prevention of abandoned housing projects

Chapter 1: Introduction

1.1 Project Title

A study on the prevention of abandoned housing projects in Malaysia.

1.2 Problem Statement

In developing country, the construction sector forms a high percentage of the economy and it also represents one of the most dynamic and complex industries environments (Peurifoy an Ledbetter, 1985; Rahman.H.A et al., 2006)1. As a developing country, housing development in Malaysia is one of the issue reflect the growth of population country, housing development in Malaysia is one of the issue reflects the growth of population and economic in this country. Since Independence Day, housing development is one of the sectors highlighted to improve and budget in the Malaysia’s plan. Although housing industry has served as the development of economic and social and has benefited the nation. Nevertheless, there is myriad project failures Andrew Tan, (2004)31 state there are innumerable unsold properties resulting in huge property overhung, which is one of the more pressing form of project failures. Though year after year abandoned housing project have been widely highlighted by the local media and even through the ministry of housing and local authority are yet find an effective solution to help the housing buyer to overcome the problem facing by them. (Datuk Seri Kong Cho Ha… ‘Project abandonment is serious as the casualties are consumers and their hard-earned money.’) Was reported in the star (2009)32. With the reviews on what other researchers had done are the way to revival the abandoned project but if the problem leading the project being abandoned have solve, that’s no more project will abandoned and being waiting to revival. This research is to present the key issues of successful and failure of housing project so that thought the research to find out the way to preventions for a project not being abandoned.

1.3 Aims

To analyses the key to avoid having abandoned housing project in Malaysia

1.4 Objectives

1. To study the conventional method of housing development delivery
2. To identify the causes and effects of abandoned housing project.
3. To study the method of prevention for housing project being abandoned.

1.5 Background

In Malaysia, the housing industry is contributing to the economic and social development of the country. Housing policies for Malaysia are stipulated in the Malaysia plan and each of it is for a period of five years. ( Rahim & Co research; 1992-2007 )34. The government of Malaysia recognizes housing as a basic human need and an important component of the urban economy. This has led to the formulation of policies and programmers aimed at ensuring that all Malaysians have an access to adequate shelter and related housing facilities (Rameli.A, 2006)38. In Malaysia, housing development is carried out by public and private sector.

According to (Asiah, 1999; cited by Rameli.A, 2006)70 Malaysia government has formulated a housing policy which aims to strengthen the involvement of private sector in housing production and delivery especially in housing schemes development. Under the ninth plan period (2006-2010), main objective of the housing policy is to providing adequate, affordable and quality houses for all Malaysians. Toward this end, the private sector will lead the role to provide the necessary support and regulatory measures to ensure efficiency. (9th Malaysian Plan 2006-2010)35 And yet, there are rules, regulatory and policy issues in order to carry out the housing development, developers has to comply with all requirements laid under the housing developer Act (Control & licensing ) 1966 (Act118) and as well as other related statutory requirements of local authority in controlling building quality.

Although housing development has benefit to the nation in development of economics, social. And yet, there are project which are failed to be completed. This will finally cause the problem of abandoned housing project. There are some issues rose from developers such as financial and management problems, inexperience of the developers, unsuitability of site and location, delay in getting plan approval, inadequate market survey and/or feasibility study, failure of project management, and planning of the property market. Failure to complete the project is not only happened among the private developers, but also happened to the inexperience contractors, instability of building material supply and prices, and state development corporations (Zulkifli. 2005)68.

1.6 Scope of study

The study will list out the criteria of successful housing project being implemented in Malaysia and how the private and government can play a role in order for the project to become successful.

The study will also investigate entirely action to be taken by government, private sector, developers and contractors in order to avoid the project being abandoned.

1.7 Research Methodology

To carry out the study, questionnaire will be adopted as the primary data it is useful method to gain the data as this topic may involve sensitive questions. As there is no interaction between the researcher and respondents it would facilitate response of accurate information. They will be set of open-ended question and close-ended question prepared and sent to 50 relevant parties such as suppliers, developers, contractors, government agencies.

Secondary resources will be focus on obtaining relevant information for the project failures and abandoned housing project which data accumulation will from the publisher resources for example Newspaper (The Star), Magazine (The Edge Malaysia), Online resources, journal browse from internet, books, journals, and collection from government agencies.

1.8 Contribution

Through this research, it will gain the knowledge of particular parties for them to overcome and handle problem, as well as to prevent the housing projects being abandoned in Malaysia

1.9 Proposed structure of the dissertation

Chapter 1 : Introduction

Introduction housing development in Malaysia and the effect of abandoned housing project.

Chapter 2 : Literature review

Determine the housing development process and the successful and failure of housing project from journals, book, information ministry of housing department, information from Construction Industry Development Board and e-book and e-journals. To identify the number of housing projects being complete and abandoned.

Chapter 3 : Literature review

Determine the housing development process from journals, book, and information ministry of housing department, information from Construction Industry Development Board and e-book and e-journals. To identify the number of housing projects being complete and abandoned

Chapter 4 : Literature review

Determine the factors lead to success for housing development project and suggested action to be taken to prevent the housing project being abandoned from journals, book, and information ministry of housing department, information from Construction Industry Development Board and e-book and e-journals.

Chapter 5 : Research Methodology

The method for this research is using questionnaires. A questionnaire is developed to facilitate systematic data collection in this study. The main purpose is to obtain facts, data and basic information from every party that involves in this area of study. Open-end question and close-end question will prepared sent to the difference parties who involve in the construction and housing development industry. Envelop and stem will sent together with the question for them to gain their response and sent back to the researcher. The benefit of open-ended questions is that they give the respondent freedom to provide a complete and unstructured response. Between, open questionnaires are useful in determining the ideas, thoughts or concepts that first come to mind when a specific question is posed (Rodeghier, 1996; cited by Nima, 2001)69. Other than that, online resources and publisher information is gain to be part of the way to obtain facts, data and basic information. At the end of the questionnaires section, result will be tabulated in charts, graph, and pie forms. This will reflect the trend and indicates the distribution of figure to help in analyzing the problems.

