CUT AND KEEP
JUNE 20, 2014
> Comments from the
housing minister, Rehda
president and the rakyat
The
BTS10:90
concept
BRDB’s 50thanniversary
BANDAR
Raya Developments Berhad,
better known under the acronymBRDB,
recently celebrated its 50th anniversary.
The renowned property development firm
first stamped its mark as a developer, when
it undertook a project offering link houses
and bungalows in Bukit Bandaraya in 1973.
Its heritage in Bangsar, however, began
with its first community there in 1964.
Over the years, BRDB has made a
distinguished name for itself, one that is
reflective of its brand promise “Inspired
by the richness of life”, and anchored on
three pillars of innovationwhich are
intelligent design, uplifting aesthetics and
cosmopolitan living.
Today, luxurious developments
such as Sri Penaga, Palmyra, Bangsar Hill,
OneMenerung, Serai and others, are
synonymous with the BRDB brand. These
developments resonate with high value
and superb lifestyle, coupledwith the
development firm’s commitment to quality
and craftsmanship.
In commemoration of its 50 years of
excellence, enriching the lives of the
communities it has built, BRDB hosted an
exclusive five-day exhibition, showcasing
its notable and artistic, world-class
developments at Bangsar Shopping Centre.
The anniversary event was officiated by its
executive chairmanDatuk Sri Akbar Khan.
T
HE
housingministry is
proposing the implementation
of the BTS (build-then-sell)
10:90 systemeffective the start
of 2015 ... but in stages
. Says Urban
Wellbeing, Housing and Local
Government Deputy Director-General
DatukMohamad Yusoff Ghazali: “
It will
not be 100%BTSmandatory at the
beginning of 2015
. We will be proposing
some newmethods of implementing BTS
to the Cabinet.”
Theminister felt that bymaking BTS
100%mandatory and the only system in
force, it will further shrink the housing
supply and cause house prices to escalate.
Furthermore, he said that it may also have
a negative impact on the national
economic growth, as the performance
of the housing industry is an important
component and plays an important
role in determining the national
economic growth.
GOVERNMENT’S RATIONALE
Apparently, the
ministrywill still allow
the current STB (sell-then-build)
systemtobe usedbutwith some
conditions.
“Developerswhowish to
embark on the STBmethodwill have to
complywithnewconditions. These
additional “ultimatums”will still allow
small scale developers to continue
building houses butwith “some terms
and conditions” ... clauseswhichwill
be spelt out at a later date
.”With
both
the systems – BTS 10:90 and “STB
within its newframework” –
MohamadYusoff does not think the
co-existence of both systemswill cause
any adverse impact on the local
propertymarket
. His reason: “I think
only a small percentage of developers
will be adopting theBTS concept
.”
Why allowboth systems and promote
the BTS 10:90 concept onemay ask. “Our
ministry has been in constant dialogue
with all the industry players on this
subject. We have hadmany roundtable
discussions with the developers, financial
institutions and various associations
representing the different industry
players involved. After many years of
deliberation,
the cabinet has decided to
implement the BTS systembut
parallel to the current STB
. All parties
should be readywhen the time comes.
However, we will
introduce the BTS
system in stages to allow the
‘institutions’ to gradually get used to
the BTS concept,”
explainedMohamad
Yusoff. Besides, it is alsowhat the
majority of the people want. He adds
however, that theministry is also
encouraging GLCs to pioneer the BTS
10:90 concept. “Research shows that there
are several driving, as well as restraining
forces, in implementing BTS.”
REHDA’S JUSTIFICATION
Rehda president Datuk SeriMichael Yam
explainswhy BTS and STB should be allowed
to co-exist.
Under BTS, developerswill face higher
holding costs in the formof higher interest
as no progressive payment claims can be
made until completion and delivery of
houses. In the STB system, these interest
costs are borne by buyers at end financing
rate of BLR-2% inmost cases. Developers
would have to bear these interest costs
under the BTS system, and at a higher
project financing cost of an average 8%-10%
of which such costswill be passed on to
buyers in the formof higher house prices.
