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New doesn’t mean perfect

Complaint One

“I received the keys to our home and to our dismay, the property had many defects, ranging from minor problems to major misalignment of the walls and beams. The developer is rectifying the minor defects but is not willing to align' the walls or beams that have been placed improperly. How can I have the process for rectification expedited as we have paid in full and are still unable to occupy the house?”

Complaint Two

“The floor tiles in my apartment's living room are not properly fixed. When one walks over them, they give a certain hollow sound. There are at least 30 floor tiles with this problem. Also, the edges of the walls where the tiles meet were not properly done. I submitted a complaint form, but the developer has not done anything to rectify them. Now, it's been almost 12 months, and every time we call to ask about the repair work, they tell us they could not find the right colour tiles. We are told that the only alternative is for us to change all the tiles with the developer only bearing the cost of workmanship!”

OVER the years, the National House Buyers Association (HBA) has recorded thousands of complaints from house buyers who were not satisfied with the condition of their new homes or the way defects were rectified.

The complaints above are just two of them. Construction defects range from complex structural issues, which threaten the integrity of buildings, to simple items relating to aesthetics. After receiving the keys to their houses, the smile on the buyers' face soon fade when they are caught in a situation of getting the multiple defects in their homes rectified satisfactorily.

The new generation of house buyers expects their homes to be defect-free. The quality of houses, which although has improved over the past decade, has not kept pace with buyers' expectations in both design and finishes. There is also a lack of industry quality standards that are compatible with public interest and expectations which has resulted in many disputes over the rectification of defects as developers, contractors and house buyers have different expectations.

Defect Liability Clause

The pre-determined “Defect Liability Clause” in the sale and purchase agreement (SPA) states that the developer is required to repair and make good, at its own cost and expenses, any defects, shrinkage or other faults that become apparent within a period of 18 or 24 calendar months (whichever is applicable) after the delivery of vacant possession and which can be attributed to defective workmanship, materials or a failure to construct the property in accordance with the plan and description appended to the SPA within 30 days of having received written notice from the purchaser.

The second part of the clause states that the purchaser shall, at any time after the expiry of the 30-day notice, notify the developer of the cost of repairing and make good of the said defects by giving the developer a grace period of 14 days.

Essentially, the following is what a buyer has to do if he finds defects in his new home:

a) List all defects in writing; take pictures of them, if possible.

b) Make sure the developer receives the defects list either by registered post or by delivery by hand with acknowledgement of receipt.

If the developer is responsive, he will do rectification work 30 days from the date of receipt. The buyer should go through the list of defects with the developer to discuss the rectification work schedule. He must also be prepared to spend time or appoint someone to be around for the appointed contractors to do their work.

If the developer is unresponsive, get a detailed quotation from a reputable independent contractor for the cost of repairing and making good the defects. Give the developer a second notice and the stipulated 14-day grace period to do the rectification work. The buyer may recover the cost (any sum) of the repair from the developer's stakeholder lawyer after giving written notification to withhold release of the stakeholder sum the 5% of the purchase price as stated in the SPA.

Appoint a building inspector, where necessary

Although the law provides a 18- or 24-month warranty (whichever is applicable) for owners to refer defects to the developers, buyers do not know what to look out for as they don't have the expertise to suss out or foresee inconspicuous defects.

Many are unaware that getting building inspectors to inspect their homes can save them a lot of heartache at the end of the day. By getting these professionals to conduct defect checks, owners will be able to identify problems early and get them rectified before they escalate. They have the trained eye to identify faults disguised by cosmetic improvements, which may be missed by the laymen. Most architects and surveyors double up as building inspectors in Malaysia.

The inspectors, whose fees range from RM500 to RM3,000, will examine a property and submit a report, which includes recommendations for follow-up action. The awareness of the availability of such a service in the country is still low.

Typically, a thorough inspection should pinpoint:

> Structural cracking or deformities on walls, roofs and floors;

> Dampness leading to rotting or unsound structure;

> Damage to timber caused by fungal decay, wood borers, termites or by industrial chemicals;

> Defective plumbing and drainage systems; and

> Superficial repair work.

In addition, some building inspector may even estimate the cost of remedying defects found. Most of the time, their reports are submitted to the Tribunal for Home Buyer Claims when an aggrieved buyer makes a claim for monetary compensation and technical claims. Very often, building inspectors are summoned to the tribunal as an expert witness to challenge developer's rebuttals.