Chapter 6 : Data and analysis

After the gain the responder answer, all the analysis results will be record and explain in this chapter. All the result will base from the responder and given a conclusion sources from the answer they reply.

Chapter 7 : Conclusion

In this chapter will list down the achievement of objectives for this dissertation and will be concluded and commented. Other than that, my personal opinion and comment will also be in this chapter.

Chapter 2.0: Housing development

2.1 Introduction

Policies related to the housing development are outlined in the various five-year Malaysia Plans under the provisions for social and macroeconomics objectives. The Government supervises and monitors the overall housing project through the Ministry of Housing and Local Government. Besides that, private sectors also play a primary role in developing the housing industry. Housing development activities by the private sectors are subject to the Housing Developer Act (Control and licensing) 1966 and Housing Developers Regulations (Control and Licensing) 1989. Nevertheless Sabah’s Housing Development (Control and Licensing) Enactment 1987 and Sarawak’s Housing Developer’s (Control and Licensing) Ordinance 1993 was enacted on their own. Under the act, developers are required to comply with all requirements under the acts as well as other related statutory requirements in order to obtain a license to carry out any development when they undertake housing development involving the construction for more than four units of housing accommodation. (Buang S., 1993)2

Unfortunately, the present arrangement has its shortcomings. Even thought the government have the rules to minimise the failures of the project, there is a possibility that the developers will fail to complete the project due to incompetent contractors, unsuitability of sites and location, delays in getting plans approved, financial and management problems (Esha Z., 2006)3. According to Enshassi.A(2006))4 the economic cycles and political environment has a significantly high rate of business failure. On top of business failure, collapse and bankruptcy are common terms in the industry due to the many risks inherited on how the industry operates.

In Malaysia, abandoned housing projects are getting severe. The effectiveness not only crucial to the houses buyer for their own a shelter but also health issues needed to be addressed to the citizen and imagining corruptions amongst developing country when absorbing investment. Reported by The Star (2008)5 an abandoned project could have been cause of the landslide. Furthermore, an abandoned project will make the site turning into a haunt for drug addicts where hideout for criminals and an ideal breeding ground for mosquitoes reported in The Star (2008)6.

2.2 Definition of Housing Development

According to Buang S, (1993)27 under Housing developers Act 1996 (Act118) section 3 of the act defines “housing development” simply to mean-“the business of developing or providing monies for the developing or purchasing, or of party developing and partly providing monies for purchasing, more than four units of housing accommodation which will be or are erected by such development…”. Furthermore in this chapter, it will touch on the conventional delivery methods where sell off the plan and build and sell would be explained and elaborated.

2.3 Conventional method of development delivery

2.3.1 Traditional Selling-Off-The-Plan System

At the juncture of Selling-Off-The-Plan concept by the Housing Buyers Association, is the system that selling or buying house are off the plans or uncompleted. Generally, Selling-Off-The-Plan system normally implemented in developing countries which adoption in Malaysia as well. As the Selling-Off-The-Plan system manages to deliver houses to meet the housing supply target in Malaysian plan. By using Selling-Off-The-Plan system a potential buyers make a booking and pays 10 percent of the sales price upon signing of the Sales & Purchase (S&P) agreement for the purchase of a house. The developers are allowed to collect money upfront even before starting construction work on their projects. It is unfair to the potential buyers as it is an irregular situation for the property industry.

More often the buyer then will makes a loan arrangement with a bank to finance his purchase (KPKT, 2007; cited by Isa, Z, 2008)43. Following the bank would release stage payment directly to Housing Development Account (HDA) of the project upon certification by the architect according to the stages able to claim in Schedule Payment (Schedule G for houses build on terra firma where Schedule H is for high-rise building). Then from that juncture, the loan amount and balance purchase price will be paid progressively to the developers in accordance with the various stages of construction works. The end financiers were placed with the burden to disburse the approved loan progressively. They were duty-bound to ensure the loans disburse were for work performed by the developers and they were usually supported in the form of Architect’s Certification.

The drawback found here is where the approval from the developers will normally brought longer period whereas time is the essence of the project (normally 6 months approval rather than 4 months implied on build and sell concept). If the project is under categories Schedule G the projects have to be completion within 24 months from the date of signing of the Sale and Purchase agreement. For any projects under Schedule H categories the projects have to be completion within 36 months from date of signing of the sale agreement. During the waiting of authority approval it wills possible happen of any unforeseen circumstances for example the raises of materials cost and if the developers can’t affordable the cost then the project may late delivery or become abandoned.

Additionally, sell off the plan system tends to be very deceiving through myriad of colourful and marvelous design brochures (potential buyers rely on advertisement) that would ensure to entice customers. Consequently house is bought on nothing more than an artist’s impression where the location of the site is still a bare land. There are risks of project being abandoned as the un-build houses is sold by showing the potential buyers a model house, which the design and workmanship may be different from the actual unit built. (HOME FINDER, 2006)13

Chapter 3.0: Abandoned Housing Projects

3.1 Introduction

As one of the developing countries, Malaysia too faced insufficient supply of housing units besides other numerous problems such as difficulty in getting CF and land titles approval, late delivery and abandoned projects which have affected most house buyers (Sen M.K, 1985; Esha Z, 2005)15. Therefore, problems such as abandoned projects, property overhang, late delivery and shoddy workmanship had almost been accepted as a norm in the Malaysian property development industry. Abandoned project can be classified into 4 categories which are:

• Abandoned project which have the prospect for rehabilitation
• Abandoned project which are taken over by other developers
• Abandoned project which are not suitable for rehabilitation
• Completed and rehabilitated projects

According to Dahlan N.H, (2008)16 even though there are legislation that cater for housing development in Malaysia, record shows that, the abandoned housing project keep on recurring especially so during the economic downturn. This is understandable, as in economic recession, banks would be reluctant to grant housing loans as they are many unemployed people or dismissal cases, all of which, resulting in social and economic malaise and chaos in the country.

