing) Act 1966 and its regulations exist primarily to protect house buyers. 

The courts have, in effect, already acknowledged the legal and temporal significance of booking fees. It is time the law caught up.

To the best of our knowledge, there has been no reported prosecution in the courts against housing developers or sales agents who flout this prohibition. Enforcement is lax — at best, a meagre compound fine and a slap on the wrist.

Collecting booking fees is in fact a criminal offence under the Housing Development (Control and Licensing) Act 1966, with those found guilty liable to a fine of up to RM50,000, imprisonment of up to five years, or both. 

That such penalties exist on the books — yet not a single prosecution has been brought — speaks volumes about the state of enforcement.

This leads us to a difficult but honest question: if the prohibition cannot be effectively enforced, should we continue to pretend it is working? 

Or should we take a more systematic approach and regulate booking fees properly in place of this absolute but toothless prohibition?

The 'option to purchase' — a structured, buyer-protective framework

HBA proposed an "option to purchase" (OTP) mechanism some six years ago. Its key features are:

(a) A housing developer shall grant an option to purchase to an intending purchaser in exchange for a reasonable booking fee — capped at RM5,000 or 1% of the purchase price, whichever is lower.

(b) A reasonable option period of 30 days shall be given to the intending purchaser to freely decide whether to exercise the option. No penalty or administration fee shall be imposed if the purchaser declines within the option period.

(c) During the option period, the developer shall not accept any other booking from another party for the same unit.

(d) If the purchaser exercises the option, the booking fee shall be applied as a partial set-off against the purchase price.

(e) If the purchaser declines, the booking fee shall be refunded in full within 14 days. Failure to refund within this period shall attract interest at 10% per annum calculated on a daily basis, payable by the developer to the purchaser.

(f) During the option period, all relevant information pertaining to the property — including estimated parcel area, layout, building specifications, details of common property for stratified developments, schedule of parcels, approved building plans, and a copy of the SPA — shall be made available to the intending purchaser to enable an informed decision.

(g) All booking fees collected shall be placed in a fidelity fund under the housing development project account to facilitate refunds and to prevent unscrupulous developers or agents from absconding with the monies.

(h) The developer shall be held responsible whether the booking fee is collected by themselves, their authorised agents, or lawyers acting as stakeholders.

(i) A standard prescribed booking form shall be incorporated into the HDR, with all terms and conditions explained to the intending purchaser in plain language before any booking fee is collected.

This structured approach would legitimise the collection of booking fees, provide certainty for both parties, and give buyers genuine recourse — while giving developers a credible mechanism to gauge real market demand and satisfy their bridging financiers.

There is an old Scottish proverb: "Better bend than break" — and it carries no connotation of surrender. It means that the way to overcome the opposition's strength is sometimes to adopt their position and turn it into a platform for better outcomes.

Part 2: But is OTP enough? Examining its limits against the BTS 10:90 model

However, proposing a pragmatic solution is not the same as declaring it a complete one. When the Housing Ministry announced it was studying the very OTP mechanism HBA had long advocated, it presented us with both an opportunity and an obligation — to examine honestly what OTP can and cannot achieve.

The question is no longer merely whether booking fees should be legalised and regulated. The more pressing question is whether OTP, even if well-regulated, is sufficient to prevent the greater systemic failure that has plagued Malaysian housing for decades: abandoned projects.

OTP and BTS 10:90 solve different problems at different stages

The logic behind OTP and the built-then-sell (BTS 10:90) model are fundamentally different — and they address different stages of risk.

OTP mainly addresses market demand risk — the risk that a developer launches prematurely before genuine buyer demand has been established. In this sense, OTP is easier to implement and requires no structural overhaul of the existing system. 

Its primary benefit to buyers is reducing premature commitment: an intending purchaser is no longer locked in before they are ready, and a developer receives a more honest signal of true demand before fully committing to a project. 

However, OTP offers no guarantee of completion. A project with strong OTP take-up can still be abandoned if the developer runs out of money mid-construction.

BTS 10:90, by contrast, addresses construction and financing risk — which is the real and proximate cause of most abandoned projects. Under BTS 10:90, a developer must finance and complete construction before collecting the bulk of the purchase price. 

This is a far more demanding threshold, and smaller or under-capitalised developers may need to form consortiums to meet it. But this is precisely the point: BTS 10:90 acts as a natural filter, keeping financially weak developers out of the market before buyers are exposed to their risk. 

The buyer benefit is therefore fundamentally stronger — not merely a reduction in premature commitment, but a genuine reduction in abandonment risk.

In short, OTP improves the front end of the transaction. BTS 10:90 protects the buyer throughout.

An abandoned project typically occurs because:

1 The developer is under-capitalised
2 Sales projections were unrealistic
3 Cash flow collapses during construction
4 Funds collected from buyers are insufficient or mismanaged
5 Banks stop financing the project
6 Poor administration and project management

Under Malaysia's current sell-then-build (STB) system, developers launch projects early and rely on progressive payments from buyers to fund construction — effectively making buyers the unwilling financiers of the project. 

Under BTS 10:90, the buyer pays only 10% upfront, with the remaining 90% payable only upon completion, issuance of the Certificate of Compliance and Completion, and delivery of vacant possession. 

This fundamentally changes the incentive structure: financially weak developers cannot easily enter the market, buyers are no longer exposed to the developer's construction and business risk, and developers cannot endlessly recycle buyers' money into new launches.

The potential pitfalls of OTP

The biggest criticism of OTP is that it may create the appearance of reform without addressing the real structural weaknesses that cause abandoned projects:

(i) Does not solve developer financial weakness. Projects are rarely abandoned because buyers signed too early. They are abandoned because developers run out of money, cannot obtain financing, or mismanage cash flow. OTP does not strengthen a developer's balance sheet.

(ii) Still preserves the sell-then-build system. OTP operates within the same framework where developers collect progressive payments from buyers during construction. Buyers still ultimately bear construction risk.

(iii) Could become a speculative marketing tool. Developers may use OTP bookings to manufacture artificial demand momentum — "90% taken up," "limited units left," "strong response." But OTPs are not firm purchases. This distorts true market demand and could be used to mislead bridging financiers.

(iv) Potential abuse of booking fees — unless tightly regulated along the lines HBA has recommended in Part 1 above.

(v) No guarantee against project abandonment. Even with strong OTP take-up, construction costs may escalate, financing may collapse, contractors may stop work, or developers may divert funds. OTP cannot prevent these operational failures.

The only real protection

In practical terms, OTP may reduce speculative launches and improve project planning. But it does not directly address the root cause of abandoned projects the way BTS 10:90 does.

The only real protection is to make developers build first before collecting most of the money.

Unless financially weak or irresponsible developers face real legal and financial consequences — and genuine prosecution in the courts — abandoned projects will continue to recur regardless of procedural reforms like OTP.

OTP is a step in the right direction. But it is not the destination.

This article is written by Datuk Chang Kim Loong, honorary secretary-general of the National House Buyers Association (HBA). HBA is a voluntary non-government and not-for-profit organisation manned wholly by volunteers.

HBA can be contacted at:
Email: [email protected]
Website: www.hba.org.my
Tel: +6012 334 5676

The views expressed are the writer's and do not necessarily reflect EdgeProp's.

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