What next?

Besides the legal steps, buyers should band together. Contact neighbours who have similar difficulties in getting defects rectified. You may have more in common than you think. There is power in numbers, and you can share tasks to lighten the load. The main objective is to convince the developer that you are serious in getting the defects rectified properly.

The affected buyers can collectively lodge a complaint with the Enforcement Division of the National Housing Department, Urban Wellbeing, Housing and Local Government Ministry, with the view that it will intervene and subsequently convene a meeting with all the parties concerned. Details of the said Enforcement Division is as follows:

Pengarah

Bahagian Penguatkuasaan

Jabatan Perumahan Negara

Kementerian Perumahan dan Kerajaan Tempatan

Aras 30, No. 51, Persiaran Perdana

Presint 4, Pusat Pentadbiran Kerajaan Persekutuan

62100 Putrajaya

Tel No: 603-8891 4410

email: enforcement@kpkt.gov.my Remember that the quality of construction work in your neighbourhood will affect the property's resale value and possibly your safety. Filing a claim at the Tribunal for Home Buyer Claims

House buyers who are caught in a dispute with their housing developers over non-remedial of defects, shrinkage, defective workmanship or materials or other technical faults are at liberty to file their claims at the Tribunal for Home Buyer Claims (The Housing Tribunal).

The Housing Tribunal was set up as an alternative forum for house buyers to save them the cost and hassle of fighting with housing developers in the civil court. The filing fee is only RM10, no lawyer is required and hearings are normally fixed within a month.

The Housing Tribunal is empowered to hear disputes between house buyers and licensed housing developers 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 to the Urban Wellbeing, Housing and Local Government Ministry vis-vis Tribunal at:

http://www.kpkt.gov.my/kpkt_bi_2013/index.php/pages/view/370

Chang Kim Loong is the honorary secretary-general of the HBA (www.hba.org.my), a non-profit, non-governmental organisation (NGO) manned by volunteers. He is also an NGO councillor at the Subang Jaya Municipal Council. - The Star

Curbs on DIBS may be negative for developers, but little effect on banks

THE potential move to impose curbs on the Developer Interest-Bearing Scheme (DIBS) by Bank Negara may be negative for some developers in the short term and has little effect on banks.

StarBiz had reported that Bank Negara was studying the risks arising from the DIBS, with a view of potentially imposing curbs on it.

Basically, if you purchase property from a developer who offers DIBS financing packages, then the developer would bear the interest for the loan during the construction period.

In other words, you don't have to pay anything to the bank until construction is complete. You only start paying the bank instalments after the property is fully constructed.

DIBS has become a popular and easy financing package offered in joint-promotional activities between banks and developers in recent years.

CIMB Investment Bank Bhd research head Terence Wong said if the move by the central bank were true, then it would be “negative” for developers in the short term, although not entirely unexpected, as speculation on such a move had already surfaced in May.

“Although such a policy would have a negative impact on speculative demand, we believe the impact on earnings would be muted, while creating a healthier property market led more by fundamentals,” he said, adding that he had heard whispers over the past few weeks on the possibility.

“We remain overweight' on the property sector, with Mah Sing Group Bhd as our top pick, and robust sales and earnings growth as sector catalysts. Any weakness in property stocks is an opportunity to accumulate, in our view,” Wong added. Industry players are still awaiting a formal announcement from the central bank, if any.

Mah Sing's group managing director and chief executive Tan Sri Leong Hoy Kum pointed out that there has been no announcement on interest-bearing schemes thus far.

However, he hopes that any implementation would take into consideration the industry's feedback and the current market condition.

In addition, Leong said the lending environment was generally still conducive, with financing liquidity still attractive and interest rates still low.

While Mah Sing offers DIBS packages for some of its projects, it does not offer the scheme for its industrial, commercial and landed residential projects. Hong Leong Investment Bank Research, meanwhile, believes that developers with a high concentration of high-end, high-rise developments such as Eastern & Oriental Bhd would be the most severely affected.

However, it reckoned that other major developers within its coverage would not be as badly affected, given their exposure to this policy shift would comprise less than 50% of their sales.