3.2 Definition of abandoned housing project

Hitherto, ironically there is yet having any official, legal or judicial definition on the meaning of ‘abandoned housing project’. Nevertheless, that is a practical definition which for the purpose of facilitation and administration has been given by the Ministry of Housing and Local Government (‘MOH’). The definition as follows:

• Construction and development works on site had been stop for continuous 6 months or more. Such termination has either occurred consecutively or occurred during the period within which the project must be completed or beyond the required completion period stated in the Sell & Purchase agreement. Completion period means the period within which the developers has to complete the construction of the housing units. Property with land completion period is 24 months calculated from the date of the sale and purchase agreement being executed, whilst for flats the completion period is 36 month from the date of the sale purchase agreement.
• Within the said duration of 6 months, the developers concerned had been wound up and has been put under the control of the Official Receiver
• Officer of housing ministry in opinion that the developers is unable to continue to perform his obligation as a developers.

3.3 Effects of abandoned housing project

According to the latest report from the Ministry of Housing and Local Government (‘MOH’), until June 2009, there were about 146 projects throughout Peninsular Malaysia that have been identified as abandoned housing projects. These problems involved 48,878 housing units, and 31,095 purchasers. Most of the projects occurred in Selangor with 40 projects, followed by Johor (33 projects) and Negeri Sembilan (20 projects) etc. The state which no abandoned projects is Perlis. Overall the substantial figure is a cause of concern to the general public, who may lose confidence in housing developers especially to those who were or are already be the victims. On its own, these numbers may not seem surprised high but when view from perspective that there are tens of thousands of people who are aggrieved by such failed projects, it become a serious problem that needs to be resolved urgently.

When a project is stalled or abandoned the house buyers is facing monetary losses as they have to settle monthly loan repayments and some may have to continue forking out rental for their current abode. Worst case scenario would predicament the house buyers with blacklisting from the bank and application on loan for the second time would be difficult as they can’t repay their loan in the abandoned housing project. According to him, who is also our Minister of Housing and Local Government, project abandonment is serious as the casualties are consumers and their hard-earned money. Besides that, from an industry perspective, the economic cost is staggering; abandoned project also affecting many other related industries including suppliers of construction materials, transportation companies, contractors and consultants. Abandoned projects were very dangerous when it comes to landslides, where the site is not completed and there is no maintenance of the site and therefore causing the slopes to collapse.

Moreover, National Economic Action Council (NEAC) (1999) has identified that one of the reasons why the economy of the country suffered badly during the 1997 economic recession was due to overhung and oversupply in the property market; inclusive of the housing property. Since economic recession forms major issue in this country, it will directly influence the other running project to become abandoned (Rameli.A,et.al. 2006)42.

3.4 Causal success or failure of housing project

3.4.1 Causes of abandoned project in Sell-Off-The-Plan System

According to Isa, Z, (2008)44 the problems in the current sell off the plan concept is identifying from three perspectives of non-performing developments, project failure and financial risks that house buyers have to bear as consumers. The buyer not just been financially ruined, but also suffer on the family, emotional and health fronts. Isa, Z, (2008)45 points out that the complaints for non-performance development in the industry grew from 151 project in 2002 to 245 project in 2005, which affected 28,550 buyers in 2002 to 38,315 buyers in 2005 and out of these complaints more than a third of complaint apprehension were concerning poor timeliness housing delivery and non-delivery of housing units and another 29 percent involved strata title issues according to National House buyers Association (HBA) which recorded Non-Performing Developments and Complaints from House Buyers between 2002 and 2005. When they is late delivery of housing unit to the house buyers it may causes the developers contain an extra cost to compensate the purchases liquidated damages or even any unforeseen circumstances making the cost for construction increase and it will finally make the project become abandoned as making the developers losses of profit. Besides that, Selling-Off-The-Plan system may cause the late issue of Certificate Fitness (CF) and it will cause the house buyers unable to move in to occupy their build. Even they move in it will illegal to stay in their own property.

The project failure and abandoned housing projects may come from the list below:

• The developers may run short of funds to continua the cash flow as the project could not reach the required amount of sales;
• The developer’s building contractors cannot deliver their contractual duties of constructing the building and the developers may be stuck in a legal tussle, which may also affect house buyers.

In the current sell off the plan concept, it has to address the fact that the buyer’s money is stuck and he is dragged into a very muddled legal situation and it has to endure finance risk as consumers in housing development. When house buyers buy off the plan, they have to paid the 10 percent deposit and stage payment in accordance to construction phase. Therefore they have to shoulder many risks, whether or not the house will be completed on time, the possibility of the project being abandoned, delayed or varied from original plan.

Furthermore, the 10 percent deposits are based on development value of the housing project. Buyers paid the amount even before the foundation costs incurred during the construction phase. This indicates that buyers finance housing development projects right up front before the starts of the construction works. With this type of concept it will make the housing project abandoned easily as the irresponsible developers when found the project are no longer profitable by certain reason then he will give up the project to reduce his losses. Meanwhile, the house buyer’s may have to incur rental or other expenses while waiting to move into the new house.

Other than that, the introduction of Housing Developers Account and standard Sale and Purchase Agreement by the government has been slow in tackling this problem of abandoned housing projects. However, it cannot be totally resolved since a project abandoned for a host of other ‘non-financial’ reasons, such as problems with squatters, disputes between developers and architects, management problem, developers “disappeared” and problems with Public Works Department, etc.(Sothi,1992; cited by Esha. Z, 2006)47

Moreover, the lack of monitoring and strong enforcement on the part of the Housing Ministry has also contributed to the reason on why the projects fail and this division’s workload is extremely heavy and it cannot keep a constant vigil on developers thus contribute to further problems like the ongoing practice of getting buyers to pay for a property purely on the conceptual basis also known simply as the sell off the plan concept. It will also lead irresponsible developers to abandon the project as they are no policy or act to punish those developers who give up project easily. This indirectly lays a sense of irresponsible developers who merely wanted to get their buildings sold and not servicing the house buyers.

