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1. We refer to the press release by the housing and local government minister where it says that it plans to study a South Korean model where house buyers need to contribute a certain percentage of property purchase price to a pool that will be used to revive abandon projects.

2. This is the most unwise idea to date from the minister to prevent abandoned housing projects. The proposed idea will have the following consequences.

    a. Developers will factor in the cost to the fund into the purchase which will result in higher increase in house prices that purchasers have to bear.

 

    b. It encourages developers to do the projects halfway and walk away and the abandoned projects will be the the headache of the minister and will go through the process of rehabilitation.

 

3. This is certainly not the way to go. What is required is to prevent abandoned projects by ensuring that property developer remains financially solvent to complete the project.

Solvency measures can be put in place and tracked by the minister. Failure to maintain a certain solvency margin, should end up with the principal officer and board members to be fined heavily.

 

4. Such a system is not new. It has been used by Bank Negara Malaysia (BNM) to ensure that people has the peace of mind to place money in the banks or buy insurance in this country.

BNM maintain simple measures to ensure that companies remains financially solvent and all the consumers are protected. Why can’t BNM adopt such measures. Similar measures are used in many countries around the world.

5. Some recommended measures include:

   a. Companies are discouraged to form a RM2 project development company. If they insist then they must maintain a paid up capital that is proportionate to the size of the project launch. This paid up capital cannot be utilised until project is completed.

   b. Companies are required to maintain certain amount solvency that takes into account the total assets, cash unencumbered properties that are tied to the project they undertake.

This means that as projects are completed, they can release their capital for other projects. It encourages developers to launch projects in big scale but build a small portion at a time.

 

6. Our approach has always been towards finding practical and low cost solution. In our approach, there isn’t any need to spend tax money ministry officers to travel to South Korea. It is very much doable. It does not require an act of Parliament but using the existing power of the minister.

It raises a lot of questions why the minister chose not to do it. Our repeated requests to seek an audience with the minister has met with a cold shoulder. The minister has no time for NGOs that represent the public interest but has a lot of time for Rehda.


DR MOHAMED RAFICK KHAN ABDUL RAHMAN is president of Victims Malaysia (Abandoned Buildings Owners Malaysia).

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