Kenanga Research analysts said there was market talk that Bank Negara might want to do without the easy financing packages as part of the property lending curb.

However, they say quick checks with developers under their coverage indicated that the developers were not extending this scheme to many projects at the moment, as banks were also discouraging developers from undertaking the scheme because of speculative activities.

“Notably, Hua Yang Bhd's and Crescendo Corp Bhd's projects do not use this scheme, so they would be least affected in terms of demand. So, in terms of fundamentals, it should not hurt demand too much, particularly for the bigger developers.

“It would affect stock sentiment in the short run, so do expect further sell-downs if the curb on DIBS materialises not even the high dividend-yielding ones would be spared,” they opined.

In the medium term, Kenanga Research does not expect prolonged sell-downs, as the Government was already talking about implementing the build-then-sell model, which would restrict future supply and lend strength to demand and larger players such as SP Setia Bhd, Mah Sing,IJM Land Bhd and UEM Sunrise Bhd.

“Currently, our sector is under review. Our existing call is overweight' and we are likely to maintain this, but with a more selective or buy-on-weakness stance. We are likely to continue promoting affordable developers like Hua Yang and Crescendo due to their resilient demand-based profile. We also like Johor-based developers like UEM Sunrise, as we believe there would be more positive news flows towards the year-end, for example, the Malaysia-Singapore Rapid Transit System, the listing of Iskandar Waterfront Holdings Sdn Bhd and more strategic tie-ups,” they added.

Concurrently, Maybank Investment Bank Research said assuming DIBS packages were banned, it estimates the worst-case scenario to be a marginal 0.7 percentage point to be shaved off its 2014 industry loans growth forecast of 10.5% to 9.8%.

“We believe domestic banks have been more tempered in their exposure to the mortgage segment, and channel checks point to limited exposure at this stage. We maintain our industry loan and earnings forecasts for the individual banks for now.

“We remain overweight' on the banking sector, with our buys' beingAMMB Holdings Bhd, RHB Capital Bhd, BIMB Holdings Bhd and Hong Leong Financial Group Bhd,” Maybank said.

It explained that general guidance was that such loans had made up 15%-20% of new mortgage loans over the past few years.

Thus, some dampening effect was to be expected.

“Nevertheless, we believe the impact is likely to be contained by the fact that the housing loan growth of the Big Six' banks has been measured and such loans account for less than 5% of total residential loans for the big banks.” - The Star

Singapore takes further steps to cool property market

Singapore's central bank on Friday introduced rules to ensure that a property buyer's monthly payments do not exceed 60 percent of his income, a move aimed at cooling the housing market and ensuring investors are not caught out by a rise in interest rates.

"The TDSR (total debt servicing ratio) will apply to loans for the purchase of all types of property, loans secured on property, and the re-financing of all such loans," the Monetary Authority of Singapore (MAS) said in a statement.

The new requirement, which takes effect on Saturday, will also help strengthen credit underwriting practices by banks and encourage financial prudence among borrowers, MAS added.

Singapore has been trying to keep a lid on property prices due to low interest rates caused by quantitative easing adopted by Western central banks. The flush liquidity could reverse in coming months, however, amid signs that the U.S. Federal Reserve is preparing to slow down its bond buying programme.

The MAS is probably worried that in the environment of low-interest rates, people are overly gearing themselves up to pay for property," said Kenneth Ng, head of CIMB Research in Singapore.

Singapore's 10-year bond yield has risen by more than a percentage point since the start of the year to around 2.5 percent currently, from around 1.3 percent at the end of 2012, following the upward trend in U.S. yields.

But mortgage rates, which in the AAA-rated city-state are tied to short-term interest rates, have only edged up slightly, with the three-month interbank rate little changed from the start of the year at around 0.4 percent.

Barclays, in a recent report, said Singapore property prices were vulnerable to a sharp rate increase after three years of super-low interest rates when private home prices rose by around 60 percent.

Should mortgage rates rise by 200 basis points within a short period, private residential prices in the city-state could fall by up to a quarter, it said.

Singapore has rules regulating the maximum amount of money banks can lend based on the value of the property.

The new requirements, which tie the loan quantum to income levels, will make it harder for property buyers to avoid additional stamp duty on purchases of second homes since they cannot use a family member's name for subsequent purchases. - Reuters, June 28, 2013. 

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