ABANDONED HOUSING PROJECT: ISSUES AND CHALLENGE
Arni Nadhirah bt Abdul Hadi1, Nurul Huda Bt Mohd Salleh2 & Tan Gim Mei3
1deemumtaz@gmail.com, 2nurul2fulra06@gmail.com & 3tgm_89@hotmail.com
School of Housing, Building & Planning University Science Malaysia
Abstract
Abandoned Housing Project has been become a serious issues toward housing
industry in Malaysia. As time to time, it has being concern by the government to
minimize the number of abandoned housing project. Therefore, there is a study to
determine the causes which are lead to the housing project failure and what kind of
impacts would be appear once the housing project is being abandoned. And last, the
challenge is resolving the issue of abandoned housing projects.
Keywords: Housing, housing project, abandoned housing project
1. Introduction
1.1 Background of Housing or Housing Project
Housing is a building or structure that individual and their family may live and
protect that from the physical danger to give them secure and live away from the
weather. The housing project is defined as a project development that only develops
housing which is residential properties. According to the UNHABITAT and the
basic human right to housing; Article 25 of the Universal Declaration of Human
Rights, stated that everyone is the world has their right to have a housing which
ensures access to a safe, secure, habitable, and affordable with the freedom from
forced eviction. Therefore the government has the responsibility to ensure everyone
exercise to the right of housing, hence there is the reason why a housing project
The term of safe and secure are referred to the security of tenure which is the
guarantees protection against forced eviction, harassment, vandalism, theft and
other threats where predatory, redevelopment and displacement are. And then for
the “Habitable” is referred to decent of home mean the housing should be provided
with adequate of space which may protect the residents from all environmental
issues such as cold, damp, heat, rain, wind and other threat to health; structural
hazards and disease.
Rather than the environment issues, the word of “Habitable” is also included the
availability of amenities and infrastructure as well. In the amenity aspect here was
meant the availability of services and facilities being provided. Example of amenities
in term of services, water and power supply, and sewerage treatment plant. Whereas
for the amenities in term of facilities, they are school, mosque, childcare center,
healthcare center and other social facilities. All the things that mentioned were the
basic social need that required to complete for a housing development project at the
social aspect because we have to ensure the housing provide certain essential
facilities for health, comfort and nutrition such as accessible to the safe and clean
drinking water, heating and lighting, and sanitation.
In the infrastructure aspect, it is referring to the road access mean that the road
provided for residents daily uses for in and out. Therefore, the road provided shall
be adequate and accessible to all, especially for those housing that near to
employment area and academy area such industry area, office area, and school.
Those places mention are required more width road size to avoid the traffic jam
issue while during the peak season, which working hour and school time because
the infrastructure was considered as one of the facility as well in the basic need for
residents just the category is different from the above mentioned.
The last but the most influence consideration in housing is affordability. The
meaning of affordability refers to the potential of people in owning a house. While
financial of the purchaser. Hence, the selling prices of the house was playing an
important role in this category. Therefore, to ensure everyone to have their house,
firstly the housing costs should be at such level that attainment and satisfaction of
other basic needs are not threatened or compromised to ensure it is accessible to all
people.
1.2 Definition of Abandoned Housing Project and Housing
By referring to the Ministry of Housing and Local Government (MHLG), an
abandoned project is defined as an uncompleted project or a project that under
delaying. Basically, it classified into three categories by the MHLG where “Delay
Project”, “Ailing Project” and “Abandoned Project”. For the “Delay Project”, it’s
defined as project under 10% until 30% delaying compare to the actual date that
targeted mean that the project is still under progress in the catch up the delay. And
for “Ailing Project” is project which is under more than 30% delaying compare to the
actual date that targeted or date of completion that stated in the Sales and Purchase
(S & P) agreement but it's still under progress diligent in completed the entire project.
However, for “Abandoned Project”, it is a project that fully stopped where no more
work is carrying on the entire project anymore.
