The Concept Of Sell Then Build

The Concept Of address Then Build caparison commercialise place play an all-important(prenominal) role in economy of Malaysia. The demand on accommodate market increasing year by year since the push-down list of Malaysia is increasing. Undoubtedly, buyers nowadays buy a house is non unaccompanied for monetary backing use, only also for investment use. This criterion cases the living accommodations market suffer larger than to begin with. In addition, home-buyers who give skill nowadays also control a forest house for their living place.To support the large market, the developers mould as a key role to supply the large procedure of living accommodations require and high quality houses. on that pointfore, accommodate obstetrical tar arrangement plays an important role to supply the houses to home-buyers. Currently, there atomic number 18 two important lodgment delivery dodge considered in Malaysia that is STB formation and BTS governance.The develo pers in Malaysia had employ the conventional STB dodge for many decades, and with this strategy, developers successful to meet the lodgment market leaded. However, there is no brass stinker be implemented perfectly without any flaws. According to the caparison provision performance in five years of Malaysian plan, it shows that the public and private sectors deport over-supplying the houses needed by using STB dodge. Furthermore, the badly performance of supplying the caparison have risen during the economic downswing and the cast out trade union movements conkred in 1980s and betimes 1990s had make the home-buyers disappointed with this situation. Thus, regimen had inaugural time introduced give-then-sell (BTS) ashes to be implemented in 1990 to solve the abandoned hold problem.However, many of the developers claim that BTS scheme still not feasible to implement in Malaysia hold sector. From developers viewpoint, many considerations need to be considered s uch as the praise of training carry through, pecuniary supports, firm characteristic and others in instruction execution of a suimesa housing delivery dust.The Concept of transfer-Then-Build (STB) formationIn Malaysia, just about of the developers prefer to arrogate STB system as the housing delivery system in their discipline. With STB system, the developer is set asideed to collect strait-lacedty from potential home-buyers in advance the houses being constructed. The money collected from home-buyers backside use as part of the compensates for the discipline. at that placefore, the developers back tooth reduce the bridging finance borrowed from swan or financial institution.Under STB system, house-buyers considered as one of the financiers to a information advise since they part-finance the face woo of the project via individual end- funding dupeed from a financial institution (end-financier). On the other hand, the developer whitethorn flummox a bridg ing finance from financial institution (bridge-financier) to bridge-finance the construction appeal paid out pending receipt of progressive honorarium from the end-financiers.There be two chief(prenominal) purposes for a pre-sale condition. First, a pre-sale demonstrates a sure level of saleability for the information. With the STB theory, the developers can sell the houses first out front they construct the housing projects. Therefore, the developers can estimates the recite of houses needed to construct in a housing project. Second, with the pre-sale, it can minimise the bridging finance required to fund the cost of expiration in berth the developers fails to achieve advertise sales after(prenominal) the disbursement of the bridging finance(The Association of Banks in Malaysia, 2009). With the STB conception, the developer can minimise the possibility to receive detriment.The Problems confront by Conventional Sell-Then-Build formSTB system had been implemented fo r four decades in Malaysia and had met the target needed in housing market. However, the carrying out of STB system has operate a few(prenominal) housing problems which caused by human-being. These problems have caused many home-buyers disappointed with the housing market. Under STB system, the home-buyers face with numerous problems such as defect problems, deep delivery, difficulties in getting surety Fitness for Occupation (chief financial officer) and land titles acclamation, and abandoned projects.The latest few years, many home-buyers have complained that the poor quality of houses make by developers. There argon many houses construct down the stairs STB system faced with the bad defects such as walls and floors cracking, foundation sinking, roof leaking, retaining walls collapsing, unhealthful tank not working and pipes blocking (Property Times, 2005). This situation whitethorn occur since the money had been collected from home-buyers by developers during construct ion period. The unethical developers go out translate to jerry- spend a penny the houses to gain more profit. Their irresponsibility behaviour make the bad defects occurred and they fountain from the responsibility after they have collect all money. As we get along that, down the stairs STB system, the un- make houses atomic number 18 sold to potential home-buyers by showing with a model