Therefore the wrong step carried out by the buyers through continuous payment of loan settlement and installment of the house without even check properly whether the project might even move where in the latter stages, because legal issue on money transferred on the return of nothing. They are also problem arise as the house buyers more rely on the project model and advertisement showing by developers. It may be different in site as the shoddy workmanship and non-adherence to the building plan. At the end the problems which arise will be hardly in getting authority approval for example CF and project being abandoned. The developers might caught the bank by cheating them on the progress payment needed certified by Architect who illegally conspiring with the developers. The sell off plan would not critically affecting the financial situation of the developers as compared to build and sell as the developers has the financial backing unlike relying on one self’s financial power where inability to get the money to commence with the project would incurred more bridging loan (not necessarily the bank will approve) regardless of CF issued. (HOME FINDER, 2006)25

3.4.2 General factors lead to projects failures and abandoned

According to Balchin P.N, (1985)33 development are complex and costly as it may have fundamental changes occur in the market to increase the risk before the scheme is successfully completed. Many project fails and become abandoned because of the unforeseen factor which effect upon the initial calculation of the developers. It is an indisputable fact that at home turf, project failures are thus adversely affecting our nation’s economic health Tan A.L, (2004)12. Innumerable unsold properties resulting in a huge property overhang, which is one of the more pressing forms of project failures. There is several of the reason for type of project failures, but in failures causes by project management it is an oversimplification to generalize and categories failures in term of the time, cost, and quality. Project failures can be primary or secondary, serious or inconsequential. By using the Selling-Off-the-Plan system the abandoned of the project basically involve in few party (Tan.A.L, 2004)49:

• Developers
• Government
• Contractors
• Financial institutions
• Other factors

Developers

Developers are the main party that contributed to the factor of the abandonment of housing project (Esha.Z, 2006)50. Problem usually arises and result abandoned housing project. Imperfection of the market system and unethical speculation by housing developers are amongst the factors contributing to the market failure, resulting in an overhang and oversupply of housing (Rameli.A, 2006)71. Even some of the cases that, mismatch of housing demand and supply resulted in abandoned housing problem (Ho,1992;cited by Rameli.A, 2006)39 . Developers fail to estimate the sales unit price as poor of feasibility study in term of land cost, finance cost, estimated the returns, gross development value, and gross construction cost will end up of the construct cost more than the develop cost. For example, that is non-availability of amenities for the site and developers have to come out with own cost to connect the main water pumping from outsource to theirs develop area and unforeseen the high infra structure cost during feasibility study stage. (Dahlan, N.H., 2008)51

Additionally, developers forced to stop mid way through the project when facing financial problem as fails to secure the targeted demand to break even due to high or unsuitable pricing of the product and lack of feasibility study in choosing the site for develop, the type of development, and precise in supply and demand. Developers are lack of a feasibility study to gauge its economic and technical viability from the very onset. The culprit may come from poor planning and researches as the developers that rush into a development without comprehensive market study will most likely cause developers stuck in a project due to poor cash flow. For example choosing a strategic location for develop is important and influencing the interested for the consumer to buy the product Tan.A.L., (2005)59. Besides that, developer’s insufficient fund or stops to operation and become bankrupt as the weakness of the company in financial management. (Dahlan, N.H., 2008)52

Project may found failures cause to the developers as it appointed the inexperience project management consultant PMCs or project managers PMs to manage the project. The repercussion of the problems would be in managing a good cash flow of the project and causing the project cost overrun, insufficient quality control, poor planning causes the manpower lack of supervision and coordination, quality of product is low as always delay. (Tan. A.L, 2004) 53 The developers fails to constantly date the first estimate project cost by incorrect fixation and causes insufficient fund to pay the contractors interim certificate claim. Moreover, it will have a case of uncertainty prevails over payment and timing with implications on the contractor’s cash flow; design changes that may adversely undermine timely delivery of the project; and interpretations of the contract documents which may lead to disputes and litigations.(Tan. A.L, 2004)55

For instance, weakness of the developers in management of the project organization normally will be the weakness in planning and control. It would cause the project will fail to complete within the fixed period and project may found too many people involve and lead to overstaffing slows communication and decision and increase the changes of personnel thus disrupting smooth progress. (Tan. A.L, 2004) 54 Conflict between landlord and housing developers would invite dispute between family members for owning the land in selling to developers and the developers may need start advertise house put up for sell but the land case is still unresolved.

It will possible with the case that, the developers used the progress payment financial from purchaser to other unrelated matter (own investment) then the money on following month is stuck and unable use for project construction payment. But, when they try to get the loan from financial institutes as their financial record of the developers is instability causes hardly to get approval in application of bank loans. Site investigation and design stage both fall under the standard that is crucial for the success of the project. For example, the developers fails in studying the rule and regulation of the plot ration requirement on that area for develop with not fulfillment design type of housing will cause him unable to get the approver from authority (Tan.A.L, 2004) 56. The irresponsible attitude of the developers as give priority to the profit by awarding tenders to incompetent contractors.

Government body

Statutory provision provided by Ministry of Housing and Local Government (MHLG), Local Authority, planning authority and technical agencies had failed to strictly monitor the term in legal provision and requirements in the Selling-Off-The-Plan system. For example, the Housing Development (Licensing and Control) Act 1966 (Act118) and its regulations, are blatantly disregarded by developers without any punishment being meted out to and legal action taken by the authorities against them and RM200,000 as a deposit for the housing development account are consider minor and little for recovery if they was an abandoned housing project. The low-cost policy which requires developers to develop certain percentage of low cost housing with maximum selling price amount able to RM 42,000 will be tied and this is burdening the developers. Additionally, inefficient development control process by the Local Planning Authority in ‘filtering’ and assessing the new housing development application may also contribute to oversupply of housing and subsequently exacerbated the problems in housing market(Rameli.A, 2006)40.