Therefore, to justify whether the project undergoing is abandoned or not is
determined by certain criteria. Firstly, to be said the project is abandoned, the project
shall be not completed within or later than the delivery date stated in Sale &
Purchase Agreement and yet no significant activity is noticed at the construction site
for a period of six (6) months long hence it only could be concluded that the project
is abandoned. Secondly, “Petisyen Penggulungan” has been registered in the High Court under section 218 of the Companies Act 1966. So it is mean that due to certain
circumstances stated in section 218, the company has being forced to stop any work
that have carry on recently where there will be temporary or permanently stop on
Thirdly, the project can be said that it is abandoned while the company is under
receiver and manager. For this entire criteria, it mean that the company are no longer
exist and it like Bankruptcy Company where all the thing that it have no longer
belong to it already mean that the project that undertaking have to suspended.
Fourthly, when the project can be said concluded as abandoned while the developer
are not able to acknowledge in writing to the “Pengawal Perumahan” and confirmed as abandoned project by the Ministry of Housing and Local Government
under section 11(1) (c) of Act 118 where fail to complete the construction of the
house on time, as para 7 of the standard Suruhanjaya Perkhidmatan Awam (SPA)
which base on the Schedule G & H states that “Time shall be essence of the contract, in relation to all provision of this Agreement” mean for standard housing units, the period of completion and handing over vacant possession is 24 months in para 20 of
Schedule G while for sub-divided building, the period is 36 months in para 24
Schedule H.
However, it is different in between abandoned housing project and abandoned
housing. For an abandoned housing project, it refers to the project that partially
completed mean that it haven’t fully complete already stopped. And for an
abandoned housing, it is a completed housing project but it not occupied by people.
Main reason for causing those housing abandoned is now a day to much of investor
involve in housing market, their purpose in buying those houses is for future
investment not for living until the unit they have purchase is just left there for
nothing. Another reason that cause abandoned housing appear, when developer
desire to conduct their development, they did not study the market need in result
the development that they conduct is not suit to the market need such as wrong
location, limited in choices for choosing and so on.
In conclusion, both of them are also left over the building structure exist and lack of
maintenance no matter is fully being constructed or partially constructed. In result,
they have brought a lot issues toward public such as social issues; drug person
Therefore, there is a need to determine why there is abandoned housing project and
how to minimize the number of abandoned housing project because it seen become
more worst time to time base on the analysis done by National Housing Department
(NHD) as per attached in Figure 1 where in years 2015, the targeted project is 30 but
actual to be built is only 22 and only 1 is completed hence there 7 project is no
progress at all.
Figure 1: Abandoned Housing Project Statistic Peninsular Malaysia between Years of 2009 - 2015
2. Causes of Abandoned Housing Projects
Generally, the causes of abandoned construction projects can be broadly grouped
into five categories, i.e. :
i. Mismanagement,
ii. Unfavourable government policies
iii. Inefficient public delivery system
iv. Unfavourable economic conditions
v. Financial problems.
Mismanagement is mentioned by the MHLG (Kaur 2011) as one of the causes of
abandoned housing projects. Mismanagement may happen due to the lack of
experience of the developers (Ibrahim 2006). Examples of mismanagement that may
lead to abandoned housing projects include:
Lack of proper feasibility studies, particularly inaccurate market research This point is particularly concerned with the sales of house units as an important
source of cash flow for housing developers. The lack of proper feasibility studies and
inaccurate market research may result in an inaccurate forecast of demand and
supply for certain types of properties as well as an unsuitable project scheme to be
undertaken for the prevailing market (Kaur 2011).