house. However, there is a risk raise since the workmanship and design of veridical house unit built by developers may be contrary with the model house.Additionally, the problem of late delivery of houses is always happened on a lower floor STB system. Although the developers had promised to have it off the houses on the specific date stated in sales and bargain for (SP) Agreement, but the completion of the houses is always delayed from the date promised (Ng, 2007). This problem is keep occurred and make the home-buyers puzzled. Again, the difficulty to get CFO and land titles panegyri c have make the home-buyers disappointed with the insufficient supply of housing units.The worsened housing problem under STB system is the abandoned project. Since the developers can law fully sold the un-built houses to home-buyers and collect money from them before construction finish, there is a risk that the developers hunt down off with the money before the houses were accurate. National lodgment vendees Association Malaysia (2006) revealed that, the developers abandon their projects when they have sold al to the highest degree all the houses. The table be crushed had been shown the abandoned project occurred from 1990 until 31st May 2009.From the table 2.1, we can know that, there atomic number 18 5,484 home-buyers became the victims of abandoned projects. From developers viewpoint, the abandoned projects are solo a small number from essence housing education projects and not a serious problem. However, the home-buyers as victims need to bear a sinister of money lo ss and disappointed with the housing market in Malaysia. everywhere the years, there is insufficient supply of housing units which have affected some home-buyers. Therefore, the governance is trying to find a solution to solve these problems. As a result, regimen had proposed to implement BTS system in Malaysia to avoid these problems raised again and again.The Concept of Build-Then-Sell SystemThe concept of BTS system is definitely various with the concept of STB system. STB system allows the developers to sell the house units before they built and obtain the money from home-buyers to fund construction or secure bridge financing through joint venture arrangements with banks (Nor Aini Yusof, 2009). This may give chance to some(prenominal) developers managed to get away from completing their projects with few financial consequences at the put down of unsuspecting home-buyers.Under STB system, many home-buyers complaints about shoddy workmanship, late delivery of houses and aban doned projects, therefore, the government introduced four initiatives, which let in the establishment of a impudently One Stop Centre (OSC) at local authorities, the Issuance of Certificate of Completion and Compliance ( 300) by professionals is introduced to replace the CFO and BTS system (INTAN, 2007).The concept of BTS system is the developers must ended a housing project before they can sell it to the home-buyers (The Star, 2007). Therefore, the developers cannot collect the money from home-buyers before they complete the housing project under BTS system. The risks of housing victimisation are shared amid developers and their totaling banks only(prenominal). Therefore, fewer developers necessitate BTS system compared to STB system since only developers with abstain(a) financial support are able to implement it. The housing projects that are built and marketed by using BTS system need not be with the statutory standard SP agreements.As disaccordence with STB system, the BTS system allows the developer does not receive progressive honorarium from end-financiers as STB system. In order for the increase project to work successful, the developer need borrow higher financing from the bridge-financier to finance the project. Hence, the bank has to play an important role by providing bridging finance for the construction be and this impart increase the risk exposure of the financial institution. Generally, the banks prefer to lend loan to individual purchasers in many smaller parcels instead of impart it all to the developer in one parcel. Therefore, it is difficult for the new started companies which do not have necessary track record to convince the bank to post them with the financing to do it in the new BTS system.It is believed that the new concept volition give some impacts on the current financing practices involving the type of financial resources such as end finance and bridge finance, and the parties involved in development project are d evelopers and bankers. It is also believed that the BTS system will set off a great impact on the developers and the whole property pains since there is only the bridging finance to fund the construction activities.In Malaysia, BTS system is not a totally alien system since a few financially strong developers with developments in prime locations have implement the full complement BTS system. There are two main types of BTS system, which include complete BTS and partial(p) derivative BTS. The complete BTS is the developer retraces the house and sells when completed cardinal or CFO, there is no prior agreement as STB system, therefore, the developer entitle to sell at market damage at the time of completion. On the other hand, the partial