According to Sufian.A and Rahman.R (2008)58 the Street, Drainage and Building Act 1976(SDBA) and the UBBL do not impose any specific duty on the local authority to inspect the construction work done by a contractors. In the Selling-Off-The-Plan System, the duty for inspection lies on the qualified person who submitted the plan. Therefore, the local authority will only conduct an inspection if there is a report on the failure of the building (Section 70B, SDBA). This will cause the unethical architects to approve the developers on the monthly claims which actually is claims overestimated, allowing the developers to draw more money from purchasers and the bank. There are also weaknesses projected in the Local Authorities planning approval system where housing applications were being permitted without taking into due consideration the actual demand and the process for approval the application always delay plus the need for a long period as the applicant have to refer various department. This will cause the developers to “face the music” on the increase for the building cost as the period of waiting the material cost lengthen. (Peter Chin, 2003; citedby Rameli.A, 2006)41.

Contractors

Contractors failures will be one of the issue contributed to the abandoned of housing project (Tan.A.L, 2004) 57. The causes of the contractors to abandoned housing project can be explained as follows:

• Contractors lack of experiences in Selling-Off-The-Plan system and don’t have the firm idea to source for funds others then the progress payment from the developers and will invites project abandonment due to insufficient funds or project financing.

Financial Institutions

This is understandable, as in the economic recession, banks would be reluctant to grant housing loans to the developers and house buyer as they are many bankruptcy in the country. This may cause the party difficulties in getting bank loan as the bank may set the high qualify and requirement for grant housing loan to protect its interest as the show business couples with high gearing ratio of borrowing and less generating profit by banks, trades and business entitle. The small and medium size developers may face difficulties to obtain the bridging funds from bank and finally will cause them weaker financial capability. Furthermore, this phenomena keeps on recurring especially during economic down turn and the inflation rate are high where it may cause the financial institutions not to approval any loans or even loans are approved. The charges of interest rate will certainly going up drastically and high to the developers and when the interest rate increases it will cause the management of company operation cost to increase and this will reduce the developer’s profit. Meanwhile, the problem may rise up as the bank simply approve the claims and without conduct further due diligence investigations and verifications of truth of the certificates issued by the project architects and presented by the developers in the Sell-Off-The-Plan system. (Cheong, Eranest, 2009)29

Other Factors

• Every step prescribed under the Housing Development (Control and Licensing) Act (the Act) is being taken by the Ministry of Housing and Local Government (MHLG) to minimize the number of abandoned housing projects in the country. Nevertheless, there are unforeseen of the environmental factor beyond the control of the ministry, such as the Asian financial crisis of 1997-1998, that have hurt many small housing developers and caused project abandonment. (Parameswaran.G, 2006)24 Subsequently, building cost not stable with the insufficient of building material supply and higher costs of materials prices, especially that of steel bars and cement and this will caused the contractors unable to finance the costs and delays in or deferment even worst building project get abandoned. Against a backdrop of an economic boom, the traditional lump sum contracts and coupled with an era of high inflation can generate considerable uncertainty over the prices and supply of input resources. It will influence for the Selling-Off-The-Plan system as this system take longer authority approval period.

Furthermore, the question facing by the nation especially in the construction sector which is shortage of skilled and unskilled workers. Insufficient supply of manpower will lay the construction work lack of machinery to carry out the heavy construct work and cause the project poor performance or unproductively. On top of that, the problem may be found when that is a technical difficulties for example, the crack and failures of development foundation and causing the work have to be demolish and re-construct when the house is nearly to complete.

Chapter 4.0: Factors lead to a successful housing development project

4.1 Introduction

According to Balchin P.N, (1985)37 development are complex and costly as it may have fundamental changes occur in the market to increase the risk before the scheme is successfully completed. Tan A.L, (2004)36 pointed out that marketing and PR skills are also crucial for success. Meanwhile, he also stressed that authority is the custodian and safeguards of public safety to avoid project failures. The role of the authority is to ensure that only qualified professionally consultants are allow to submit the relevant building plans to gain the different type of approvals such as development order, engineering infrastructures, layout and building plan approvals. The authority like CIDB/JKR must functions to carry out their role in checking the site worker to ensure they are accredited, the job specifications to follow up the engineering code. In addition, they must be tight in control development and construction process to ensure the rules and regulation are adhered to. According to Chan P.C, (2004)14 success of construction project also greatly depend on the flexibility of the constructors. A right attitude for contractors will emphasize complex matters with ease and obeys the engineers’ instructions. Nevertheless, whereas a greedy and difficult contractors’ will always try to gain the maximum profit by minimizing work from the loopholes in contract document and other working condition. The following issue discussed would be the different parties’ point of view in order to prevent the abandon of housing project. The parties involved would be the Developers, Government, Contractors, and financial institutions and the potential buyers that are prospectively victimized.

4.2 Prevention of Abandoned Housing Project

4.2.1 Adopting Build-Then- Sell (BTS) concept

BTS may be viewed as an option to tackle the problems faced by houses buyers who suffer from irresponsible developers. This concept is handful of successes story and proven work well which implementation in developed countries where their housing industry is mature and there are fewer problems.

