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Can the developer confiscate your booking fee?

I found my dream house. The developer's office said the project was selling like hot cakes. Sales were on a first come first serve basis' and I must pay a deposit otherwise she would have to give it to someone else. Or was it a booking fee she called it?

I begged her to give me one week. Three days, she said. How very sweet and understanding of her. Bank loan? No problem... 85% loan margin? No problem, she assured me. If I could not get a housing loan I could always cancel and get my money back. I left the developer's office feeling on top of the world. I had secured my dream house by paying the deposit. My dream turned into a nightmare when I could not get a bank loan. I had no choice but to forgo the house.

As if letting go of my dream was not bad enough, the developer now refuses to give me back my deposit. The lady said her hands were tight because it's a management decision. It was not stated in the option letter' or booking form' that my purchase was subject to the loan approval. On reading the terms and conditions in the option letter/booking form, I now realised that all terms were inclined in favour of the developer.

What do I do? I just want my money back. I don't mind if they keep a small sum for cost of paper work and for administrative purposes.

The above scenario is not at all uncommon.

Many house buyers are unaware of lending guidelines requiring loans to be tagged to net income as opposed to gross income. Many find that they are unable to obtain the financing they want and have to withdraw from an intended purchase before the sale and purchase agreement is even signed. The developer then refuses to refund the deposit or booking fee or whatever other payment which may have already been paid.

The unfortunate part about this whole thing is that house buyers do not have the luxury of a learning curve in which they can acquire the necessary skills to avoid getting themselves into trouble. Very often by the time they realised that they have made a mistake, it is already too late and the result can be traumatic and financially crippling.

This very noble and seemingly simple undertaking of buying a house, in a lot of cases, have gone terribly wrong.

Can developers collect booking fee or deposit?

The sale and purchase agreement (Schedule G, H, I or J) as prescribed by the Housing Development (Control and Licensing) Regulations, 1989 (the Housing Regulations) provides very clearly how the purchase price is to be paid. The first 10% is payable immediately upon the signing of the sale and purchase agreement (SPA), not before.

No collection of any payment is allowed before the SPA is signed. Deposit, booking fee, advance payment, administration charges are just some of terms used by some devious developers in their vain attempts to circumvent or contract out of the Housing Regulations and to confuse, mislead and convince nave house buyers especially the first-timers.

Collection of any payment by a housing developer before the signing of the SPA is an offence. This is very clear under the Housing Regulations and it does not matter what the developer calls it.

The Housing Regulation 11(2) stated: “No housing developer shall collect any payment by whatever name called except as prescribed by the contract of sale”. (In this context' contract of sale means the SPA)

Commission of such an offence under the Housing Regulations means that the developer in question can be prosecuted, fined and/or even imprisoned under Regulations 13. Even those persons who knowingly and willfully aids, abets, counsel, procures or commands the commission of such an offence shall be liable to be punished.

Prosecution, however, is in the hands of the public prosecutor whose action or non-action the house buyers are not able to dictate. House buyers and indeed the general public are of course at liberty to lodge a complaint against any developer in breach of any housing laws. Such complaints can be lodged with the Enforcement Division of the Ministry of Housing and Local Government: www.kpkt.gov.my

The law as regards non-payment before the signing of the SPA is very clear and house buyers are strongly urged to understand the law and not be misled by some cunning, unscrupulous developers or their smooth talking sales representatives who either do not know the law or simply do not care about the law.

Profit orientated developers care about nothing but profit. The more they sell the more they gain. They engage marketing commission agents and sales representatives whose only mission is to sell. In their quest to sell their products, some unprincipled commission agents (secondary markets included), who are untruthful will not hesitate to mislead, conveniently telling “white lies” and make empty promises to make a quick buck. Some are so well trained in the art of selling they can probably sell sand to the man in the desert.

Ever wondered why the sales office told you there are only five units left but three months later there are more than 10 units still available? Did the developer's office tell you the unit you want is already booked but called you two days later to congratulate you because the same unit has just become available? Ever gone to a developer's office in the hope of getting the “Early Bird Discount” advertised the day before only to find that the project was launched more than a year ago?

Filing a claim for refund

Free gifts, rebates, and waivers of this or that are also fairly commonly seen and are often stated to be for a limited time only. House buyers hurry to meet the deadline. Three months later the same advertisement appears, again for a limited time only or perhaps extended due to popular demand. Gimmicks of “Free legal fees” offer but you must use the developer's panel lawyers are commonly marketed.

