Monday, December 24, 2012

House-buyers beware of DIBS

By CHANG KIM LOONG, starproperty.my

 OF late, there have been a few housing developers who proudly advertise that the sales of their product are offered are with “interests payment borne by developers”. Such schemes are known as DIBS, that is developers’ interest-bearing scheme.

A particular one even boldly states that house-buyers make no payment until due vacant possession of the said houses.

It entices potential house-buyers that all they need is to pay the requisite downpayment of 10% upon signing the sales and purchase agreement (SPA) and the balance thereof will be financed by their panel banks/financial institutions.

Some even have the audacity to equate the same with the 10:90 concept of built-then-sell (BTS). One even goes as far as to advertise the mode of payment as 5:95 model. The connotations in all these advertisements are that buyers do not make any progressive payments until the houses are completed and ready for vacant possession.

All these advertised “schemes” of payments are nothing more than loan packages. Although the advertisement states “no payment until vacant possession”, in reality the buyers’ loans are “locked-in” with panel banks/financial institutions and hence, 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 got so many house-buyers into trouble when the houses they buy are 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. BTS 10:90 model

This is far different from the real BTS 10:90 concept put in place and encouraged by the Government, whereby the buyers truly do not make any payment except for the deposit of 10% 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 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 10:90 concept currently. However, the Housing and Local Government Minister has reiterated that the BTS 10:90 will be made mandatory by 2015.

Vital differences

The vital difference between the advertised DIBS abbreviation and the government-encouraged BTS 10:90 is that, in the advertised DIBS or 10:90 or 5:95 model, 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 buyers and that it is the sole responsibility of the borrowers/buyers 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 nave and innocent buyers when the houses that they had bought were abandoned by their developers.

Don’t think for a minute that the financier will write off the loan payable by the borrower/buyer.

Thus, the various advertisements for DIBS abbreviation or 10:90 or 5:95 or 0:100 connotations are merely marketing tools and are not the same as the BTS 10:90 concept that is put in place under the Housing Development (Control and Licensing) Act and Regulations.

These advertisements are open to misunderstanding and confusion. In this period of soft market in the housing industry, it is natural that more and more innovative sales strategy 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 and confusion.

Housing Ministry to be vigilant

The Housing Ministry’s Licensing Department should also take a close look at the contents of such advertisements before granting them sales and advertisement permits.

To allow such advertisements is injustice to nave and innocent first-time house-buyers.

Has the ministry erred in allowing those advertisements or did it not manage to spot the difference?

I would like to categorically state that I’m 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 DIBS or 10:90 or 5:95 or 0:100 mode of purchase vis-vis the government-encouraged BTS 10:90 concept.

Be an informed buyer and empower yourself with information to make a wise decision.

How to spot the difference

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 concept. The differences between the two models are already explained in the article. An easy way to know what the buyer has bought is to refer to the SPA. If the contract is a Schedule H or Schedule G, the scheme is a sell-then-build. If the contract is a Schedule I or Schedule J, the scheme is a BTS 10:90 variant.

> Chang Kim Loong is the honorary secretary-general of The National House Buyers Association, a non-profit, non-governmental, non-political organisation manned by volunteers. For more information, clickwww.hba.org.my or e-mail info@hba.org.my

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