More projects fall sick

Sticking out like a sore thumb: The abandoned Boss Service Suites project is hard to miss when travelling along Jalan Batu Tiga Lama, Klang. – Photo: KK SHAM/The Star

SELANGOR has the most number of abandoned or “sick” housing projects based on statistics released by the National Housing Department as at Oct 21, 2022.

According to the Housing and Local Government Ministry, a “sick” housing project is one that has been delayed by more than 30% of its scheduled process or where the sale and purchase agreement (SPA) has lapsed.

There are 387 “sick” projects in the country. Out of this number, the department listed 73 in Selangor with 14,774 units involving 7,423 buyers.

Selangor also has 62 delayed projects comprising 9,842 units and affecting 6,496 buyers.

Despite holding pole position with the most number of “sick” housing projects in the country, statistics further show that in the same period 674 housing projects with 134,007 units were launched in Selangor involving 59,710 buyers.

Overall, there are 816 licensed housing projects in the state.

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In Peninsular Malaysia within the same period, the department identified 3,020 projects licensed by the ministry but only 2,444 projects were launched.

In comparison to figures in March 2020 when the Covid-19 pandemic hit, there were 3,541 licensed projects, 2,831 launched projects and 365 sick projects in Peninsular Malaysia.

“This shows a marginal decline in the number of licensed projects and launched projects today.

“This means that the rate of projects becoming problematic spiked despite a fall in total licensed and launched developments,” said National House Buyers Association (HBA) honourary secretary-general Datuk Chang Kim Loong.

“With 387 ‘sick’ projects against 2,444 launched projects, it indicates that the fate of nearly 16% of house buyers is determined by errant developers.

“Hence for every 100 housing projects launched, 16 projects are diagnosed as ‘sick’.”

According to statistics, there are 56 “sick” high-rise strata projects involving both private and government developers including Syarikat Perumahan Negara Bhd (SPNB) and PR1MA Corp Malaysia as at Nov 15, 2022.

“There may also be other government-linked housing agencies under different entities such as Rumahwip (Federal Territories Affordable Housing Project) where developers and contractors create separate legal entities for each project undertaken although these may not be indicated in the statistics,” said Chang.

Selangor and Johor have the most number of “sick” high-rise strata projects at 13 followed by the Federal Territory at 11.

The data also shows that there are three ailing landed strata housing projects in Selangor.

However, in the last few years, there have been reports of white knight property developers stepping up to rescue some of the abandoned development in Selangor especially in Klang.

Last year, Selangor housing, urban well-being and entrepreneur development committee chairman Rodziah Ismail in a StarMetro report said that Klang topped the list with 39 abandoned projects, Kuala Langat was second with 20 and Hulu Langat in third place with 13.

As at Sept 30, statistics reveal 10 “sick” housing projects involving 3,914 units and 2,685 buyers in Selangor which are in the process of being revived.

Covid-19’s role in situation?

On whether the statistics are an accurate reflection of the crisis, Chang said the Covid-19 pandemic and various movement control orders in 2020 and 2021 affected the economy including the housing sector.

“In fact, the housing market and broader property sector had been weak even before the first MCO was imposed on March 18, 2020.

“The Covid-19 pandemic was a global event which brought difficulties to all economic sectors.

“Most of these housing projects were launched before the pandemic and developers had not expected their projects to be forestalled by the pandemic, disrupting supply chains and manpower,” he said.

But what is causing the increase in “sick” residential projects?

Chang cited a news portal report earlier this year stating that the main cause was financial constraints that developers had faced during the pandemic.

“The report also cited poor management, rising building material cost, lack of manpower and unsuitable locations.

“Citing unsuitable locations is a poor excuse. Pandemic or not, the project location does not change.

“When a developer embarks on a project, it would have done its costing with regards to building materials and the timeline on completing the project as well as feasibility and viability studies,” he added.

Look for completed units

Chang said the number of “sick” housing projects in the country was reflective of some developers over-promising and under-delivering in situations beyond their control although most of these projects started construction before the pandemic.

“One property consultant has advised that if there is a need to buy a house, buy a completed unit which you can see and touch. Do not buy off-plan (buying a property based on plans that are available for inspection).

“His rationale is that some developers want to make as much sale possible.

“Many people buy units off-plan because of the many incentives offered by developers but these are just sales gimmicks. It is important not to fall into the ‘getting the best choice, the best floor or the best view,” he added.

In contrast, when people buy completed units, Chang said they could see the plus points and negative aspects.

“You know more or less what you are going to get,” he added.

Effects on buyers

House buyers of abandoned properties run the risk of owing banks the amount that is drawn down and paid to rogue developers.

“They have to continue servicing partially drawn down housing loans or risk being blacklisted by Bank Negara and the banking system.

“House buyers renting homes also have to keep paying rent resulting in emotional stress and financial constraints for them.

“On the other hand, banks suffer when the borrowers cannot service their housing loans. Worse still, the uncompleted houses have zero cash-able value,” he said.

Chang said banks suffered more as they were in possession of collateral parcels of land (where houses are built) that could have multiple charge holders.

“It becomes virtually impossible to cash out to recover the banks’ expenses,” he said.

Proposal for risk mitigation

Selangor has the bulk of abandoned housing problems due to massive development taking place in the state.

National Association for Abandoned Property Owners (Victims) chairman Dr Mohamed Rafick Khan Abdul Rahman said 52,000 house buyers nationwide were still affected by delayed, problematic or abandoned housing issues.

He said Victims had submitted a proposal on solutions to address problematic projects brought on by cash flow issues including a suggestion for a pre-SPA contract.

“With this approach, the number of potential house buyers becoming victims reduces tremendously. This is part of a risk mitigation strategy. The paper is with the department for its consideration,” he said.

“With this proposal, we hope developers will have generated enough sales before starting construction. Financial problem faced by developers is the biggest cause of abandoned housing projects,” he said, adding others were due to technical issues on site and cheating.

Watch out for StarMetro’s second story on the details of the proposal soon.