The BTS is a concept where the developers can only sell the fully constructed houses together with the issuance of Certificate of Completion & Compliance (CCC). There is no progress payment made by house buyers to the developers and the developers have to bear all costs by using their own capital or loan from financial institutions or both. Developers can sell his product before or during construction but he can only collect a small deposit from the house buyer. The developers are not allowed to collect progress payment based on certifications from architect, as under the STB concept. Moreover, a potential house-buyer can see and inspect the unit physically before deciding whether to buy or not. In this circumstance, the developers will have to do a better job, i.e. good design, good quality of workmanship, faster completion and high quality of finishes. (Esha.Z, 2006)48

Under build than sell (BTS) concept, the possibility of the incidence of abandoned project will be reduced and even the problems not dispose totally the house buyers or end financiers also will not be caught. As for the house buyer, they can benefit through the quality of the units with the developers can get shortens the holding cost and can save on the development cost. According Isa,Z (2008)60 the house buyer are gaining the advantages with given a 120 days grace to pay for the house plus the construction period to secure his end financing. Therefore, when in the event abandoned of the project the buyer does not carry any financial burden as buyer has the right to rescind the contract and have the deposit return together with any interest that may have accrued. Furthermore, with the ready unit the house buyer can see and inspect the unit physically and able to make the decision besides paramount consideration of the unit pricing.

Unfortunately, there is a possibility that private developers in lower supply of production of housing unit as they need to face the risk and burden on interest with which they could not get the progress payments from the house buyers and they only can depend on the developer’s working capital, credit from suppliers, increasing the among for bridging financing from bank or financial institutions which will causes the increasing of interest to pay for the loan. As a result, the house price may rise due to higher cost of doing business or construction costs caused by higher loan interest will affected the house buyers and shrink the construction industry itself in terms of shrunken construction activities and employment of this particular sector with the provision for targeting housing unit under Malaysia Plan.

However, the government has a bold step to improve by the housing deliver system by expanding the role of the current One Stop Centre (OSC) (KPKT, 2007). It will results in the developers able to gain the development approvals within four months, shorten the construction time start and complete lend the lower chances happen of unforeseen circumstance (prevent any inflations cost). Thus it is not only benefiting to the developers with lead to lower holding cost, translating into better efficiency of capital investment but also to the house buyer as will the house will be handed over the completion unit together with the Certificate of Completion & Compliance, Certificate Fitness, and Vacant Possession issue by the respective local authority. The government has also provides incentive with exemption of the RM 200,000 deposit fee for housing development license, enjoy the exception from having any Housing Development Account, given full release from 30 percent requirement of low-cost housing construction quota. Additionally, under the system the developers are allowed to collect amount (10% to 15%) of selling price from purchasers as commitment to the development project which will also reduces the developers risks by obtaining a small amount of finance from the purchasers and easily for them to get loan from the financial institutions.

Besides that, the government could also assist the developers in giving the tax incentive with providing financial assistance to sustain developers from National Bank of Malaysia (BNM) and giving the incentive to the financial institutions that support the implementation of such concept. In order to fund the financial for BTS-practiced it is recommendations that the developers could form a joint venture company and form consortium or syndication amongst small scale developers so can develop a strong financial capital. Developers also could initiate the concept on a small/ medium scale project.

It may be possible that the developers be stuck with unsold unit and paying for the holding costs while awaiting the buyers. Nevertheless, the developers can promote the sale unit with providing longer defect liability period to ten (10) year to prevent this problem. Subsequently, under the BTS system it may help to bailing out the bad developers from the industry developers which can also to ensure top quality workmanship in order to absorb the interest of the buyers thereby eliminating the worry about being stuck with unsold, completed units. In summation for the housing development project, the banker and developers are the profit makers so they should be the risk takers but not to the buyers as the banks will come after buyer regardless of whether they have received their houses or not. In other words house buyer should be protected from any development risks. (HOME FINDER, 2006)61

4.2.2 Developers’ Resolutions to Reduce Project Failures in Selling-Off-Plan System

A number of variable factors influencing the abandoned housing project and suggestions improvement from the developers view were identified as following (Tan.A.L., 2005)59:

• Obtain detailed and “Professional” feasibility study or market survey such as preliminary site visit and investigations, schematic layout plan, market analysis, demand scenarios, potential demand type of resident houses, population catchment, income level, economic activities of the area, analyze current market trends and likely development in the property market, pricing strategy and timing of the sales lunching, socio-economic study and SWOTS analysis. The objective is to ensure supply matches demand, right type of housing unit is built, in the right location, at the right time and at the right price.
• It is important to appoint the right, competent and capable project management consultant PMCs or project managers PMs who are well trained and with excellent attitudes, experience professionalism strategic, and effective and efficient project success in Selling-Off-The-Plan system.
• Appoint the qualified and experience project team member with verify their attitudes, commitment and professionalism with the good track record of having completed relevant projects successfully.
• Understanding and fully abide all guidelines spelt out in the housing development act, rules, by-laws, and regulations governing building, township and environment, and the role of approving authorities in development process.
• Developers should use the advantages able to collect progress payment in Sell-Off-The-Plan system with adopt proper cash flow management to avoid liquidity problems and able to conserve the cash flow to keep afloat during the unprecedented economic crunch and to ride out any cyclical “hiccups” as the deferment or slowdown or project means substantial holding cost (Ng. Angie, 2009)9.

According Ng. Angie (2009)11, to increase product sales for developers, not only they must deliver the right product, right location and pricing in order to launches despite any uncertainty, developers should also do some serious “soul searching” to find out what exactly property buyers are looking for (adopt the Build then sell system) and have to serve buyers better with provide according changes lifestyle of people demanding for example easier accessibility and convenience of city life, plans to ensure residents feel safe, secure and peace of mind, and convenience of the services provided by the gated and guarded concept.

