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Buying HDA Properties

HDA

In West Malaysia, most property developers practice the “sell then build” model, whereby the developers offer the property for sale to public before completion or during the construction of the property.

The sale and purchase of property under construction is regulated by the Housing Development (Control and Licensing) Act 1966 (“HDA”) if it is for housing accommodation or residential purpose. Apart from property solely for residential units, HDA also covers property with partly commercial features, e.g. shop-apartments and service apartments erected on lands prescribed for commercial use.

On the other hand, sale and purchase of commercial property under construction is not regulated by the HDA, and it shall be governed by the contractual documentations entered between the purchaser and the developer.

Many people are unaware of the existing legislation regarding housing developments and therefore their rights as a home buyer. In fact, the HDA offers several layers of protection to home buyers:

Developer License and Advertising and Sales Permit

All the housing developers are required to obtain their developer licence and advertising and sales permit before they can proceed to offer and sell properties. Furthermore, all advertisements posted are required to state the stipulated key particulars of the housing development project as below:

housing developer’s licence number and validity date;

the advertisement and sale permit number and validity date;

the name and address of the licensed housing developer;

the tenure of the land if the land is leasehold, its expiry date, restriction in interest and encumbrances, if any, to which the land is subject;

the description of the housing development;

any parking lot which is an accessory parcel to the housing accommodation in a parcel;

the name of the housing development;

the expected date of completion;

the selling price of each type of housing accommodation;

where applicable, the minimum and maximum selling price of each type of housing accommodation;

the number of units of each type available; and the name of the appropriate authority.

With the above, a potential buyer will have a clearer picture and better information in relation to the development project.

“Sell then Build” Model – Prescribed Sale and Purchase Agreement

Furthermore, in order to ensure that the terms of the sale and purchase agreement are not unfairly favouring the developer, all the housing developers are required to adopt the form of sale and purchase agreement as prescribed under the HDA.

The forms of sale and purchase agreement are prescribed under the schedules of the Housing Development (Control and Licensing) Regulations 1989.

Both schedule G and schedule H are prescribed for sale and purchase agreement of sell-then-build property. The difference lies in the type of accommodation it is used for. Schedule G is prescribed for the sale and purchase of a housing accommodation together with the subdivisional portion of land, for example terrace houses, semi-detached houses, bungalow, etc.

Whereas, schedule H is prescribed for the sale and purchase of a housing accommodation in a subdivided building in the form of a parcel of a building or land intended for subdivision into parcels, for example condominium, apartment, townhouses and/or landed strata property.

In short, schedule G shall be adopted for property with separate individual title and schedule H shall be adopted for property with strata title.

The salient terms of the sale and purchase agreement include:

Developer shall not further encumber the project land to finance the construction.

Purchase price to be paid to the developer progressively based on status of construction and in accordance to the stipulated schedule of payment.

Property to be completed and delivered with certified completion and compliance (also known as certificate of fitness) within:

24 months from the date of sale and purchase agreement – Schedule G

36 months from the date of sale and purchase agreement – Schedule H

Failing which, the developer shall be liable to pay the purchaser a late delivery interest calculated from day to day at the rate of 10% per annum of the purchase price.

Developer shall be liable to make good any defect, shrinkage or other faults in the property which are due to defective workmanship or material, within 24 months after the purchaser takes vacant possession of the property. To ensure there is fund available for defects rectification during the defect liability period, the final 2.5% of the purchase price shall be held by the solicitors as stakeholder.

The relevant approved plans of the property, e.g. floor plan, layout floor, site plan, etc., shall be attached to the sale and purchase agreement

The building specifications and materials used for construction of the property will also be set out in the sale and purchase agreement.

In principle, no housing developer is allowed to vary the terms and conditions in the prescribed sale and purchase agreement unless such variance is pre-approved by the Controller of Housing.

“Built Then Sell” Model – Prescribed Sale and Purchase Agreement

As discussed above, most of the property developers practice the sell-then-build model. Nonetheless there are also several projects adopting the model of “built then sell”.

This system can be used to better protect home buyers as it minimises the risk of being left with an unfinished house that is already paid for.

In general there are two types of “built then sell” models, namely:

Where the developer builds and completes the property with certificate of completion and compliance before it is offered for sale. In this model, the purchaser is not required to make any payment before the property is completed; hence, this does not fall within the ambit of HDA. The terms of sale and purchase shall be governed by the contractual documentations entered between the purchaser and the developer.

The second model requires the buyers to pay a 10% deposit upon signing of the sale and purchase agreement and the balance 90% after the property is completed. This model involves a prepayment of 10% before completion of the property, and therefore is governed under HDA.

The forms of sale and purchase agreement for the second built-then-sell model above are prescribed under schedule I and schedule J of the Housing Development (Control and Licensing) Regulations 1989. Save for the payment mode, all terms and conditions in schedule I are similar to schedule G, and schedule J are similar to schedule H.

Housing Development Account

Furthermore to the above, one of the most important features of HDA in protecting home buyers’ interest shall be implementation of housing development account (“HDA Account”), where every housing developer shall open and maintain a HDA Account for each housing development and all payment received by the developer from the sale in the housing development must be paid into the HDA Account.

The developer shall not withdraw any money from the HDA Account except for the purpose of the housing development as authorised under the Housing Development (Housing Development Account) Regulations 1991. For example:

Payment of all outgoings including quit rent, rates, taxes, assessments and other charges levied in respect of the land on which the housing development is carried out;

Payment of stamp duty payable on a charge, caveat, debenture, guarantee or memorandum of deposit of title to secure any loan for the construction of housing accommodation in the housing development;

Payment of: (i) insurance premiums, and (ii) architect’s fees, engineer’s fees, quantity surveyor’s fees and consultant’s fees for the housing development; and

The cost of carrying out construction works, works related to infrastructure preparation as instructed by the appropriate authorities and other works relating to the housing development in proportion to the housing accommodations that have been approved under the licensed housing developer’s licence.

With all the above mechanisms in place, home buyers’ interests are better assured and the possibilities of abandonment of housing development projects are significantly eliminated.

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