The list of marketing ploys used by developers and their marketing alliance goes on and unscrupulous developers and real estate agents are not likely to stop trying to exploit vulnerable house buyers any time soon. House buyers must therefore be very wary and not be easily swayed by promises made by the developer's office.

House buyers who are already caught in tussles with housing developers over refund of booking fee or deposit are at liberty to file their claims at the Tribunal for Homebuyer Claims (the Housing Tribunal). The Housing Tribunal was set up as an alternative forum for house buyers to save them the costs and hassle of fighting with housing developers in the civil courts.

The filing fee is only RM10; no lawyers are required and hearings are normally fixed within a month. The Housing Tribunal is empowered to hear disputes between house buyers and licensed housing developers even though the SPA is yet to be signed but the claims must be filed within the time frames provided under section 16N of the Housing Development (Control & Licensing) Act 1966 (the HDA). Check out the link: www.kpkt.gov.my TTPR

Can the developer forfeit such payment?

Where booking fee or deposit or any other payment is collected by the developer before the SPA is signed, the house buyer would normally have been asked to sign a document indicating the house/apartment/condominium he/she is interested and agreeing to sign the SPA within a certain time frame, say 7 or 10 days or upon notice from the developer. This document may be in the form of an option letter, letter of offer, sales proforma, booking form or another document by whatever name the developer chooses to call it, all in an attempt to disguise a collection prohibited by law.

The amount varies and in some cases it is as much as 2% of the purchase price RM10,000 for a RM500,000 house. When the house buyer decides to withdraw from the intended purchase, the developer refuses to refund the deposit, or was it booking fee, or was it ...?

Chang Kim Loong is the honorary secretary-general of the National House Buyers Association: www.hba.org.my, a non-profit, non-governmental organisation manned by volunteers. He is also a NGO councillor at the Subang Jaya Municipality Council. - The Star

Investment clubs thrive in rising property market

AN author and property seminar speaker who declined to be named says property investment clubs thrive in a rising property market. They have been rather quiet this year compared to the flurry of activities the last two to three years because developer's cost is going up, which results in prices going up too, but not as steeply as before.

“It could also be the general election but I can say there is a pent-up demand building up the last three months. Even foreigners will be coming into the market when things get clearer (after the general election),” he says.

He does not call his following a club but a group of people coming together to exchange information based on a common interest, which is property investment.

He has been giving talks for many years and is an investor himself, which is why he is able to impart information from his experiences.

“If I come across a good project, I will share this information. I will tell them the good and bad points about it and they make their own decisions,” he says.

There are five to 10 active clubs today.

He says people participate in property talks because they want to make profitable investments.

When they pay to attend these talks, they automatically become members which pave the way for them to enter into bulk purchases that come with a discount.

He says he sometimes get a commission from developers for introducing students to a project 3% for a landed unit and 1.5% for a condominium from the developer. There are different business models and his comes from the impartation of information. The commission is a bonus.

Some market the seminar cheap in order to get as many participants as possible to collect data.

Another is the pooling of financial resources in order to buy into a project, exit together when the price goes up and split the profits.

Essentially, clubs are popular because bulk buying allow members to get a better deal. They are able to get information first hand.

“Negotiations are done before the property is launched. Clubs approach developers to take up multiple units, sometimes up to a third of the project. It makes sense to developers who want to sell their units as fast as possible.”

Because property investment involves a huge outlay and risks, participants want these risks minimised and they view coming together as an advantage. Risks come in many forms developer, product type (residential, shoplot, serviced apartments) and design type, location and the ability to get bank loan.

While there may be advantages coming together, there are also downside to bulk buying.

There was a case where 200 units of apartments, with prices averaging RM300,000, entered the market. The units were sold to members at RM350,000 a unit, and they were told that they would get a 10% discount, at RM315,000. But the RM15,000 went to the person who introduced the members.

He says there are many gullible people out there and after the first or two profitable investments, they buy the subsequent ones based on trust.

“Although research has been done for them, they need to do their own homework,” he says. - The Star

Not enough sizeable launches due to wait-and-see stand by developers

DOES the general election affect the property sector?

Yes, it does, as with most other sectors.

Probably the most obvious one is putting launches on hold by developers, and buyers adopting a wait-and-see stand, say property consultants and property professionals.