BTS is a housing delivery system which combined both BTS and STB. For partial BTS, the SP agreement is signed before the construction start and developer can collects a authoritative percentage as initial fee during the SP agreement being si gned. The relief of the houses price will be paid after completion with CCC or CFO. The partial BTS can be 1090, 2080 or 3070, the percentage of partial BTS is depend on the developer.The government is more concern to 1090 BTS compare to other partial BTS. In fact, 1090 system is still a Sell first then Build model since the houses are still not yet to be build at the time signing of SP agreement. However, if the developer fails to complete the project and cause the abandoned project for whatever reasons, the buyers are protect from any disastrous fallout. This option is introduced by Ministry of Housing and Local political science (MHLG) in which the 10% deposit is paid to the lawyers as down honorarium upon signing the SP agreement and the sale is locked-in while the balance is payable after the completion of CCC or CFO.The S shineholders in Build-Then Sell SystemThe reciprocation of S wareholder means that the individuals or groups who are involved or affected both directly or indirectly by a system or program (Atkinson et al, 1997). Hence, the s exitholders of BTS system include individuals or groups whose interests or quality of sprightliness affected by the decision to apply BTS. This impacts received by those people either positively or forbidly. The stakeholders in BTS system include housing developers, home-buyers, financial institutions, government, professional bodies and social activists. The details of those stakeholders are shown as bow 2.2.StakeholdersDescriptionsDeveloperDeveloper is an entrepreneur. They can identify the need for a crabbed property yield and is willing to take risk to produce it for a profit.Background of developer may be in building, estate agency, calculateing, finance, law, c atomic pilehes designerure or business management.They are involved in the real process of development.Some of the developers have total responsibility for the management of every lay out of a development. Whereas others are abandoned a la rge amount of responsibility to a project manager, retaining a more strategic indemnity role.Financial institutionsDevelopers interpretk a number of funds to secure the full measure of equity return from development projects. Therefore, the financial institution plays an important role to finance the projects.Such financial institutions become active developers in their own right are more often than not a function of the prevailing general investment climate and the particular performance of the property market.According to Datuk Seri Ong Ka Ting, under BTS system, banks need to make some commitment towards providing suitable funding to projects.Professional bodiesArchitectThe architect plays a role to critical to the development process.Architect will translate the concept or idea of developer into a workable and attractive solution.Several study elements in the development process such as the acquisition of mean commendation, the design of the building and the control of the building contract are fully concerned by the architect.To conform the developers do not run away with the bridge finance, architect need to prepare a report of development stage by stage to bank for bank to release money.EngineersThere are several engineer involve in the construction process of the development project. They working closely with the architect and combine to ensure that the plans are structurally and that the mechanical systems will service the building effectively.The engineers involved in a development projects include structural engineer, geotechnical engineer, mechanical and electrical engineer or building function engineer and environmental engineer. touchstone surveyorThe meter surveyor is in charge with the task of cost analysis and cost control.Quantity surveyor included in the initial design deliberations and financial appraisal.SolicitorThe services of a solicitor in the property development process include acquisition through the various stages of planni ng thanksgiving, contracts for construction, to eventual sale or leasing sidestep 2.2 Stakeholders in Build-Then-Sell SystemThe Issues of Build-Then-Sell System in MalaysiaSince there are a large number of abandoned projects caused by the economic downturn and developers financial inadequacy, the government introduced the implementation of BTS system. BTS system has been studied over outgoing two decades. In early 1981, the implementation of the BTS system proposed by the partnership of Malaysian Consumer Association (Zulkilfli Abdul Ghani, 2004). A decade later, Dr. Ting Chew Peh, the then-Minister of Housing and Local Government, called for implementation of BTS in 1991.There are a lot of benefits to implement BTS system compare to STB system. First, when the developer adopts BTS system, the home-buyers have the chance to see built housing units. The home-buyers also can spot the weaknesses of the houses built and the interest of the home-buyers are protected. Home-buyer prefe rs to gauge quality of the house rather than simply betting on such issues based on a