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Harder To Be A Housing Developer

Property development has captured the imagination of Malaysian businesses across the board in the last decade. Almost every sizeable company has a property division and almost all businesses with extra cash and land banks are venturing into property development. Even landowners without capital are joint venturing with developers to ensure they share a bite on this seemingly expanding yet lucrative piece of cake. One may see companies relocating their operation or headquarter from the very prime land which they were sitting on, to state their claim as property developers on it. To further maximise the return on land while incorporating a preferred lifestyle living in urban Malaysia now, the strata format has gained momentum. Not to mention the current market trend is to move out of their parents’ homes upon financial independence because every family is seeking its private living space.

With the effective implementation of Housing Development (Control and Licensing) (Amendment) Act 2012 (“HDAA”), Strata Titles (Amendment) Act 2013 and Strata Management Act 2013 (both “Strata regime”) on 1st June 2015, the rules of the game have now changed and the barrier of entry has never been higher.

Previously, housing developers have to deposit RM200,000 with the Controller of Housing (“Controller”) as a requirement for the developer license and it has now increased to 3% of the estimated cost of construction minus land cost. The estimation nature on this basis would open up the floodgates on consultation until an amicable agreement.

It is also a requirement now under the Strata regime to file the Schedule of Parcels prior to the developer selling any parcel or proposed parcel in the development area which in effect restricts the developer from making any adjustments to the proposed quantum of provisional share units for its later phase development. The mere act of filing is simple but the upfront commitment in limiting the commercial gain is painful to the developers.

There are also notable amendments to the prescribed sale and purchase agreement under HDAA 2012 especially Schedule H that facilitate the strata residential development.

Under the new Schedule H to be used for housing projects with advertising permits and development licenses issued after 1 June 2015, the developer has to settle the redemption sum owed to its bridging financier if the amount of the redemption sum is more than 35% of the purchase price before the purchaser makes payment in excess of 50% of the purchase price. The purchaser need not make any further payment until the developer complies with the same.

The stipulated manner of delivery of vacant possessions in Schedule H now is conditional upon the separate strata title that has been issued by the authority. Nonetheless, the developer may apply for certification from the Controller before the delivery of keys to the purchaser in the event that the strata title is not issued yet, provided that such non-issuance of strata title is not attributable to the developer’s fault;

The previous 14 days deeming provision for delivery of vacant possession is now 30 days from the date of service of notice which effectively cut the construction period to 35 months.

The amendment in the schedule of payment postpones 5% of the purchase price to be paid to the developer previously, during the construction stage to the date of taking vacant possession by the purchaser.

There is now improved statutory terminations and abandonment provisions under the HDAA 2012 that provides for a situation where the purchaser may terminate the sale and purchase agreement when the housing developer ceases or refuses to work for a continuous period of 6 months and the housing developer upon conviction, shall be liable for a fine ranging from RM250,000 to RM500,000 or maximum 3 years imprisonment or both.

Homeownership is the undisputed agenda of the day. While the Government is still playing catch up in its effort to provide affordable housing, a regulated regime in private housing development is the better way to go now. The significance of raising the bar will phase out smaller and “fashionable” developers from the housing development system while ensuring the serious players deliver on their promise under a much regulated regime. Indirectly, homebuyer protection in Malaysia has now moved up a few notches.

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