Developerswould face a negative cash
flowscenario for at least 24months for
landed properties and 36months for strata
development and a larger income lapse,
if onewere to take into account the date
of land purchase. Developerswill face a
“lumpy (uneven) income” every 24 to
36months.
The industrywill lose its economies of
scale in terms of costs of buildingmaterials
and services, as average unit per
development will be significantly reduced.
As such, costs of construction and overall
development per unit of housingwould be
much higher under the BTS system
compared to the cost of developing the
same housing type in the same location
under the STB system.
The provision of infrastructure and social
X
X
X
X
facilitiesmay be compromised as
developments will be undertaken in a
much smaller scale, making it either falling
below the threshold of the requirement to
provide such facilities or not feasible for
the development to include such facilities /
infrastructure unless it is priced at much
higher costs. Eventually the BTS system
would cause the industry to backtrack to
development trends of the 1970s, where
pockets of small-sized developments were
undertaken by developers then, without
the need to provide public/social facilities
due to their development sizes.
PEOPLE’S PERSPECTIVE
Once a property lawyer representing
developers, Robert Tan says he thought he
was risk-safe when he bought into a STB
house developed by a public-listed firm.
“I was a victimof shoddyworkmanship,
at jaw-dropping and eye-popping level.
Getting the developer tomake good the
defects, was similar to begging for charity.”
He understands why developers would fight
tooth and nail against the BTS system.
“With STB, developers can use other people’s
money to do business for profits.”
LawKhin Fah, an avid reader of
theSun
wonders why in the world STBwas ever
made the
modus operandi
. “For most goods
we buy, we only pay the full price when the
product is completed/delivered. Why is it
then that whenwe buy a house, wemust pay
progressivelywhile the house is being built?
In property, the developer is using our money
to build and does not have to take risks using
his ownmoney. If the project sales is not
good/viable, the developer can just abandon
the project and the house buyers will be in
big trouble and debt, with no house but a bank
loan to service.” As a house buyer, Law is
willing to paymore with the use of BTS 10:90.
“The only additional cost would be the
interest cost during constructionwhich the
house buyer must bear in any event.”
James Tan, a family and business man,
principal of JTProperties, looks at the system
fromall angles. “I think implementation of the
BTS 10:90 is a good ideamainly because, in
practice, I believe
only a fewdevelopers
can adopt this scheme
, namely the bigger
boys and cash rich developers. This will,
in a way,
protect purchasers from those
developers who abandon their projects
.
The flip side of it is that
most developers
will require bigger financing for their
projects
, especially during the two to three
year construction period … andwill then
probably pass the financial burden onto the
purchasers, causing
the property to
becomemore expensive in the end.”
FLIP SIDE
Tan thinks the conventional method, the
“progressive payment” is better suited
for our local market
. His reason:
“The
risks and costs are shared between the
parties involved (i.e. purchaser,
developer and the bank)
. For a developer,
theywill not need a highworking capital and
will be able to undertake bigger projects.
The risk of the developer abandoning their
project can bemitigated by themhaving to
put up a bondwith a statutory body before
they start a project. The bond amount should
commensurate with the size of the project.
So, if the project does go awry, there will be
some buffer (the bond fund) for someone
else to step into the developer’s shoes to
complete the project.”
Tan asks that we considerMalaysia’s
fairly young population. “About half the
people are below the age of 30. This creates
a tremendous need for housing, especially
in urban areas. (Take PJ for an example, the
population doubles between seven and nine
years.) If the government strictly implements
the BTS system, we would see
a drastic
drop in the number of newhouses in the
offering, leaving the big boys (the rich
few) tomonopolise themarket
which I
think is not very good,” he reasons.
Then again, he adds, “BTS can be a
‘
bubble’ in themaking ... especially for
thosewho are not so disciplined in
managing their finances
; theymay be lured
to attractive offerings thinking that they just
need to put a 10 per cent down, and that when
the project is completed after three years and
things are rosier, they canmake a hefty profit
when they flip (sell) the property. This
creates false hope, demand, price hike ...
something that is not sustainable ... and
at the end of the day, the consumer is the
onewho generally suffers.”
BRDB chairman
Akbar Khan
delivering his
speech during
the firm’s 50th
anniversary event.
PART THREE
Please email your feedback and queries
to:
X
