RECENTLY, a friend of mine purchased a house from the secondary market after months of careful deliberation. As he shared the joy of his new property purchase, it was heartening to note that many of his friends were also hunting for properties in both the primary and secondary property markets for investment purpose and/or for their children.
We often see two scenarios when it comes to the purchase of a home. Some favour purchasing a property directly from the developer and others, from the secondary market. Both groups, however, have a common agreement that neither option is right nor wrong since personal preference largely influences the acquisition of a property.
In Malaysia, both primary and secondary property markets offer plenty of choices in terms of property types and range of prices.
Properties from the secondary market are often viewed as ready to be occupied and most purchasers of such properties are generally satisfied with their acquisition based on the principle of “what you see is what you get”.
In fact, secondary properties are very popular in our country. According to statistics published by National Property Information Centre (NAPIC), the total residential property transactions in 2010 was 181,024 units, with 151,862 units transacted in the secondary market, and 29,162 units from the primary market. In short, 84% of the units transacted were completed properties from the secondary market.
On the other hand, newly-built properties bought directly from developers offer a different spectrum altogether. Purchasers of such properties generally look for specific locations or specific project features such as newly-developed areas near to commercial lots or recreational facilities, or projects with innovative elements etc. When buying a property directly from a developer, the purchaser expects to get a good deal compared to secondary market which has factored in price appreciation.
Some may perceive primary property market as containing higher risk as they purchase a property off the plan without seeing the real product. They will only realise their hope when the house is completed and handed over to them. As such, purchasers are advised to always consider the reputation and track records of property developers before making their commitment.
Being able to choose a property from the primary and secondary markets clearly facilitates a healthy environment where house buyers can enjoy the best of both worlds.
It was not surprising that the property development industry was jolted with many questions raised on the build-then-sell (BTS) concept when the Government announced last year that the same would be made mandatory by 2015. An immediate question came to mind ... “Are we ready for just one concept when we currently enjoy a choice?”
At present, almost all newly-built properties would fall under the sell-then-build (STB) concept. Purchasers would pay a 10% deposit or 20% initial payment of the purchase price with the remaining 90% or 80%, as the case may be, mostly financed by mortgage loans provided by banks. Servicing interest or instalment would begin immediately after the banks start to disburse the monies to the developers.
BTS on the other hand is a concept that allows house purchasers to pay the initial 10% deposit and not pay a single cent thereafter until the project is completed and the certificate of fitness is issued. In most cases, the construction period may last up to 3 years.
There are two sides of the coin on when to purchase a BTS concept property. Purchasing early provides the buyer a greater selection of units to choose from and more time to shop for good mortgages. Purchasing near the completion stage, on the other hand, provides the buyer the opportunity to have a physical view of the property (design and quality) and its surroundings (infrastructure, marketability etc). However, if the decision is made too late, the buyer may miss the opportunity to purchase a house from developer, and later has to pay higher price for a unit from the secondary market.
So how does BTS fit in today's picture?
Notwithstanding the difference in the duration to occupy the property (i.e. most “second hand” properties are fit for occupation immediately while newly-built properties have to wait for the certificate of fitness), properties in the secondary market are already adopting the BTS concept. Effectively, the purchaser can occupy the property once the remaining 90% payment is secured by the seller.
No doubt, the Government's move on BTS concept is mooted with good intention to protect consumers from suffering losses as a result of abandoned projects. However, a more holistic assessment of the concept needs to be undertaken before it is made mandatory. For instance, understanding and addressing the causes of abandoned projects whether they are due to economic downturn, inflation, fraud or management know-how, etc, are highly necessary.
As it is, there have been efforts to mitigate this problem in the form of stricter regulatory measures such as imposing hefty fines of between RM250,000 and RM500,000 and harsh jail term not exceeding three years for offences relating to housing abandonment by developers. The banks are required to assess the developers before offering bridging or mortgage loans and greater awareness campaigns highlighted by the media.
With a better understanding of BTS and its existence in today's environment as well as the need to holistically assess the concept before it is made mandatory, we need to ask ourselves again “Do we allow the free market to dictate how the industry should be shaped, such as by having both BTS and STB or just adopting the BTS concept solely?”
Something for everyone to ponder at the beginning of the year.
Datuk Alan Tong is the group chairman of Bukit Kiara Properties, he was the FIABCI world president in 2005-2006 and was recently named Property Man of The Year 2010 by FIABCI Malaysia.
By The Star
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