City&Country: Revisiting the build-then-sell concept

Both the government and local housing industry have been looking at implementing the build-then-sell (BTS) concept as a means of solving the issue of abandoned projects, but the question is, is Malaysia ready for it?

Datuk Teo Chiang Kok, director of See Hoy Chan Holdings Group — the developer of Bandar Utama — says BTS will place a very heavy financial burden on developers and bankers. “For this system to be adopted, all parties — from the approving authorities and financiers to professionals and homebuyers — must be contractually committed to deliver their responsibilities on time. The respective parties must also be prepared to shoulder the penalties and financial losses arising from delays caused by them.

“The banks must be willing and ready to provide adequate loans to fund the construction without onerous conditions and non-commercial terms.”

Sam C S Tan, a member of Rehda Youth and executive director of Ken Holdings Bhd, says cash flow management is the major factor for property developers in implementing BTS. “For any business to function properly, cash flow is the ultimate consideration. Even if a project is highly profitable, without sufficient cash flow it is akin to sitting in a car with insufficient petrol for you to get to the destination where the pot of gold is waiting for you. You may be able to see that pot of gold down the road, but with no petrol [cash flow], you will never reach it.

“Most developers are unable to finance the entire cash-intensive project by themselves.”
Both men agree that most developers may not be ready for a pure form of BTS yet.

“I think the majority of developers and the Malaysian public are not there yet. We must remember that the developers only play the role of conductor of an orchestra that is made up of many stakeholders — the banks, purchasers, local governments, contractors, suppliers and so on. It is an industry where everything needs to grow in balance. There is still a strong demand for housing and as our country grows, this demand will only increase,” Tan explains.

Teo agrees. He says, “As our nation is still in a developing phase with a large young population requiring many more homes, and due to the many cross-subsidies currently imposed on the housing industry, BTS will not be able to deliver the homes both in quantity and affordability.”

Kevin Lam, the head of personal financial services at United Overseas Bank (Malaysia) Bhd, believes BTS will help protect the consumer but the wider implications of this have to be carefully considered if it is to truly benefit the public at large.

Until BTS has been fully introduced and implemented, there is no way of truly knowing what the outcome of such a move will be, he adds. “Some developers are already implementing BTS and when sales are very poor, the developer can only hope for the best and carry on.”

Teo, Tan and Lam will elaborate on their views at the panel discussion on “Build-then-sell: The impact on property prices” at The Edge Investment Forum on Real Estate 2011, titled “Buy, Sell or Hold?”, on April 9 at the Sime Darby Convention Centre in Kuala Lumpur.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 852, Apr 4-10, 2011