For those who need a house, they will not be so much affected by the elections as they will need a roof over their heads. For investors, they may prefer to let the dust settle.

It is under this scenario a lack of sizeable launches that some property investors/investment clubs are today offering unsold units to their “members”, say Adzman Shah Mohd Ariffin.

Adzman, chairman of the Property Management Valuation & Estate Agency (surveying division) of the Royal Institution of Surveyors Malaysia says: “Because there is not enough stock that offer early bird' discounts and discounts from bulk purchases, these property investment clubs are looking at projects which were launched two years ago. They are selling these to their members.”

Adzman is concerned that some of these club members, or investors, may end up buying properties which developers are trying to unload.

“These investors, or club members, are then left holding properties which they are unable to rent out,” he says.

Adzman says property clubs are not new. They are modified versions of Western models to suit a Malaysian audience with participants automatically become club members on paying a fee to attend talks organised by these “specialists”.

They have a certain amount of charisma, speak well and are very convincing, say property professionals.

Their life-line is a double-digit property boom, as in the last couple of years between 2009 and 2011. Because property prices are consolidating today, these clubs are less active than before, but they are around, offering their members properties in Nilai and other less popular locations.

Adzman says: “People look at it as something legal to invest in.” These clubs, with a charismatic principal driving them, were most prolific between 2009 and 2011. They offered to help interested parties to “ride the property wave” in order to become “millionaire landlords” by buying multiple properties in an easy credit environment.

Some of these “property gurus” are also prolific authors.

Participants are charged a fee to attend a talk which may last from a full day to several full-day sessions. Fees may range from a few hundred ringgit to up to RM10,000.

Says one of these gurus: “When you have made RM100,000 on a previous property investment, RM10,000 does not seem like a lot to pay.”

CH Williams Talhar & Wong managing director Foo Gee Jen says changes in lending rules, a lack of new stock and gradual, sustainable price increases make participating in these clubs less attractive.

“There was a lack of investment instruments then, which prompted many to jump on the (property) bandwagon. Another reason was the steep price in property prices. Because they were buying in a group, they were given certain bulk discounts, early bird discounts and preferential treatment,” says Foo.

“When times are good, you will surely make money. There is such a thing as the probability factor,” he says. There is also the herd mentality. Their confidence gets a huge boost when they act in a group.

Foo says buying a property is always a long-term investment, whereas the objective of members are short-term gains. Some of these clubs buy into a project as a group, and exit as a group. The question is, what if the market turns?

“The fundamental issue is yield, actual demand and not just value creation, that is, buying with the aim that the price will go up,” he says.

Foo says these gurus are making money both ways, from the developers and from the members. They charge a fee for the classes, and are given a commission by developers when they sell to their members.

“There is obviously a conflict of interest. Who are their principals? The members or the developers? Who are they accountable to? Whose interest are they representing? These are questions the people must ask.”

He says the Kuala Lumpur market is quite unlike Singapore, London or New York. Hot as Kota Damansara or Puchong may be, how many of these units, be it condominiums or serviced apartments or shoplots, are actually occupied.

“Have did we come to the stage where a four-storey shop is built only to have the ground floor occupied? Investors must look at these facts,” he says.

The same principle applies in locations such as Bangsar and Ampang Hilir. The fact that there are so many unlit units at night should be warning signs. Foo says it is the herd mentality which is driving people to such forms of “investments”. He likens it to musical chairs. When one out of 10 is left without a chair, the casuality factor is 10%. But when it comes to two fighting for a chair, the risk or casualty factor rises to 50%.

“When the market becomes saturated, the risk increases,” he says.

The operations of these clubs vary greatly.

Some clubs offer a project which is yet to be launched and attached an early bird and a bulk purchase discount, which together can come up to 10% of the property price.

Upon completion of the property, they do a “killing”. When they sell upon getting the keys, they get an average of at least 20% of the launch price. Because they have already got early bird and bulk discount, they may make a clean 30% profit.

Adzman cautions that what goes up must surely come down. He says although there are certain areas that are popular, sales have been rather challenging the last six months or so. Both Foo and Adzman say the authorities should regulate such clubs.

Siders Sittampalam, managing director of PPC International Sdn Bhd, says with the market slightly overheated, many of these investors will not see capital appreciation as much as they did in 2010 and 2011. The returns will not justify long-term holding. While Foo and Adzman are of the view the authorities should step in, Siders advocates a free market. - The Star