HBA: Beware the Advertised 10:90 Connotation

Of late, there have been a few housing developers who have advertised that the sales of their product is based on the 10:90 mode of payment. It entices potential house buyers by saying that all they need is to pay 10 per cent upon signing the Sales and Purchase Agreement (SPA). A particular one boldly states that house buyers make no payment until vacant possession of the said houses! One even went as far as advertising the mode of payment as 5:95! The connotation in both these advertisements is that buyers do not make any progressive payments until the houses are completed and ready for vacant possession.

Both the advertised schemes of payments are nothing more than loan packages. Although the advertisement states “no payment until vacant possession,” in reality the buyers’ housing loans are used to pay the developers as they construct the houses. It is based exactly on the current Sell-then-Build (‘STB’) or progressive payment formula. This formula has gotten so many house buyers into trouble when the houses they bought were abandoned by the developers!

The only difference in the advertised system is that the interests towards the progressive payments are shouldered, absorbed and borne by the developers. Buyers still have to secure their end-financing housing loans as soon as they sign the SPA. Buyers are still responsible to the banks and financial institutions for the loans whether the houses are delivered or not. This is far different from the real Build-then-Sell (BTS) variant, a 10:90 system put in place and encouraged by the government, whereby the buyers truly do not make any payment, save and except the deposit of 10 per cent, until vacant possession because the end financing loans do not kick in until the houses are completed with all the certifications obtained and keys with vacant possession are available.

It is a far safer mode of buying houses and this is precisely why the Government is encouraging it and furthermore, is offering incentives to developers who opt to adopt this mode of selling their products. But it fell short of compelling the industry to adopt this BTS variant 10:90 system.

The vital difference between the advertised 10:90 system and the government encouraged BTS 10:90 is that, in the advertised 10:90 system, should the developer abandon the project (for whatever reason), buyers are left with a partially disbursed housing loan to settle. The amount varies in accordance with the amount of disbursements made. The primary borrower is still the buyer and it is the sole responsibility of the borrower/buyer to continue with the proper conduct of his loan from the financiers. Banks have not been known to be sympathetic to victims of abandoned projects. The loans still have to be settled, house or no house! This is the predicament presently faced by tens of thousands of naïve and innocent buyers when the houses that they have bought were abandoned by their developers.

Thus, the various advertisements for 10:90 or 5:95 or 0:100 are merely marketing tools and are not the same as the BTS variant 10:90 system that was put in place under the Housing Act and Regulations. These advertisements are open to misunderstanding. In this soft market period in the housing industry, it is natural that more and more innovative sales strategies will come in. We are not in opposition to that but we are of the stand that advertisements should not have any element of misrepresentation or misconception and should not give rise to misunderstanding.

The Housing Ministry’s Licensing Department should also take a close and serious scrutiny at the contents of such advertisements in their brochures’ before granting them Sales & Advertisements Permits. To allow such advertisements is an injustice to naïve and innocent first-time potential house buyers. Please be reminded that all developers’ marketing material and brochures have to obtain the prior approval and consent from the ‘Bahagian Perlesenan’ of the Ministry of Housing & Local Government. Has the Ministry erred in their duty for those advertisements that have escaped their attention or did they too not manage to spot the difference?

We would like to categorically state that we are by no means implying that the advertised project is likely to be abandoned. This article is aimed only to inform potential buyers on the differences between the advertised 10:90 mode of purchase vis-à-vis the government encouraged BTS variant 10:90 system. Be an informed buyer to make a wise decision.

How to Spot the Differences?
On the side of caution, the buyer needs to check if he has bought into a STB 10:90 loan package scheme or a BTS 10:90 variant scheme. The differences between the two schemes are already explained above. An easy way to know what he has bought is to refer to the SPA. In the housing aspect, if the contract is a Schedule H or Schedule G, the scheme is STB. If the contract is a Schedule I or Schedule J, the scheme is BTS 10:90 variant.

NATIONAL HOUSE BUYERS ASSOCIATION [HBA]No. 31, Level 3, Jalan Barat, Off Jalan Imbi, 55100, Kuala LumpurTel: 03-2142 2225 012- 334 5676 Fax: 03-22601803