Thursday, May 5, 2011

Buying Property From Developers

Robert Tan, a lawyer who wrote one of the very few books in Malaysia on Property Buying gives a preview of his book
Posted Date: Apr 13, 2011
By: HBA

Robert Tan, a lawyer who wrote one of the very few books in Malaysia on Property Buying gives a preview of his book

Injustice to Cash Buyer

Some years ago, a property investor told me a story. He spoke softly. “I saw it happen,” he said.

A lady had retired from the work force. She had plenty of EPF money. She wanted to invest her money. She bought a property from a developer. The property came with guaranteed rental returns at a fixed rate and for a fixed time period. Impressed by these promises, the lady bought the property with her EPF money.

The property was completed. The developer paid the guaranteed rental returns for a few months. Subsequently, the developer stopped the payments. News got around that the developer was in financial trouble.

The lady thought that the property, being fully paid for in cash, belonged to her. She was greatly mistaken. The developer had failed to pay its bank (bridging financier) the redemption sum for the property. The bank held the property as security for the developer’s loan. The bank wanted to auction off the property to recover the developer’s loan. Subsequently, the developer was wound up. The bank got the property. Fair or otherwise, the lady lost the property and her money.

I was a junior lawyer when the story was told. I was wanted to know what the lady could do about her property. I went to the bookshops to find a book that could give me an answer.

Lacuna on Buyers’ Rights

Sadly, I found none. “Isn’t there a book in plain language that could tell me what to do when buying developer’s property?” I asked. I felt like I was at a dead-end. I was lost. I felt stupid.

In those moments, I felt that something was wrong. The majority of lawyers involved in the housing development industry were acting for developers or the banks. Very few were acting for the house buyers. Even fewer knew what house buyers’ rights were.

After meeting and talking to house buyers during the National Housebuyers Association’s meet the public sessions every weekend, I came to know that thousands of house buyers have had bad experiences buying property from developer. The lady in the story was just one of the many thousands of aggrieved house buyers. Her problem was one of the many problems faced by house buyers.

While this was happening, there was a great lack of information on what to do when buying developer’s property. So, I decided to write a book.

Book to Fill Void

The book would create awareness for house buyers including myself on the rights and risks in buying developer’s property. With time and after several revisions, the book was completed and published.

The book aims to highlight some realities of buying property from housing developers in West Malaysia.

To many house buyers, the realities of buying developer’s property may seem to be thickly sugar coated. Advertisements on housing developments often portray a guaranteed and rosy picture of a dream house. Unwary house buyers are easily swayed by the enticing words in the advertisements or the sale officers.

Some words include: “Phase 1 Sold Out.” The hot spot for growth”. “Free Legal Fees”. “Interest waived during construction”. “5 minutes to Kesas”. “New highway interchange”. “Proposed hospital, international school and hypermarket”. Many aggrieved house buyers have rather late in the day discovered these claims to be far-fetched.

It’s a fact that for many house buyers, the purchase of a home is an important investment decision.

In Malaysia, properties are commonly sold by developers before they are constructed. House buyers thus bear a heavy risk as they contract and pay for a house that is not yet in existence. In view of this, the housing development law is enacted to protect the interests of house buyers.

The book explains the various stages of buying a developer’s property - from the time the house buyer pays the earnest deposit to the time the developer delivers vacant possession of the property. The stages are discussed under respective topics that include among others the Sale and Purchase agreement, the booking fee, sale and advertising permit, delivery of vacant possession, damages for late completion, defects liability period and lawyers’ fees.

Each topic aims to inform house buyers what the developers are obliged to do and what rights house buyers have.

There are also summaries of real happenings and courts’ decisions which facilitate a good understanding of the areas of concern to house buyers.

Whether one realises it or not, it seems clear that the housing development industry is unlike any other business related industry. The laws governing the former are meant to regulate the business of housing development and to protect house buyers’ interests. Housing development law clearly say so and court decisions have upheld this understanding.

Profit-oriented

However, in reality, the business of housing development is undertaken with a view to gain profits. While social and national policies may govern house buyers’ rights and interests, the reality of the business of housing development seems to downplay these considerations.

Under the present housing development system, the Sell-Then-Build system, where house buyers pay progressively against stages of work done, the majority of developers have used house buyers’ money to undertake housing development business. This is business opportunity for developers as they are allowed to use other people’s (house buyers’) money to make profits for themselves.

When something bad happens to the developer’s business, many developers have abandoned the business and left the house buyers who have already poured in millions of honestly earned income and savings into the purchase of the house to be caught in a quagmire of financial problems for many years.

Written in plain and simple language, the book aims to educate house buyers in order to avoid getting into these problems.

The book also aims to speak to stakeholders connected with the housing industry – lawyers, developers, real estate agents and financiers.

Housing development law is simple and unique. It ought to be understood well by stakeholders in the housing development industry.

The Foreword reads: “It is indeed timely that a book of this kind is written It speaks up for and alongside the purchasers.”

Indeed, it is timely that house buyers and stakeholders in the housing development industry equip themselves with good understanding of house buyers’ rights and interests, and, more importantly, the risks and pitfalls in buying property in a housing development. This would give them an edge over stakeholders who pay little heed to these rights and interests.

The book should prove beneficial to everyone connected with the housing industry.

Some excerpts from the book

Advertisement and Sale of Housing Accommodation:
The developer may advertise the housing development to the public. That is one way to woo purchasers to buy the properties in the development.

Before it advertises the development, the developer must have an advertisement and sale permit. Without the permit, no advertisement or sale can be made to nor moneys collected from the purchasers.

If the developer breaches this provision, it is guilty of an offence and is liable on conviction to a fine of not more than RM20,000 or to imprisonment for not more than 5 years or to both.

Transfer of Title:
In practice, upon issuance of the title, the developer would instruct the solicitor on its panel to attend to the transfer of the title to the purchaser. After receiving the developer’s instructions, the solicitor would write to the purchaser and ask him to sign on the transfer form.

The purchaser has the option to appoint either the solicitor on the developer’s panel or his own solicitor.

Defects Liability Period:
In a defect claim, the purchaser gives a written notice and a defects list to the developer for the developer to make good the defects. Also, the purchaser gives a written notice to the stakeholder solicitor asking it to hold the stakeholder sum until the defects are repaired. The purchaser gets the relevant party to acknowledge receipt of the notices.

If there is a dispute between the purchaser and the developer regarding the defects, the stakeholder solicitor may file interpleader proceedings in the High Court to decide on the release of the stakeholder money.

Alternatively, the purchaser may file a claim for the defects at the Homebuyers’ Tribunal.

The National House Buyers Association (HBA) is a voluntary, non-governmental organization manned by unpaid volunteers. For more information, check out their website at http://www.hba.org.my E-Mail: info@hba.org.my

NATIONAL HOUSE BUYERS ASSOCIATION [HBA]

No. 31, Level 3, Jalan Barat, Off Jalan Imbi, 55100, Kuala Lumpur
Tel: 03-2142 2225 | 012- 334 5676 | Fax: 03-22601803
Email: info@hba.org.my | Web Site: www.hba.org.my

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