NEW STRAITS TIMES. 27TH AUGUST: The authorities should stop authorising any proposal for a housing project if the developer or management has a poor track record, a real estate specialist suggests.
This is to prevent the project from being abandoned once it has begun, according to Sr. Samuel Tan, executive director of KGV International Property Consultants (M) Sdn Bhd.
Tan said independent market studies must be undertaken by researchers before authorities and banks issue authorisation.
However, he said such studies must be commissioned by a third party rather than the developers themselves.
Tan also said banks should not approve loans, whether bridging or end-to-end financing, if the developer has a track record of failure.
“The onus is on all stakeholders to ensure that no projects are sick or abandoned, as this will reflect poorly on an industry that affects the rakyat and 140 other downstream activities,” he told the Bew Straits Times.
Tan said contractors must have the financial capability to complete the projects, even in the worst-case scenario.
He also believes that contractors should be hired based on their abilities rather than their connections.
Allow No EOT Unless …
Tan said after the project is launched, no extension of time (EOT) should be authorised or granted.
“Prospectus buyers must be aware of it before making a purchase. If EOT is required after the launch, the customers’ consent, or at least a majority of them, must be secured,” he said.
Tan said developers should be more forthcoming with information about their housing developments.
“This should be governed by legislation. Furthermore, customers must be granted a cooling period because some may buy based on emotion or disinformation.
“Independent market research will be undertaken. Mock-up units must accurately replicate the genuine units to avoid misrepresentation. Developers must adhere to Bank Negara Malaysia with regards to rebates and freebies,” he said.
Tan said in addition to full disclosure by developers and a cooling period, any commitments made by the developer must be in written and regulated.
He recommended home purchasers investigate the developer’s and project management’s track records.
“Before purchasing any property, prospective buyers must conduct thorough due diligence on the developer and management. Some of them have been blacklisted, but they can flourish with another company,” he said.
Performance-based Finance
Datuk Shamesh Jeevaretnam, partner of Jeeva Partnership, suggested performance-based finance.
He said this is an effective instrument for encouraging on-time project completion by correlating fund flow with rigorous adherence to project timeframes and quality standards.
This financing method is not confined to a single bank but can be used by a wide range of financial institutions, development banks, and government agencies involved in building project financing, he said.
“By implementing performance-based financing, developers would be incentivised to better meet project milestones and deliver high-quality results to access the allocated funds. This approach promotes accountability and fosters a culture of timely project delivery and superior workmanship in the construction industry,” Shamesh said.
To properly protect homebuyers, Shamesh believes it is critical to compel the complete usage and acceptance of escrow accounts or performance bonds.
He claimed that these methods guarantee financial assurance and reimburse costs in the case of project delays or cancellations.
“Escrow accounts work by holding funds in a secure account managed by a neutral third party. The funds are released to the developer only when specific conditions, such as project milestones, are met.”
This ensures that homebuyers’ funds are protected and can be used to compensate them if the project faces issues, he added.
“Enforceable penalties and liquidated damages clauses should also be implemented to ensure developers are held responsible for their actions. These clauses establish predetermined financial consequences that developers must face if they fail to meet contractual obligations, such as project completion deadlines.
“This provides a clear incentive for developers to fulfil their commitments and delivers financial recourse to homebuyers in cases of non-compliance,” he said.
While the laws and policies in place are important, Shamesh believes that greater collaboration among industry stakeholders from all angles will be required to ensure the establishment of effective project management practices, quality control measures and risk mitigation strategies.