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Govt urged to ensure developers shoulder their own debts

 | November 19, 2017

National House Buyers Association calls for a stop to the practice of passing down liabilities to joint management bodies.

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PETALING JAYA: The National House Buyers Association (HBA) has urged the federal government to immediately stop real estate developers from passing down their debts and other liabilities to the joint management bodies (JMB) of strata properties.

Speaking to FMT, HBA secretary-general Chang Kim Loong noted that the government was aware of the practice as was evident when the Minister of Urban Wellbeing, Housing and Local Government spoke last January about JMBs inheriting unpaid electricity and water bills as well as other debts from developers.

He recalled that the minister, Noh Omar, told reporters the government planned to review the Strata Management Act of 2013 (SMA) “to ensure that developers hand over the management of the condominiums and flats with zero liabilities upon completion of their projects”.

Chang assumed that the government would eventually amend the act to outlaw the passing down of debts. But in the meantime, he said, the government should issue a directive to the same effect.

Indeed, he added, a lawyer had pointed out it was already clear in the current law that JMBs shouldn’t inherit developers’ liabilities.

He was referring to lawyer Koh Kean Kang, who was recently interviewed by the Malaysian Reserve.

Under the SMA, when a new strata property is completed, the developer must be responsible for the maintenance of a property and collection of the sinking fund until a JMB is formed by the developer through an AGM.

A sinking fund is for capital expenditures, repairs and paintings which usually come only after several years.

A JMB must be formed not later than 12 months from the date the developer hands over vacant possession to house buyers.

Upon delivering properties to buyers, a developer would typically collect four months’ advance maintenance and sinking fund contribution.

But Chang said new buildings shouldn’t have to “dip into the sinking funds for repairs as any immediate issue should still fall under the responsibility of the developer”.

With the four months’ advanced charges, he said, a developer should have enough money to maintain the property for 12 months.

He added that the onus was on developers to ensure maintenance fees were collected in advance from all homeowners every month.

The problem, he said, was that many developers would either incorrectly forecast the maintenance fees when selling a property or offer buyers free maintenance fees for a year or two years when they couldn’t really afford to do so.

“Under the law, a developer must hand over the keys of a stratified property to the owner within 36 months,” he said. “So the development company must forecast the cost of maintenance and utility charges, which will increase throughout the period it is trying to sell the property.”

Chang advised homeowners to take a proactive role in ensuring that their JMBs do not inherit debts from developers.

He said homeowners could take legal action against developers through the Housing and Strata Management Tribunal if debts and other liabilities were the result of their mismanagement.

“The JMBs must also conduct due diligence on the management accounts before they are handed to them by developers,” he added.

Real Estate and Housing Developers’ Association patron Ng Seing Liong said a fixed cutoff date for a developer to hand over management to a JMB must be determined to prevent complications.

“If a development company loses money maintaining a property, then it has to accept it,” he said. “But if it makes a profit from maintaining the property until it is handed over to the JMB, then it should be allowed to keep that profit. That’s business.”

Ng also said it was “only fair” that arrears owed to the developer by homeowners until the date the JMBs take over should be channelled back to the developer.

In the case of the sinking fund, however, all collected monies must be handed over to the JMB, he added.

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