Unattractive marketing strategies
Unattractive marketing strategies may further exacerbate a less attractive scheme of
project already undertaken by a developer. Khalid (2010) points out that the
developer will face problems in obtaining bridging loans from financial institutions
to continue with a housing project if the sale percentage is less than 80%. One
particular example of the lack of proper feasibility is when the developer of a
housing project issued a stop work order by the authorities for failing to strengthen a
slope near the construction site (Ali 2011). The developer did not include the
strengthening of the slope in their feasibility studies therefore the houses sold do not
include the extra cost. The viability of the project was affected, the project had to be
abandoned and the developer had to refund the house buyers. Another aspect of the
lack of proper feasibility studies is the failure to recognise the problems by the
presence of illegal squatters on the project site, i.e. the difficulty and cost incurred in
removing them could lead to abandonment of housing projects. (Dahlan 2010).
Fraud
An example of fraud is non-payments or arbitrarily reduced payments of progress
billings which can result in cash flow problem of contractors, subcontractors and
2011). Fraud may also be due to extravagant dissipation of purchasers‟ fund that
leads to the abandonment of housing projects (Dahlan 2010). Another example of
fraud is the involvement of developers in fraudulent claims (Khalid 2010; Cheong
2012).
Conflict among project participants
Developers collude with their architects so that the architects issue progress claim
certificates that falsely reflect higher levels in the progress of construction, then the
developers siphon the money out of the project (Cheong 2012). Dahlan (2010) points
out that conflict that may lead to abandoned housing projects involves developers,
land proprietors, purchasers, contractors, consultants and financiers.
Incompetent and poor financial management by the developers
As on how poor financial management by the developers causes abandonment of
construction projects, however, Ibrahim (2006) and Khalid (2010) did not provide
any detailed elaboration.
2.2 Unfavorable government policies
Causes of abandoned housing projects related to unfavourable government policies
include:
Sell then build system
Former Prime Minister Abdullah Ahmad Badawi and the President of Federated
Association of Consumer Malaysia (FOMCA) stated the sell-then-build system as
one of the causes of abandoned housing projects. The sell-then-build system is
intended to enable more houses to be built at a faster rate and a lower price (Chen
2007). As the name implies, houses can be sold before the houses are being built,
therefore there is more cash flow from the start of the construction phase and less
smaller capital to be involved in the business (Alagesh 2013). According to Chang
(2009), however, having smaller developers in the housing industry is the main
cause of the abandonment of housing projects. Being small, these developers have to
rely critically on their sales to meet their cash flow. When the sales are not up to
expectation, the cash flow might be affected. Consequently, the projects may be
delayed and eventually some might become abandoned. The sell-then-build system
is also less risky than a build-then-sell system from bankers‟ point of view (Teoh &
Lim n.d.). This might have resulted in banks not exercising a duty of care by often
relying on architects employed by the developer to sign off progress certificates,
knowing that they can still collect repayment from house buyers even if a project is
abandoned (Heng 2011). This might encourage over claiming of fund by the
developer, either resulting in mismanagement of fund or fraud and eventually
abandonment of the project.
Unavailability of Home Indemnity Insurance
Home Indemnity Insurance, as practiced in Western Australia, is an insurance policy
which a builder is required by law to take out on behalf of the house buyer to assist
to ensure that the house can be finished in the event that the builder dies, disappears
or becomes insolvent (Anon n.d.). This insurance is applicable to residential building
work worth over 20,000 Australian dollars. In the event of any claims, the law
requires the insurance company to pay up to 100,000 Australian dollars or the value
of the contract work, whichever is lesser. For loss of deposits, the law requires the
insurance company to pay no more than 20,000 Australian dollars. However, this is
not practised in Malaysia (Ibrahim 2006). Therefore, when the developer in this
country is unable to continue with the development of the project there is no similar
protection for the house buyers. Related to this, in February 2011, the Real Estate and
Housing Developers Association of Malaysia (REHDA) proposed a home
completion guarantee scheme (Heng 2011). Under this scheme, the government and
the developer will each contribute 5% and 2% of the gross development cost of a
project respectively into a fund managed by an independent third party. The project
signify a guarantee that the project will be completed.
