Bankers and lawyers should know better

BUYING Malaysia property that finally becomes deserted is a excruciating experience for many house buyers. It not only harms purchasers who have lost their hard-earned money but also affects the property industry’s standing which has taken a whipping owing to unethical activities of a small number of culprits.

This is primarily so when the abandoned project is not caused by factors such as economic downturn or withdrawal of purchasers, but exclusively owing to irresponsible people who assert to be “developers” but do not hold a license to do so.

It was of late reported that our Housing and Local Government Ministry has recognized 195 abandoned developments that have no license to operate in our country. I am perplexed as to how these “developers” are able to begin their projects when they do not even possess a license to apply for financing in the event they are required a bridging loan, and is their sales and purchase (S&P) agreement appropriately attested by a lawyer prior to the start  of selling?

In this situation, what can be done and who should take part in minimizing these unlawful developers? Evaluating our existing housing development process would provide us with some ideas.

When a developer plans for a housing project, he must first secure the essential approvals and licenses from the pertinent authorities such as the development order, building plan, advertising permit and developer’s license. The developer then may require to source for a bridging loan from a financial institution and this is followed by hiring the services of lawyers to prepare the legal documents that will include the S&P agreement.

As the project is launched to the market, the developer will oblige the buyers to sign the S&P agreements in order to finalize the purchase. Should the purchaser obtain a housing loan from a bank, the bank will enter the picture to process the loan application submitted by the purchaser. These are the basic procedures involved in developing and marketing a housing project in Malaysia.

 For unlicensed development, the regulatory bodies are not in the picture. In such cases, it becomes obvious that the lawyers and/or bankers, both representing the house purchaser, have a role to play as the first line of defense to safeguard the interest of the purchaser.

Therefore, there are questions that asked for an answer. How is it doable for financial institutions to endorse the end financing loan for a property development in the absence of all or part of the required approvals and licenses? The same questions are posted to lawyers who get ready all the legal documents for unlicensed development.

I suppose everyone has a part in identifying irresponsible players in the industry, particularly the bankers and lawyers with their better access to information and strong regulatory network as compared to the general public. As a purchaser and a customer, you would have anticipated your banker and lawyer to carry out due diligence to guarantee that your interest is not compromised.

In other industries, professional practitioners who do not express the right message and do not look after customers’ interests can be given severe punishment as their action may be construed as negligence, fraud or even criminal breach of trust.

According to the record of National House Buyers Association, in the case of Keng Soon Finance Bhd (1996), a financial institution had approved a loan to an unlicensed developer, and it was decided that the loan and the security offered were invalid. The bank is unable to institute the foreclosure proceedings on the said land and consequently could not recover its loan.

Under our Housing Development Act, a property developer that engages in, carries out or undertakes housing development without a proper license can be subjected to a fine between RM250,000 and RM500,000 or to imprisonment for a term not exceeding five years or both. This is an opportunity to take action against unlicensed developers. While we have the law in place, it is likewise important to make certain that strong enforcement comes along.

For house buyers, you are strongly advised to buy property from reputable developers and to do thorough “shopping” and analysis prior to affixing your signature on the dotted lines. Responsible developers are eager to work hand-in-hand with purchasers and welcome the role of the National House Buyers Association which advocates the protection of house buyers in Malaysia. We should stand jointly as a team to fight against irresponsible developers.

And for anyone of you who believe that you have purchased one of those unlicensed developments as mentioned earlier in the article, it is right time to write and call your banker or lawyer for clarification.