Star Business – 18th July 2009
Stories by SHANNEN WONG
IT can be extremely frustrating to be at the mercy of property developers who have abandoned their property projects, not least because most of them do not offer any explanation to their house buyers.
When asked, this is the usual excuse provided by developers: “We are temporarily having some minor problems but will revive the project as soon as possible.”
“Soon” unfortunately, more often than not, turns to years of waiting for the victims.
Cashflow problems, demand shortage and budget over run, owing to poor planning by the developer are mainly the causes that lead to projects being abandoned.
But while some abandoned projects are caused by unanticipated market conditions and economic uncertainty, including rise in building materials and labour costs, there are many cases where developers have only themselves to blame.
Industry observers say there are cases where developers have channelled purchasers’ deposit money for personal use while some others deliberately hold back their projects for better resale prices.
There are also instances where developers inflate progress payment claims to draw more money from purchasers and the banks. Observers say this can be done with the help of architects, who are responsible for issuing certificates on the construction progress of the purchased houses, which are then used for progress payment claims.
“As progress payments are disbursed to developers through these certificates, end finance banks can be misled into making excessive payments,” Ernest Cheong PTL Chartered Surveyors property consultant Dr Ernest Cheong tells StarBizWeek.
“Some of these developers end up not using these inflated payments to develop the housing projects,” he says, adding that perhaps they would channel it for some personal investments.
But when these investments sour, the consequences are dire; the developer will not be able to pay the contractors and suppliers and the brakes are then slammed on the construction activities.
“This is what contributes to the problem of rising abandoned housing projects,” he says. But in most cases, the culprit is poor planning and research. Developers that rush into a development without comprehensive market study will most likely find themselves stuck in a project due to poor cashflow.
“They end up facing poor sales due to the mismatch of supply and demand patterns in the project location,” says PPC International Sdn Bhd executive director Thiruselvam Arumugam.
Chan Ai Cheng, the general manager of S.K. Brothers Realty (M) Sdn Bhd, says developers shouldn’t be over ambitious and ought to be realistic.