HBA: Maintain 3% deposit

Chang: The deposit is also to ensure that only developers who have the financial and technical capability are given the work.

KUALA LUMPUR: The Housing and Local Government Ministry has exempted 122 developers from having to pay the requisite 3% deposit of gross construction cost between 2016 and November 2019 when undertaking housing development projects.

Deputy Housing and Local Government Minister Datuk Raja Kamarul Bahrin Shah told the Dewan Rakyat last week that the exemptions were given as an “incentive” to developers to build affordable units priced below RM350,000.

“The government understands that affordable housing segment does not provide high returns to developers. the profit margin is very thin for such projects, ” he said.

The high compliance cost, high labour cost and high land premiums faced by developers were also considered. This prompted the housing minister to exempt developers from having to pay the 3% of estimated construction cost of their respective projects.

Raja Kamarul said for some large-scale developers building a large number of residential units, the 3% deposit may amount to millions of ringgit.

“This will burden developers who need to find financial resources and banking facilities and other resources to cover construction costs.A total 184 exemptions were given between 2016 and November 2019, Raja Kamarul said.

Twenty-one approvals were given in 2016,72 in 2017,48 in 2018. Between January and November 2019,43 exemptions were given, he said.

Raja Kamarul said the government’s affordable housing initiative programme launched by the Federal and State Governments such as PR1MA, Malaysia Civil Servants Housing Programme, RumahWIP under the Federal Territory Ministry were exempted from having to fork out the refundable 3% of gross construction cost.

Developers building affordable units in Perak, Melaka, Johor, Selangor under the Rumah SelangorKu programme as well as PR1MA Pahang were also given the exemption.

Raja Kamarul did not say how many units were involved, nor the ringgit value of the exemptions given.

The National House Buyers Association (HBA) said exempting developers from paying this refundable 3% is short-sighted.

Secretary-general Datuk Chang Kim Loong said neither the affordability of the units nor developer’s profitability be the yardstick.

“Developers must, and should, pay the 3% requisite deposit whether it is affordable units or otherwise. This is to ensure that developers for subsidised housing schemes complete the work on time, and with the quality they are imposed with.

“That 3% rule should even apply to subsidised housing – particularly to subsidised housing – as the government need to ensure developers deliver quality units as scheduled.

“Secondly, the 3% deposit is to ensure that only developers who have the financial and technical capability are given the work.

“Giving them exemption will have repercussions on the housing ministry itself later on. It may be required to jump in when these developers, for whatever reason, fail to deliver. In the end, the buyers of these units suffer, in terms of quality and delivery time, ” he said.

It makes no sense that the Ministry has to incentivise developers this way when at some point down the road, it may be doing itself and buyers of these units a disfavour, he said.

Chang said the ministry can easily check how many such projects have been abandoned, or need to be bailed out by the government.

The required 3% deposit was part of the 2012 amendments to the Housing Development (Control & Licensing) Act, 1966 (HDA). It came into effect in June 2015.

But six months after that, exemptions were given. That 3% replaced the previous one-size-fits-all RM200,000 deposit required of developers.

According to Chang, small developers in small towns whose construction cost is RM2mil or less, the RM200,000 requirement worked out to 10% or more.

Therefore, to them, the 3% of gross construction cost was a vast reduction.

For a developer with many projects, the RM200,000 is a pittance and so the amendment to section 6 (1) (b) of the HDA which resulted in the 3% formula is deemed a realistic and fair, according to Chang.