Your Property Developer Abandons The Project: What Can Be Done?

If the property developer suddenly decides to up and disappear, there are 3 things which may happen: you can terminate your Sale and Purchase Agreement, obtain a full refund, or have the developer prosecuted.
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For those living, commuting, or working in the Klang Valley – you can probably recall an abandoned development or two which you pass by everyday. 

These eyesores are everywhere throughout Selangor’s skyline. But, what if they’re not just another abandoned project? What if you had bought a unit in one of these projects?

This is especially risky with the (albeit, slowly-improving) norm of developers advertising under a Sell-Then-Build concept.

This concept is attractive not only to buyers who get to enjoy exclusive early bird rates, but also to the developers themselves as they'll have a cash flow to enable them to go through with the project.

But, what if the developer never goes through with the project, and you become yet ANOTHER unfortunate victim of an abandoned property? 

It’s not all gloomy days ahead. Below are a few actions you can take, in case this sort of incident were to happen to you!

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1) You Can Terminate Your Sale And Purchase Agreement (SPA)

As with most other laws which fall under housing, you're protected by the Housing Development (Control and Licensing) Act 1966, or more commonly known as "HDA 1966".

The main passage which you should be referring to (if you end up in a situation where your property is abandoned by the developer) is Section 8A. Here’s what it states:

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What this essentially means is that you as the buyer, DO have the right to terminate your Sale and Purchase Agreement (SPA).

This is permissible only if there's no progress on the project for a continuous period of six months from the SPA’s execution date. 

On top of that, there are two other requirements:

  • You must obtain written consent from the bank you applied your loan from.
  • You must receive certification from the Housing Controller that the developer has refused to carry out/delayed/suspended/ceased work for a continuous period of six months or more from the SPA’s execution date.

This is one of the HDA’s new updated provisions which came into effect in 2015. Before this, trying to terminate your SPA involved a long and arduous journey.

First, you were required to gather the written consent of at least 75% of other homebuyers who had also entered the SPA, then write in to the Ministry of Housing and Local Government for approval to terminate the SPA.

With this new amendment in place, there’s no need to go through all the effort of assembling a small army to go after the developer.

 

2) You Can Get A Full Refund From The Developer 

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It’s also stated under section 8a (3) that if you chose to terminate your Sale and Purchase Agreement for this reason, the developer has to refund you in full within 30 days – and free of any interest!

 

3) The Developer Can Be Prosecuted 

Other than section 8A, buyers are also protected under section 18A of the HDA (check it out below).

Having this new section in place means that charges can finally be held against housing developers who abandon their projects.

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Basically, housing developers who abandon their projects will be fined anywhere between RM250,000 to RM500,000, or face imprisonment for up to 3 years, or both!

 

Homebuyers: Better Stay Vigilant!

Despite having these new laws in place which are supposed to protect us, why is it that instances like this still happen?

In the case linked above, victims of an abandoned residential project in Serendah were informed by the authorities that the development cannot be regarded as having been abandoned.

This is because the licence of the contractor is “dead”. This means it can only be categorised as a “late” development. Other loopholes can be found as well.

While it’s stated that buyers have the right to terminate the Sale and Purchase Agreement should there be no progress for a continuous six months, what some unscrupulous developers may do is perform minor work on the project on every sixth month, and repeat the cycle for many years.

This provision only applies to residential developments as well, and doesn’t protect commercial developments under its wing.

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On the bright side, it was recently ruled that the Housing Controller has no power to grant extension of time to property developers. 

This is important because if you recall, one of the requirements necessary before you’re allowed to terminate your SPA is certification from the Housing Controller.

It has to state that the developer has refused to carry out/delayed/suspended/ceased work for a continuous period of six months or more from the SPA’s execution date.

 

Tips To Prevent Becoming A Victim Of An Abandoned Project 

  • Avoid Sell-then-Build (STB) schemes. Instead, opt for Build-then-Sell (BTS) concepts. One popular one is the Build-then-Sell 90:10, where buyers pay the deposit of 10% upfront, and the remaining 90% only when the house is ready. 
  • Do some research and make sure you find out these things about a developer before buying from them.
  • Know which developers are blacklisted by the Malaysian Ministry of Housing and Local Government. Here are some of the developers you should avoid in 2020, and why they’re blacklisted.

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The lesson we can gather is that prevention is always better than cure, and as homebuyers we ought to be smart in our purchasing decisions to avoid developing our own victim story!

If you want to know which are some of the safe developers to buy your new property from, check out these Top 10 Property Developers In Malaysia!

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