You or someone you know are looking to buy a brand-new house that is being constructed with the promise of a lifestyle and design concept catered to your needs.
You find the development that interests you and make the necessary upfront payments, secure a loan and wait for the property to be completed according to the date stipulated on the Sales And Purchase Agreement.
Over time, you notice construction beginning to slow down, then the completion date is pushed back and eventually, you realise construction has either stalled or ground to a complete halt.
Why Projects Stall Or Become Abandoned?
A project can stall or completely stop due to various reasons, including:
Reasons a housing project stall or completely stop
1) Financing issues
Failure to secure proper financing and poor financial management by the developer or contractor
2) A mismatch between product offering and a particular location
Inability to understand the market and cater to the needs of people in a particular location
3) Litigations by contractors
Legal battles between the contractor and developer for non-payment, quality of construction and delays
4) Land and squatter matters
Land rights issues between the stakeholders
5) Market conditions
Oversaturated market, inability for buyers to secure loans and low demand in certain areas
6) Legal issues
Commence building or selling units without the prior approvals from related government agencies, workers safety, and misinformation to buyers
7) Dispute among shareholders
Disagreements arising from legal or build and design issues, changes within the company and cash flow problems
What The Law Says And What Can Buyers Do
According to stipulations by the Ministry of Housing and Local Government (KPKT), a housing project in Peninsular Malaysia is deemed abandoned when:
There is no significant construction activity at the site for six consecutive months
The developer is under the control of the Official Receiver
The developer admits in writing to the Housing Controller that it is unable to complete the project
While there may be laws to protect buyers and investors, there are loopholes that allow developers to minimise their loss and avoid being classified as an abandoned project altogether.
They can stop the construction for five months then resume for a month before halting construction again. By doing so, the project is still considered ‘alive’.
Examples Of Abandoned Projects In Malaysia
As of April 2, 2019, there were 1,000 sick projects, or 7% of the total projects nationwide, which had been delayed by more than 60 days.
One of which is The Boss Service Suites, which was touted as a high-rise residential hotel suite development in Klang, Selangor. This project was launched in 2010 and subsequently declared abandoned by mid-2015.
Similarly, homeowners of the 454-unit landed residential project in Taman Lestari Permai, Seri Kembangan, Selangor, were supposed to see the project completed in 2005. However, it was left deserted and listed as an abandoned project in July 2015.
The Selayang Springs Condominium in Selayang, Selangor was left abandoned in April 2014. However, it was recently lifted from being classified as an abandoned project and placed under the list of projects being revived.
Homebuyers suffer the most when projects become abandoned with many forking out their life savings and taking on hefty loans with long tenures to invest in their dream home.
The monthly interest to the bank must be paid up regardless, which puts a mental strain on owners each time.
To add salt to the wound, buyers may need to cough up additional cash so the project can be saved by rescue contractors which are a dime a dozen. This is assuming all buyers and the creditor are in agreement to revive the project.
Rescue Contractors Save The Day
How is a project revived you might ask? This is where rescue contractors or white knight contractors come into play.
They will save and revive ailing or abandoned developments from turning into an eyesore, a hotbed for criminal activity and causing unimaginable loss to buyers.
The Ministry of Works is tasked with monitoring the performance of rescue contractors through the compliance of established criteria.
Other than being free from any ‘sick projects’, rescue contractors should also be free from disciplinary action and maintain excellent performance.
The Government’s Role In The Revival Of Abandoned Projects
To encourage the revival of abandoned projects, the government in its Budget 2021 announcement said it would provide stamp duty exemption for rescuing contractor.
The exemption will cover the stamp duty on the instruments of loan agreements to finance the completion of abandoned housing projects and the instruments of transfer of titles for land and houses affected.
Original home purchasers, on the other hand, will receive stamp duty exemption that covers the instruments of loan agreements for additional financing and instruments of house transfer.
This exemption applies to loan agreements and instruments of transfer executed from Jan 1, 2021, to Dec 31, 2025, for abandoned housing projects certified by the Ministry of Housing and Local Government.
The stamp duty waivers for white knights encourages more contractors to save abandoned units and brings some peace of mind to buyers who have been severely affected.
Conditions To Revive A Project
A particular project can only be revived when the following is met:
At least 50% of its buyers agree to it, or when the total purchase value by purchasers who agree to have the property revived amounts to at least 75% of the project’s Gross Development Value (GDV)
White knights come in and are willing to revive the project. But this may also mean buyers parting with more money to see the completion through
Owners and creditors agree to the revival plans
Safeguard Yourself and Your Future
The best way to safeguard yourself from facing such situations is to:
1) Do Your Homework
Always do your due diligence when making big decisions and look for reputable developers with a good track record.
2) Stay away from dodgy developers
Be aware of blacklisted companies involved in abandoned projects and the names of unlicensed developers. Some unlicensed developers either have no track record or fail to secure financing to complete the job.
3) Pay attention to the APDL
Study advertisements on social media and brochures that are designed to attract buyers with over-the-top promises such as guaranteed rental returns.
Look out for the Advertising Permit & Developer’s Licence (APDL) number on an advertisement which is required by property developers before selling or advertising their projects in the media
The Importance Of Not Stigmatising Abandoned Properties
Abandoned projects don’t just pose a huge problem to buyers, it also affects the surrounding neighbourhood and landscape.
It is a lot harder to rejuvenate these projects than starting new ones as it can be an uphill battle dealing with a host of legal and financial issues.
Building structures will need to be properly inspected and may require a re-design to make it more desirable.
This is where marketing plays a role to attract new prospects in accordance with market trends and considerations around whether people are willing to buy.
Everyone from the government to white knights and property owners needs to come together and play their part.
Their collective effort towards reviving abandoned projects and purchasing renewed projects is key to maintain urbanscapes, generate revenue in the form of assessment for local councils, job creation for contractors and as an investment for our future.
Besides dodgy developer, there are many other pitfalls when buying a home, such as These 8 Tricks That You Should Be Careful When Buying A Home. But fret not, we have prepared a comprehensive list of home-buying guides that can help you become an informed buyer in no time!