Additionally, house buyers may feel secured for the project that the developers can proactive by showing their commitment to their projects with putting up the necessary infrastructure ahead of a project’s launch to effect of slow sales on their bottom line and survival. To mitigate the risk, developers can also encourage buyers to sign on the dotted line by providing ingenuous plan with working of their panel of bankers to provide easy financing schemes to purchasers. (Ng. Angie, 2009)18

Buyers’ needs are always evolving and developers who take the trouble to stay in touch with them will benefit tremendously. Therefore it is important to engage the customers’ by knowing what they want so that the projects can be planned accordingly. This enables the developers to stay track (in line with) the current wanting development. In addition, the developers can use internet to interact directly with buyers by opening up the communication channel through a well managed and user friendly website. The two-way communication flow and interaction will promote a more well informed and knowledgeable society. This could help the developers to get invaluable first hand information from the house buyers on how to design, or redesign, their projects. More importantly, developers who values house buyers’ views and input will be able to have the right products in place, whether it is during the good or bad times. (Ng. Angie, 2009)28

4.2.3 Government’s Resolutions to Reduce Project Failures for Selling-Off-Plan System

The implementation of the BTS-practice is one of the effective methods to solve the abandoned housing project problem but since it is not compulsory for the developers to utilities this practice, prevention measures can be taken into account to better protection for the house buyers (Sufian.A and Rahman.R 2008)62: First and foremost, MHLG should have the licensing system as practice by Construction Industry Development Board (CIDB) to categories developers base on their expertise, ability, resources or performance. Moreover, the different type requirement for application of developers’ license should be based on their performance record and focusing on a developer’s financial capacity. For example, required higher deposit and stamp duty for developers who always complaints from buyers or even restrict that particular housing developers from obtaining a license for house development for a certain period.

Next, government should speed up the approving process as close link the department which is responsible to process and approve the application for licenses to become more efficiency. For example, within 3 month the developers are able to know whether their applications are acceptable. Moreover, Housing and Local Government Ministry, Local Authority, and financial institutions should more consistent and effective on monitoring interim claim and interim report with the site visit checking where submitted by project consultant. Meanwhile, it is necessary impose stricter rule to plug the gap in the Act for enhancement of the house buyers protection for Selling-Off-The-Plan. For example; higher penalty to those developers not opening and maintaining the HDA or develop without license, counter-checking all claims made on the HDA, ensuring developers submit their annual audited financial reports, fined and jailed the developers and professional or trustees who flout the Act, blacklisting developers and publishing the reputation of company name to the citizen so house buyer will be more discerning and verify the reliability of a developers before signing on purchase agreements. (NG.Angie .2009)63

Additionally, the Government should reduce the tax on building material and remove the 10% import tax to make building material affordable in helping the developers and contractors enable to counter the rising price of materials. Furthermore, in order to ensure adequate supply of building material, the government should impose an export tax and allow the import of the building material. (Lee.R,2009)65. The government is supposed to strengthen and incorporate the overall housing planning and approval process, particularly in the preparation of development plans at the stage of development controlled by the Local Planning Authority. Not only element such as meeting the population housing needs but also concerns about the market demand mechanisms, such as effective housing demand, household housing choice, current and future market demand, local market conditions and ensure efficient public transport so that these affordable schemes will be taken up and not left vacant like some of the projects that have poor accessibility. It is important for the government to make sure the developers crucially uphold their responsibilities towards house buyers by ensuring proper feasibility studies are conducted to ascertain a project’s viability before it was launched and duly complete their project on time ( Rameli.A,et.al. 2006)67.

Furthermore, the low-cost housing policy shows that developers have to set a portion of the land for low-cost housing for those projects more than 10 acres will burden the developers and sometime will make them business loss. The government should consider the change of requirement or review with raise the cost of maximum RM42,000 in current low-cost housing policy and the government can undertaken the public or low-cost housing so that the developers are “free” from responsibility and able to focus on building more market driven products and with no burden the developers. (Ng. Angie, 2009)22

4.2.4 Financial Institution’s Resolutions to Reduce Project Failures in Selling-Off-Plan System

The banks can prevent projects for being abandoned as it shall not proceed to pay the certificates claims issue from architect. Furthermore, banks can appoint independent architects, quantity surveyor, and any property consultants to carry out independent site inspections to verify the truth and accuracy of the certificates. Even the banks have located extra cost for hire those professional to process the work but it would have saves the banks in the burden of having to shoulder millions, or even billion, of ringgit in non-performing loan.

4.2.5 Contractor’s Resolutions to Reduce Project Failures in Selling-Off-Plan System

It is useful to keep in mind that plant items are usually cost heavy and hence adequate plant management on site will accrue positive cost, benefits to the contractors. A useful starting point for the management of plant begins with a scheduling of the plant needed for the project. The daily plant requirements are compiled by tabulating the necessary pieces of plant needed for each project. If the labour supply has fallen short for one reason or another and not in a position to meet the demands expected, then a rather complex situation has arisen which requires the focus of site management. It is possible to extend the working hours on the critical activities by instituting overtime work and a long term solution may include enlarging the external sources of labour supply from oversea. Besides that, contractors are advised to be able to implement Industrialised Building System (IBS) as it will minimize the problem of insufficient skilled workers and manpower for the construction activity. Meanwhile, it would also help in assisting the contractors producing quality dwelling. The site management shall make the best use of the manpower and at the same time try to reduce the time overrun as it is practically possible. Sufian.A and Rahman.R (2008)66

Contractors are importantly to monitor and plan with sufficient, timely supply of the construction materials in the development. It is prudent to take into consideration the lead times (time needed to produce shop drawings, submission and resubmissions for approval, manufacture and delivery to site.) necessary especially for key materials or components which are custom made for the project. As the amount of the attention expended on materials monitoring and in particular delivery will bear fruits insofar as the continuity of the site workflow is concerned. Meanwhile, the contractors should keep on updated and study the trend of pricing for materials, so the contractors can foreseeable and tender in an expected higher price for the project. Contractually, the contractors should request adopting proper cash flow management, proper budgeting, and effectiveness of cost control system and speed of information flow are the key for the contractors to focusing to avoid the failures of the project. Tan.A.L. (2005)64

4.2.6 Purchase’s Prevent be a Victim in Selling-Off-The-Plan System

House buyers have role to play in ensuring that they did not buy a house which is problematic or has the potential to be abandoned. There is plethora of roles that needed to be instilled among house buyers before even deciding to buy a house. Among them are during supervision stages, during signing Sales and Purchase Agreement (SPA) stages, after SPA signing and during releasing ownership delivery period (key-turning point).

