In April 2007, the government heeded calls for the build-then-sell (BTS) approach to be implemented, mainly to protect homebuyers from becoming victims of abandoned projects. It introduced two BTS variants — the complete BTS 0:100 and partial BTS 10:90 and offered incentives to encourage developers to adopt the system to deliver houses. The complete BTS is where the developer only sells the house when it is fully completed while in the 10:90 variant, buyers will make a 10% downpayment and pay the remaining 90% when the house is ready.
The BTS and sell-then-build (STB) systems run concurrently, with developers adopting the BTS system only on a voluntary basis. However, the drive to make BTS the only housing delivery system in the country has been relentless.
While the debate over the merits of both the systems continues, the new Housing and Local Government Minister Datuk Seri Kong Cho Ha feels that it would not be feasible to implement a full BTS system in the country. This is because few developers have the financial capacity to take on the higher risk of adopting the BTS system while financial institutions will find it too risky to finance a BTS project.
He says it is best to continue to allow developers to voluntarily adopt the BTS system for their projects.
“It is critical for all the stakeholders involved, namely the developers, the homebuyers and the financiers, to be ‘comfortable’ with a system of housing development and delivery.
“Housing developers will be happy when there are sales, buyers want houses on time and the financiers want to be sure that they will get their money back or know that there are buyers before they finance a housing project. Otherwise, how can the scheme be viable?
“So if you want to talk about a 100% BTS system, it is not possible unless the projects are in ‘hot’ areas like Bandar Utama. Otherwise, I don’t think many developers can be sure of sales and no bank is going to take the risk and finance them,” says Kong.
Bandar Utama in Petaling Jaya, Selangor, is among the few housing projects in the country that adopts the BTS concept. New housing launches in the township have constantly received overwhelming response.
Kong believes that the housing delivery mechanism in Malaysia still needs to contain an element of ‘sell’ for it to be workable. Stakeholders have to share the risk, even homebuyers, he says.
“A total BTS environment, where the developer only sells after the homes are completed, is not what we want. What if the economy is really bad when the homes are completed and it is difficult for buyers to get a bank loan? The risk would be too high for the developer and he will suffer. On the other hand, there is nothing to stop the developer from doing so.”
Indeed, the recent downturn has prompted many developers to come up with hybrids of the BTS concept.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 758, June 8 – 14, 2009.