coloured brochure. Since the home-buyers can see the houses first before they decide to buy it, so the quality of the houses built is guaranteed.The government endorsed BTS in 1996 which reflected in the 7th Malaysian Plan in Dewan Rakyat by previous-Prime Minister Dr. Mahathir Mohamad (New Strait Times, 1999). However, this is only a small attribute of developers adopt the BTS system. Hence, the government asseverateed incentives to the developers who apply either BTS or 1090 system. The incentives include the fast-track approval for BTS projects, a waiver of the RM 200,000 deposit for a housing developers evidence and an resistance from the low-cost house construction quota.There are some affords have been done by government to support BTS system. First, the government has expanding the role of the current OSC. With the surviveing of OSC, the development applications process become at the s ame time and systematically via a committee headed by council presidents and made up of other technical department officers. In addition, the other impetuses include replacing the CFO with professionally issued CCC, drafting of a Building and Common Property motivate 2007 to ensure a better maintenance and management of stratified properties and waiving of the license deposit for developers who opt for the BTS system. The incentives offered to developers include the reduction of up to four months for the touch on of development proposals and the option for developers to replace the quota to build low-cost homes with medium-cost homes.According to preliminary Prime Minister Tun Abdullah Badawi (2007), the approvals for selected projects such as BTS, high impact projects, government and foreign investors would be shorter than other projects. The time taken to approve projects for those selected projects will be slashed from five years to six months. In addition, CCC will replace C FO to avoid delays. However, under the CCC system, sure professionals like architects and engineers are authorized to approve buildings for vacant possession. Although professional will managed the issuance of CCC, the local authorities will continue to monitor the construction to ensure it is done according to regulations.In 2007, the government announced that the implementation of BTS and STB can be adopted parallel at the same time. Since the developer can choose whether to adopt the new BTS concept or the STB concept, therefore only a few developers have taken the governments offered incentives to implement BTS system. The developer prefer STB system rather than BTS system because developers are more familiar with STB system which has been safe for over 50 years in Malaysia and developers did not want to take risk on the new system. Additionally, most of the developers are still indecipherable with the application of incentives offered by government.Under the STB system, some professional misconduct was believed to take to the housing industrys problems. For instance, a dishonest architect will approve project progress although the specifications do not achieved by developers. Again, many lawyers prepare their documents during the pre-construction stage and will simply walk away if the project has been abandoned. To avoid these problems occurred, most of the professional bodies believed that the BTS or 1090 system would minimize the industrys problems and suffice boost the housing industry.Although the BTS concept can protects home-buyers from being stuck in case a development project is abandoned, but it cannot avoid a development project from being abandoned in the first place. The risks of property development would still exist with or without the BTS system. This is because the risks associated with property development may cause by other factors such as increases in project costs, main contractors capacity and regulatory issues which can affect w hether the project can be completed or not.According to Datuk Eddy Chen (2007), the immediate historic president of REHDA, there is no need to change the BTS system or its 1090 variant since the abandoned projects are only a small portion of the millions of housing units which successfully built. However, the abandoned houses are no small matter for those home-buyers who need to pay off loans for units they will not see.From a home-buyers viewpoint, they are willing to pay a slightly price for a house as long as they are secure a high-quality house. Many people will be satisfied if they are given the chance to see and examine the completed house before deciding to buy it. Therefore, the home-buyers can combine either the BTS or 1090 system which can reduce their risk when buying a house.According to Datuk seri Kong Cho Ha (2009), the Housing and Local Government Minister, the full BTS system would not be feasible adopted in Malaysia un little the projects are held in a hot area s uch as Bandar Utama. In our country, only a small amount of developers have the financial capacity to take the high risk of adopting the BTS system and the few financial institutions willing to finance a BTS project because it is risky. Therefore, it is quite hard to let all stakeholders accept the full BTS system since nobody can promise the sales of the completed houses and the return of projects. Most of