REGULARS | HBA out actually represents over 10%. Thus for them the new 3% is actually a vast reduction! Compare this to a big project developer whose construction cost is, say, RM20million. The present RM200,000 represents a miserable 1%. Thus, any contention that the 3% will weigh down on the smaller developers is incorrect. The present RM200,000 is flawed because it assumes a “one-sizefit-all” formula where small developers are compelled to wear the “big size” that clearly does not fit them. The introduction of 3% formula is (to an extent and compromised figure) a realistic and a fair figure because the actual deposit sum is dependent on the size of the project. As to whether the new 3% deposit will curb abandonment, our contention is that it will indirectly reduce such incidences. Those developer-aspirants who are financially so weak that they are not able to raise the 3% deposit (it is refundable anyway) should stay out of the industry because the probability of them running into trouble is higher. The increase in the finance cost in order to fork out the 3% deposit is negligible when measured against the potential gross development value (GDV). Further, any additional cost (interests) is only incurred during the construction phase because upon project completion, the 3% is fully refunded by the Controller of Housing. In a small way, it also serves as insurance for the Ministry of Urban Wellbeing, Housing and Local Government to have a source of funding in the event of unforeseen eventualities caused by developers where immediate expenses need to be incurred. The havoc created by abandoned projects and the amount of funds made dormant (and in many cases, written off) is far more devastating and adverse than the amount of funds held in refundable security deposits. Project abandonment cannot be totally prevented but the 3% deposit only acts as proof of commitment, seriousness, financial standing and safety net. The introduction of the pre-requisite 3% deposit can, to a larger degree, assist in revival efforts by the Government compared to the present insignificant RM200,000. The tightening of the housing laws revised in the year 2002 and 2007 has failed to arrest the problem of abandoned housing projects. The statistics speaks for itself. Enforcement needs to be tightened up regardless of the amount of security deposit(s) demanded. The 3% deposit represents only a minute factor in the whole risk equation. HBA has stated that the imposition of 3% is the minimum norm and that the Controller of Housing should be given the discretion to increase this percentage to the proposed 5%, if deemed necessary due to high risk or whatever other reasons. Please note: Part 2 will be continued in the October issue.
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