For the past 5 years, over two hundred abandoned projects have been recorded by the Malaysian Ministry of Urban Wellbeing, Housing and Local Government. When a housing project is abandoned, this is perhaps the most disheartening circumstances a house buyer can face. On top of disrupting the property market, such situations become a burden to buyers, as they still would have to continue paying back the loan instalments to the bank without a house to show for it.

Through the ‘Sell-then-Build’ system, developers build a property and begin selling before the housing project construction is completed. As the developer begins the development or construction the developer begins selling the houses, and buyers who purchased in such development are at the mercy of the developer hoping that the development will be completed and there is a house to be delivered.

From the sale of the houses developer will receive payment for the purchase price whether from the cash purchaser or from a home loan that the buyer has applied for from a bank. Thye developer relies on this money from the cash purchaser or bank loan to assist in the development of the housing project usually backed by a bridging financing from a bank or financial institution. This ‘Sell-then-Build’ concept is attractive to buyers who get to enjoy rebates, discounts and early bird rates, and the developers also benefit from a good inflow of cash to enable them to complete the project. But what happens if the developer is unable to complete the project and worse still, it becomes abandoned or the strata title was not applied leaving the completed development without strata title?

If you have found yourself in this tough spot as a buyer, we hope the following information will be of some help to guide you through this very tough time.

1. Get To Know Your Legal Rights

   The Government has taken an effort to reduce cases of project abandonment by developers through a few amendments of the Housing Development (Control and Licensing) Act 1966 (HDA). This governing Act was amended on many occasions and the latest 2012 amendment made to Section 8A of accorded buyer with better protection where buyer may choose to terminate the Sales and Purchase Agreement under certain circumstances .

   Some highlights of the amendments are:

   • The housing development is delayed, suspended or ceased for a continuous period of 6 months;
   • If the purchaser has obtained a loan, written consent from the bank is required provided that the bank cannot unreasonably withhold consent; and
   • The developer is obliged to refund all monies received towards the purchase price (free of interest) within 30 days of the termination.
     The above are some of the HDA’s new updated provisions which came into effect in 2015. Before this, trying to terminate an SPA involved a long and arduous journey.

2. Get A Full Refund From The Developer

   If you choose to terminate your S&P Agreement, the developer is legally bound to refund you in full free of interest.

   “In the event that the purchaser exercises his right to terminate the sale and purchase agreement under subsection (1), the licensed housing developer shall within thirty days of such termination refund or cause to be refunded to such purchaser all monies received by the licensed housing developer from the purchaser free of any interest.”

   Basically, the developer must refund the full amount that you have paid before, as a result of the sale and purchase agreement termination, Failure to do so on the developer’s end would mean that they have committed an offence under Section 8A(5).

3. The Developer Can Get Prosecuted

   Which brings us to the next point under Section 8A(5) of the HDA.

   This new provision further criminalised housing developers who fail to complete their projects. Developers that commit this offence can be fined for not less than RM50,000 but not exceeding RM250,000 and a further fine not exceeding RM5,000 for every day of the delay.

4. House Buyer’s Recourse

   This recent amendment criminalised housing developer abandoning housing development which may deter and minimise abandoned project but yet again the house buyers are still left with the burden to initiate legal action if the developer refused or unable to refund the monies paid towards the purchase price.

   In most situations of abandoned housing development, the underlying cause is usually lack of funds on part of the developer especially where the sale of the house in the project has been cold or very low.

   In general, house buyer has the recourse to seek the relief of specific performance to perforce the developer to complete the development and hand over vacant possession or apply for strata title.

   However, for developer that is facing financial difficulty and constraint, refunding purchase price to dozens or perhaps hundreds of purchasers can be unforgiving and the developer may just ignore and eventually be wound up, specific performance may not be a good idea.

   Though legal action can also be mounted to seek refund from the developer instead of relief for specific performance, that is only as good as the developer has the funds to refund, which in most cases if the development is abandoned it is a clear sign that the developer is in grave financial difficulty.

5. Developer Goes Into Liquidation

   When a developer is in financial trouble, eventually the developer may be wound-up (goes into liquidation). In this situation a liquidator will be appointed by the court to take over the affair of the management of the developer and house buyers will have to communicate closely with the liquidator.

   The liquidator may raise funds or secure an alternative developer to complete the project and apply for title or strata title, but in most situations like this the cost involved may later be back charged on the house buyer and the liquidator may seek reimbursement from the house buyer.

   Here the house buyer may be further burdened with additional cost and the cost to purchase the dream home may escalate.

   Always consult a qualified competent lawyer for advise of your legal rights in what to do in such situations.

Tips To Avoid Becoming A Victim Of Unscrupulous Developers

• Avoid ‘Sell-then-Build’ schemes. Instead, opt for ‘Build-then-Sell’ concepts. One popular one is the ‘Build-then-Sell 90:10’ scheme, where buyers pay a deposit of 10% upfront, and the remaining 90% only when the house is ready.
• Do some research and ensure that you obtain in-depth information about a developer before buying from them.
• Goes for known developer with good track record.
• Identify property development companies that are blacklisted by the Malaysian Ministry of Housing and Local Government.

Having invested in a property that soon becomes abandoned can be very disheartening, which is why as buyers, we must always be on the lookout for developers that don’t possess a good track record in completing projects. A little proactive research before you take the big leap in purchasing a property will go a long way.

The statement and information in the articles are the opinion of the writer and meant only as a guide. Any property purchase, rental or lease involve many legal issues and other complication depending on the individual facts and circumstances. Readers and Users are strongly advised to seek professional advise including from qualified and competent lawyers, bankers and/or real estate agent to verify the information and the statement before embarking on any purchase, rent or lease of any property. To the fullest extent permitted by law, we exclude and disclaim liability for any losses and damages of whatever nature and howsoever cause and arising including without limitation, any direct, indirect, general, special, punitive, incidental or consequential.