the developers and financial institutions are not dare to take the risk especially in this economy downturn period.The Comparison of prep Approval Process of Build-Then-Sell System and Sell-Then-Build SystemNowadays, the approval for application of planning is preceded through OSC which will be more effective and efficient than before. To assist the developers to implement BTS system, the approval of application of planning will be approve through the fast lane at heart 4 months. The planning approval will be prior given to the developer who adopts BTS system. If the developme nt located in spite of appearance the location that has local planning, the approval of planning will be obtained within 67 days (2 months and 7 days). Besides, the developer who adopts STB system will obtain the approval of application of planning within 6 months. The time used in the planning approval is differs for BTS and STB system. The flowchart of application for proposal development for BTS system and STB system are shown in Figure 2.1 and Figure 2.2.Figure 2.1 flow sheet of Concurrent Application for intent Development within 4 Months(Source guidebook Improving the tar System Procedure and Process of Development scheme and effectuation of One-Stop Centre (Second Edition), MHLG)Figure 2.2 Flowchart of Concurrent Application for Proposal Development within 6 Months(Source Guidebook Improving the Delivery System Procedure and Process of Development Proposal and Implementation of One-Stop Centre (Second Edition), MHLG)A new set of Standard SP Agreements needs to be set up for the 1090 system. In fact, 1090 system is a combination of STB system and BTS system. There are no much different from STB system in the development process and the SP Agreements. To a better appreciation of the various existing sale transaction and the payment systems for the different types of purchase, Table 2.3 is shown the comparison on the delivery systems.DetailsCompleted PropertiesSell-Then-Build SystemBuild-Then-Sell System1090 breakment SystemOn the signing of exchange buy AgreementPay 10% of purchase pricePay 10% of Purchase PriceNonePay 10% of Purchase PriceWaiting period for Completion of Construction Notice of Delivery of lazy self-denialNoneWithin 24 or 36 months or more upon Architects Certification of CompletionWithin 24 or 36 months or more upon Architects Certification of Completion*Within 24 or 36 months or more upon Architects Certification of CompletionBuyer to complete payments3 months from holiday resort age (in normal situation)Progressive p ayment system in percentage (3rd Schedule)(from first 10% payment or SPA Date) while waiting for completion of constructionFull payment of Purchase Price at 24 or 36 months from SPADate depending on the regulated contract of sale90% of Purchase Price at 24 or 36 months from SPA Date depending on the regulated contract of saleWaiting period for actual occupation with Certificate of Fitness for Occupation (CFO)NoneWithin 14 days from Vacant Possession or longer depending on Developers architect to procure the issuance of CFOProposed Vacant Possession with CFO*Proposed Vacant Possession with CFOWaiting period for transfer of individual/strata titlesVaries on whether titles have been issued at the time of signing of SPAVaries from developer to developerProposed Vacant Possession with issuance of titles*Proposed Vacant Possession with issuance of titlesTable 2.3 Comparison on the housing delivery system(Source National Housing Buyers Association)The Advantages of Adoption of Build-Then S ell SystemTo encourage developers adopt BTS system as their housing delivery system, government has offered many incentives for the developers who adopt BTS system. Hence, the developers can enjoy the advantages while adopt the BTS system. In the process of planning approval, the departments involved will give anteriority to the developers who adopt BTS system. Therefore, the developers that implement BTS system will obtain approval of development faster than the developers who adopt STB system. They can obtain the approval through fast track of four months while the other will obtain the approval in six months.The other incentives offered include option to build medium-low cost or medium cost houses to replace the low cost houses, exemption from RM200,000 of license fee and SPA enable developer to obtain financing. In housing development, the developers are required to build low cost houses which the requirements are differ from state to state. However, the developers who adopt BT S system can replace the low cost houses by medium-low cost houses or medium cost houses. This offer allow the developer earn more money compare with the development which need to build low cost houses. Additionally, the developers are exempted from RM200,000 for license fee if they implement BTS system. Therefore, the developers economise RM200,000 and use it to finance the housing project. Most of the developers claim that they are ineffective to support BTS system because it is hard to borrow money from bank. Therefore, the government introduces 1090 system which the SP Agreement can be signed before construction stage. With the SP Agreement, the developer can obtain 10% deposits from home-buyers for their development.In fact, the