4.2.6.1 Supervision stages

Before making decision in buying house, house owner need to make through roughly supervision to ensure that the financial situational of financer (developers) position by visiting the developer’s office to make certain that the developers has authoritative license, advertising permit and marketing that is to be endorsed by Ministry of Housing. Next, the position of the financial situation ought to be determined, director’s status and current balance sheet of the mentioned company. Additionally the house buyer personally has to go to the site location where the alleged house is to be built. The specification like the type of house, amenities provided would suit the buyer’s intention buy. On top of that, the buyers has to beware of exaggerated spread propaganda about the values of the house scheme that would rise drastically in the fastest time or future promising development that has been allegedly pledged as government policies kept on changing and the real estate worth is depended on political and economical progress. All those promises have to incorporate in black and white as in SPA.

Potential buyers also need to obtain upfront and the latest information from the developers regarding the status of the land and counter check against oneself on the land office listing regarding the ownership of the land, lot no, type of land use and priority sanction that holds, freehold or leasehold and even mortgaging (make sure the duration it is being mortgaged) at the Land Office or State Registrar with a little bit of payment made. Through all these the financial situation of the developers will be further noticed by the house buyer.

House buyers also must do multiple calculations with scrutinize of own financial founding to obtain certain loan. Interest rate applied also has to be taken consideration and matters related to repayment. House buyer also must not rush to obtain the loan scheme and select the best possible loan with good comprehension on the terms and conditions of each package. Furthermore, house buyers also must consider taking out the protection insurance to avoid accident that will cause death or even paralysing body for the entire life.

Potential buyers also warned over enticement of the show units which nowadays are attractive and alluring based on the advertisement put up (beautifully illustrated design). Instead they should get relevant and accurate information on the specification, plans allocated etc. House buyers also are advised not to be tricked on where the developers’ allegation that the house built would be selling fast. The developers do this is to allure buyers into buying their build housing as competition is high among other developers. Buang.S, (1993)21

4.6.2.2 Prior to Signing Sales Purchase Agreement (SPA)

Comprehending the SPA is exceptionally important therefore the house buyers could seek help from the developers or even the panel of lawyer to define the meaning. In order to preserve the buyers’ right, the buyers can hire own lawyers as developers cannot force the potential buyers to use the panel of lawyers of their own (developers’). Some of the important notice that needed attention before signing would be the lot no., land area, price, location lot and house specification. Furthermore the completion period also needed to be determined (24 months for land with building and 36 months for strata title land). The buyers also must know their right in case the developers defaulted or vice versa where the developers claimed on the interest from buyer if buyer fails to comply with the contract like stages payment failed to be fulfilled within 21 days. The buyer also has the onus to ensure that the receipt payment date has to be tallied with date of signing SPA. Buang.S, (1993)23

4.6.2.3 Upon Signing Sales Purchase Agreement (SPA)

After signing the SPA and deposit paid, the buyers automatically has the outright ownership on the house bought. A private caveat has to be logged against other people that claim over the ownership of the house. It can be done in the Land Office or any other institutional. House buyers that use cash and KWSP would be wisely advised to log private caveat even though auctioning of the house due to the default of house buyers. The potential house buyers also are advised to inform the Supervision and Enforcement Department of the Ministry of Housing so that further action can be addressed.

Chapter 5.0: Research Methodology

5.1 Introduction

In this chapter describes the method and procedures implemented to achieving the objectives of this research. Questionnaire was conducted for the method of data collection.

5.2 Methods of Data Collection

Basically, information needed for research study may be source from two area i.e. Primary data and Secondary data. Data collections involve in combine all required information to form the essential in achieving the objectives of the study. The primary data for the study will be obtained through the literature review, which from reference book, journal, and articles where from the library and the news reported in internet. Besides that, primary data will assist for the formulation the questionnaire for this study. Where the secondary data is to firm up the primary data explained for the analysis for this study. Secondary data was collected using questionnaires to examine and analyze the objectives for the literature review. In this study, fifty set of postal and e-mail questionnaire survey will issue to selected relevant respondents namely developers, consultant, and other community that involve in housing development in west Malaysia. The structure ((agree & disagree) & (yes/no) together with open-end question) of the questionnaire has been formed by referring Naoum.S.G (2007) 26.

5.2.1 Form of Questions

The investigation can be constituted from three sections. Total question are twenty two (22) and comprised four (4) pages. The first section would be the respondents’ background which intended to ask the respondent for their type of organization, working experience in housing development, designation in the company, company profile where he/she currently employed. The reason the question is asked from them is because the desirable result would like know the type of organisation.

Close-ended and open-ended question were structured in section two and section three. Respondent merely responds with select the answer by using the predetermined alternative answers for the close-ended question. By this way the closed-ended questions are easier to analyse for the statistical tabulations. Other than that, open-ended question were set to allow and encourage the respondent to provide potential in-depth information and free to responses. It gives the respondent the opportunity to express their views. The section two for the questionnaires narrates about the causes of abandoned project it rooted in two types of answering techniques, which is rating scales and open-ended format. There will be ten (10) questions in close-ended structure (Likert’s Scale method) and one (1) question in open-ended structure. Respondents were asked to select and tick in the appropriate box or boxes base on their opinion to indicating the importance, priorities or preferences by making a five-point scale ranging from strongly agree to strongly disagree.

Subsequently, the last section epitomize of ten (10) in close-ended questions and one open-ended question. Solutions to prevent the abandoned housing project