Fashionable developer no more...

Chris Tan | TheEdgeProperty.com
Monday, 7 November 2016 08:05:31 AM

For the past decade, it was an “in” thing for anyone who owns a piece of land or who operates his or her own business in a prime location, to claim their “fame” as a property developer. You can observe a trend among many listed companies on Bursa Malaysia making their foray into property development by converting their farm or agriculture land, by vacating the prime land that they are sitting on, or by exploring property joint ventures in all ways possible. Property development is often perceived as a lucrative business and many want a piece of this sumptuous cake. It has certainly captured the imagination of the investing public.

But moving forward, it will not be easy for aspiring property developers. Considering the homebuyer-friendly housing development regime in this country, only those who are cash rich and committed to the industry in the long run would be able to make it. It is good that the government is committed to protecting homebuyers, especially in ensuring that those who are qualified could own their first homes. From preventing abandoned projects to the “build-then-sell” concept and the focus on affordable housing policies over the last few years, the government is doing much to ensure we all have a roof over our heads as Malaysia edges closer to the much-desired developed nation status.

Along the way, the legal regime has been improved in favour of homebuyers. Recognising that strata living is increasingly becoming a way of life for Malaysians, the government is also quick to update and continually improve the regulations on strata building management — establishing the Strata Management Tribunal to manage disputes arising from the strata community.

All these have emerged as new challenges to property developers. The industry is also being regulated through higher compliance on housing developers, raising the entry barrier for aspiring developers. On top of that, more recently, the segment has also been “challenged” by the cautious lending policies of banks. The “competition” between the Federal Government and the various state governments have resulted in conflicting execution of the respective regimes in affordable housing, further complicating the matter for developers.

Hence, property development is only “fashionable” if you are equipped with the right know-how, good cash flow and the readiness to innovate to take on the evolving environment.

In many public forums, I have candidly urged my audience to take selfies with as many housing developers as possible, because over the next few decades, they may just be considered a protected or an endangered species. It is not easy to be a developer today and it will be a survival of the fittest.

The recent outcry in reaction to the Urban Wellbeing, Housing and Local Government Minister Tan Sri Noh Omar’s suggestion to issue the Money Lending Licence to housing development companies to start home purchase financing reveals another prime example of how the public and the authorities view housing developers.

Developers are perceived as the main culprits for housing being largely unaffordable in the main cities today and giving them the license to lend, some say, would further encourage market speculation and place unnecessary burden on genuine homebuyers.

A few facts have to be noted here before we continue. Firstly, the Money Lending Licence has always been issued by the ministry and a handful of Money Lending Licences have already been issued to some property developers within their group of companies. The minister is only stating a fact and highlighting an option, albeit not necessarily the best option.

In addition, homebuyers are only supposed to approach licensed money lenders only after exhausting the banks and financial institutions that offer lower interest rates. The question is: How likely would a loan be granted by a developer to those who have been rejected by banks?

It is a risk assessment for the developers who are in business for profit. However, to give a loan to a risky borrower also shows the developers’ confidence in their products.

The move is definitely not easy to execute and we will not see a housing market driven by the leverage offered by developers as financiers. Cash flow again is the key here and if that is a non-issue, developers might as well consider the less risky option of building first and then sell upon completion.

Compared with buying a house from the secondary market, we must learn to appreciate the functions of housing developers. Developers earn a profit for their services in putting a package together for you to buy a house in the most convenient way.

All the homebuyer needs to do is to commit to the purchase with his or her identification card and deposit payment. The developer has already lined up the bankers and the lawyers to do the rest for you, not to mention the attractive sales packages that offer incentives, upgrades and freebies. Most of these are not possible if you are buying from an individual seller with limited resources and no economy of scale.

The public perception of housing developers can be improved and looking at the many challenges, the next decade might be your last chance to buy from housing developers, so, let’s make the most out of it.

If you have any property-related legal questions for Tan, please go to the Tips section of TheEdgeProperty.com.

Chris Tan is a lawyer, author, speaker and keen observer of real estate locally and abroad. Mainly, he is the founder and now managing partner of Chur Associates.
Disclaimer: The information here does not constitute legal advice. Please seek professional legal advice for your specific needs.

This story first appeared in TheEdgeProperty.com pullout on Nov 4, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free.