Buying Home: Booking Fees

Can the developer confiscate your booking fee?
by Chang Kim Loong, Star Property.my

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.

Make Sure Your Developer is Licensed

Plight of kampung land owners
by Chang Kim Loong, Star Property.my

ABOUT two years ago, an English daily highlighted the plight of land owners who had entered into joint ventures with unlicensed developers to build houses on their (home owners’) land.

Most of these deals involved land in the kampung (or villages). When these partnerships turned soured and were subsequently highlighted in the press, the Housing Ministry warned it was going to catch these businessmen, most of whom were small-time developers out to make a quick buck.

However, until today, no action seems to have been taken on these errant developers while the victims continue in their miseries and financial nightmares due to abandoned projects and botched joint ventures.

The Housing Ministry had warned that it was going to catch many businessmen, even small-time ones, as it was going to make it a requirement that all those who wished to develop a housing estate of only five houses should get a developer’s licence.

The Ministry seems rather proud of its wide-ranging powers and had a swooping determination (to weed out these unlicensed developers). It is really unfortunate nothing seems to have come out of that incident.

Swarms of entrepreneurs of the kampung variety, and some city slickers too, had invaded the countryside, and signed on owners of kampung land on the promise of turning them (the land owners) into developers. The wish was to turn idle kampung land into properly-built houses to sell to kampung people, usually by having joint ventures with the land owners.

“Give me your land to develop and I will give you X number of houses, and I shall take Y number of houses for my troubles; no cost to you, no hassles with government servants, no bank loans; no worries at all.” The current deal is 30:70; 30 % for the land proprietor and 70% for the housing developer.

Tricks of the trade

Kampung people as usual were wary; they were not going to buy till the project had got under way, and the proof to them was to give at least a house to the land owner and an enormous upfront deposit as the most convincing evidence of the developer’s sincerity. Perhaps, an upfront RM500,000 would be an ideal bait.

Firstly, said the developer, he needed the money to start building the land owners’ houses so it was not difficult to persuade them to charge their lands for the purpose. The other houses will have to wait including mine, said the developer most sweetly: no risk there you see, the land is still yours.

The developer then left for the city to apply for his licence which required the payment of a deposit to the Housing Ministry, and, of course, there were other payments to be made to various parties in the Government and arrangements had to be made with a construction company; all of which helped to collect the loan money from the land-owner-chargor.

However, the developer has not been heard from for some time now. The land owner/ would-be kampung entrepreneur/chargor went to the Housing Ministry to complain and demanded action to be taken and he was confident this will be done. You see, he knows the wakil rakyat.

Alas, said the legal officer to the kampong man: “So sorry, you had dealt with a person who has no license to be a developer. Under the law, we have no powers to prosecute an unlicensed developer who has abandoned the project.”

“Take action against him (the housing developer) for not having a licence; he has done all that a developer does including (entering into) contracts with intending purchasers and collecting deposits from them. There are at least 10 of them,” said the kampung man.

It is said, “the law is an ass” or that seems how we have made it out to be.

What the Housing Ministry’s legal officer could not bring himself to say is that the legal officers had tied their own hands by adopting a strange, restrictive reading of the law that to qualify as a housing developer, he should have undertaken to build and actually sell, at least, five houses, and to the legal officers it meant producing at least that number of house buyers to testify that they had indeed bought houses from a bogus housing developer!

The sale and purchase agreements and other documentary evidence and the evidence even of the developer’s own staff do not constitute evidence; the developer must plead guilty or there must be at least five buyers coming forward to give evidence; till then there is going to be no legal action against the bogus housing developer.

A request made by the Housing Ministry to the Bar Council for its advice on the professional liability of solicitors who act for unlicensed developers, sent more than a year ago, is still under consideration. At the latest count, there were at least 115 law firms, according to the records of the Housing Ministry, who did not seem to care to find out if their developer-clients were licensed or not.

The irony is it does not seem to matter whether the developer is licensed or not; they all abandon their projects with impunity.

Sadly, most of the lands in the rural areas are Malay Reserve Land which come under greater protection from the state but the banks are now gearing up to foreclose the only wealth the would-be kampung entrepreneur ever had, and had intended to bequeath to his children the way he had inherited it, coming from nenek moyang days.

Cry of the naive victims

Now, where do we go from here when the very people who initiated the housing laws shun their responsibilities? Shouldn’t buyers from unlicensed housing developers have the same protection as those buying from licensed ones? Where are the rescue plans for the naive victims of these Malay Reserve Land? Mind you, there are mostly current and retired civil servants.

Note: It has been two years since the list of the unlicensed housing developers has been unearthed.

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