REAL LEGAL . . . By CHRIS TAN
A month into the need of prior consent for “four units or more” bulk purchasing of residential properties from developers, there are still no guidelines or a formal circular issued by the relevant ministry on the matter.
Officials are still in the dark and inquiries have been passed around. There is also confusion in the media reports whether there is a need to get consent, give notice or register. Clarification and confirmation would certainly ease compliance and provide certainty craved by all stakeholders.
If you are unaware of the limitation on bulk purchasing, the Urban Wellbeing, Housing and Local Government minister Datuk Abdul Rahman Dahlan on Feb 18 announced that developers selling more than four units of their properties to a single buyer or group must now obtain prior approval from the Controller of Housing.
The aim for this May 15 implementation according to the minister is to curb the collective purchase of real estate for subsequent flipping at a higher price for easy profit, especially towards arrangements between developers and the increasingly popular Property Investors Club (PIC).
PIC is a group of motivated purchasers who collectively bargain with the developer to buy in numbers at a favourable price and terms. Such sales are not unique to PIC only as it is also common for the highly liquid institutional investors.
While strata high-rise development offers affordable pricing for homeowners, the same low entry point is even more appealing to the cash-rich investors.
The passing of the budgeted marketing costs from the developers to the PIC is a given and it is further sweetened by relieving the developers of the hassle of selling.
The resulting perception of high demand with the right PR campaign would also ensure a beeline for the balance units while the developers enjoyed the eye-grabbing headlines of instant successes. This eventually makes way for the developers to sell units in subsequent phases at higher price and the members of the PIC who have bought the earlier phase benefiting an instant appreciation of their already favourable “early bird” property price.
While bulk purchasing by PIC with the intent of flipping and crowding out genuine purchasers is unhealthy, the same modus operandi could be replicated to benefit the genuine homeowners to get a better deal through the simple idea of collective bargaining.
In many ways, affordable housing schemes driven by Syarikat Perumahan Negara as well as PR1MA works on the same basis with government intervention to match the willing developers with genuine homebuyers in the effort to house a young population.
Thus, is the implementation of a “four units or more” limitation an effective measure to put a full stop to property speculation?
The sales and purchase agreement (SPA) is executed between the developer and the members of the PIC. Taking a strict approach of the minister’s speech, the PIC is not obliged to obtain consent from the Controller of Housing as it will not be shown on the SPA that they have bulk purchased the units and go on distributing to individual member to buy fewer than four units.
Even if the PIC are obliged to purchase the units before transferring the same to the members, there are ways to circumvent the limitation such as assigning three units each to their agents or members or employees where no consent will be needed.
Besides that, such limitation would be inconvenient for the genuine purchaser who has the capacity to purchase more than four units from the developer. Without a clear procedural timeframe, the genuine purchaser may face a long waiting period for the consent.
In such a situation, a purchaser is stuck with the developer for a bulk number of units whereby the developer may then prefer to sell the units to individuals rather than one bulk purchaser. International investors would also turn away from investing in an en-bloc purchases in Malaysia.
It is also unfair for parents who intend to buy property for each and every of their children within the same development when the interest rate and purchase price is good.
A handful measures are already in place to protect the genuine local purchasers and curb speculation. This includes the restrictions on the developer interest bearing scheme (DIBS), the financing of net purchase price by the financial institutions, the limitation on foreigner purchase and the transparency in property transactions.
While there is an official statement from the ministry on DIBS and policy has been amended in certain states for foreign purchase’s threshold, there is still a lot of uncertainity on the procedural guidelines on how the ministry is going to enforce the implementation.
Furthermore the developers and financiers are troubled with doubts and are already struggling to adapt to these new rulings while the minister had introduced this new limitation on bulk purchase of property.
The handling of this issue highlights a fundamental concern beyond curbing the housing crisis. It is important that such measures are well thought of and deliberated within the ministry involving all stakeholders.
Many a times, the public tends to start speculating of a rumour like it is the gospel “truth”. A minister’s speech is different from policy of the ministry as well as the law of the country.The resulting uncertainties would affect the country greatly as the business community cannot react appropriately.
Chris Tan is the founder and managing partner of Chur Associates