BTS system has establish a lot of advantages to home-buyers. With the implementation of BTS system, the home-buyers can view the complete houses first before they paid the entire payment. Therefore, home-buyers no need to worry the developers run awa y with the money before complete the houses. Again, the home-buyers are allow to pay the houses price after the houses completed, it is less financial burden to the home-buyers during the construction stage. In BTS development, the SP Agreement gives the legal protection to the home-buyers on price guarantee.Since the developers need to complete the houses before sell to home-buyers, the quality and workmanship of the development will be enhanced. If the quality of houses is bad, the complete houses cannot sell out and the developers will sustain the loss of bad quality houses. In the past, the developers adopt STB system as their housing delivery system and there are many houses had a lot of defects and poor workmanship. Some of the developers are dishonest and use low quality materials to build the houses to earn more money. Under BTS system, if a developer builds a low quality house, the home-buyer can decide do not buy it without sustain any loss. Therefore, the quality of house s will be enhanced under BTS system.In addition, developers are required to be more professional and responsible. Under the implementation of BTS system, only the genuine developers will involve in the development field. Since the developers need to sustain most of the development cost during construction stage under BTS system, therefore incapable developers not dare to adopt BTS system. Hence, only developers who has ability and strong in financial will adopt BTS system to build quality houses for home-buyers. This can make the home-buyers increase their confidence in development sector and the market of property can be increased.The implementation of BTS system can reduce the abandoned projects in Malaysia. The main reason that BTS system can reduce abandoned house is unable developers will not involve in development which adopt BTS system as housing delivery system. In the past, some of the developers are unable to continue the development during construction stage. This situati on cause the abandoned houses exist especially during economic downturn period. Moreover, the developers who have no intention of completing their housing projects will be ridded from the housing development which adopt BTS system. The developers only can obtain financial support from financial institution during the construction stage, they have no chance to run away with the payment made by home-buyers. If the developers have no intention to complete the projects, they will lose capital worn out(p) in the housing project.The home-buyers no need to worry when they buy a house under BTS system. This is because the developers will build good quality houses and build according to the specifications in the brochure. Additionally, the certificate of fitness is obtained before home-buyers make the payment for the house, therefore they no need to worry about being cheated by developer when they buy the houses under BTS system. Therefore, the BTS system should be implemented without any f urther delay to protect home-buyers interests and active property market.The Problems Faced in The Implementation of Build-Then-Sell SystemThe BTS system is a new concept in housing delivery system for stakeholders in Malaysia, so there are less implement mechanisms and policies in Malaysia to expedite the implementation of BTS system (Nor Aini Yusof, 2009). Majority of the developers chance that the government is also not very clear with the concept of BTS system because the government has simply introduce the idea of BTS system without prepare a proper mechanisms for implementation of BTS system. For an example, MLHG prepared the guidelines for 1090 model only, but did not prepare the guidelines for other model. The stakeholders have argued that the government should prepare proper procedures and guidelines for all BTS variants but not only for 1090 system. Again, the policy makers include the central government, state government and local authorities should sustain to promote B TS implementation and address administrative and procedural issues to smooth the performance of BTS system.Moreover, the government offer the incentives for developers who implement full BTS system or 1090 system only. These incentives will not help to encourage developers to adopt other BTS model and the developers will prefer to adopt STB system under this scenario. Although the government offer the incentives to motivate developers to implement BTS system, however there is negative response to the incentives. The incentives are not attractive enough to influence developers in adopting BTS because the unclear procedures and uncertainty of application process make the developers feel that the incentives were not worth for them to apply. Therefore, the government should address the procedures and application process clearly and offer the incentives to those developers who implement other BTS variant.Another problem faced by developers who adopt BTS system is a proper monitoring sys tem does not exist in Malaysia. Many parties claim th