Limitation of the Tribunal for Homebuyer Claims
The Tribunal for Homebuyer Claims is a channel for aggrieved homeowners to seek
redress against developers without having to go through a lengthy legal process in
Malaysia. Ibrahim (2006) found that the limitation of the jurisdiction of the Tribunal
for Homebuyer Claims is one of the causes of abandoned housing projects, but
contrary to Ibrahim’s (2006) finding, Chen (2007) claimed that the Tribunal for
Homebuyer Claims has proven to be very effective. It is however believed that the
developers being sued are often insolvent and getting compensation is highly
unlikely.
The requirement to build 30% of low cost houses
Khalid (2010) found that the government’s requirement for private housing
developers to build 30% of low cost houses contribute to the abandonment of some
housing projects. The reason given is that the developers will abandon the low cost
projects if the number of purchasers is low, rather than complete the housing
projects and struggle to find purchasers. The low number of purchasers may partly
be due to the fact that the low cost houses can only be sold to the lower income
groups, and that the locations of the projects lack purchasers from these groups. This
requirement to build 30% low cost houses is especially affecting smaller size projects
as these projects are less flexible in terms of cross subsidy from the non low cost to
the low cost housing units.
2.3 Inefficient public delivery system
The delivery system is “a means or procedure for providing a product or service to the public” usually by the government. Chen (2007) argues that it is the inefficient
public delivery system rather than unfavourable government policies that causes the
abandoned project problem. A number of sources have mentioned the lack of
enforcement of control and monitoring by the government as a cause of abandoned
(2006) states, among others, that there should be stricter licensing for developers,
better system to detect abandonment of projects, harsher punishment for errant
developers, and less bureaucracy in the approval process of housing plans. In
October 2010, the Minister of Housing and Local Government said that many
developers have been blacklisted by the ministry, and the ministry would tighten
conditions on developer‟s licences to avoid the problems of abandoned projects.
Corresponding to this, HBA has proposed to change the deposit to get a housing
developer‟s license from RM 200 thousand to 5% of construction costs. However, it
is unclear whether blacklisting by the ministry alone is able to prevent rogue
developers who had become insolvent to use the identity of others to register
another company to start another new development. Developers may also use a
proxy to protect themselves from being liable in case of abandonment of project. As
of 2010, the Minister of Housing and Local Government reported a remarkable
improvement in planning and building plans approval. But, whether or not this will
lead to less abandonment of housing projects is left to be seen.
2.4 Unfavorable economic conditions
There is a consensus that economic crisis or financial crisis is one of the causes of
abandoned construction projects (eg. Carrero et al. 2009; Fernandez 2009; Lim 2009;
Ng 2009a; RC 2010). Other unfavourable economic conditions that may lead to the
problem including:
i. The rise of the prices of raw material such as steel and cement in 2008;
ii. “Selfish” financial system” i.e. One that “lends an umbrella on a fine
day and takes it away when it rains;
iii. Higher interest charge that discourages potential home buyers to buy
residential properties and reduces the profitability of a project; and
iv. Competition of new residential projects that affects the sales and hence
2.5 Financial problems.
Increases in project costs may be due to mismanagement or unfavourable economic
conditions; and, the lack of proper feasibility study to determine the right type of
development and unattractive marketing strategy ultimately affect the sales and
hence lead to the financial problem. It is noticed that a big proportion of the
available literature lacks credibility and cannot be held as conclusive findings to
represent the actual causes of abandoned construction projects in Malaysia. In
addition, almost all of the literature available is mainly concerned with abandoned
housing projects. Therefore, the actual causes identified are not comprehensive and
representative of the actual causes of abandoned construction projects in this
country. Hence, a more detailed research concerning abandoned construction
projects that include housing and non-housing projects in Malaysia is necessary
3 Parties involved in Abandoned Housing Project
According to Balchin P.N, (1985) development is complex and costly as it may have
fundamental changes occur in the market to increase the risk before the scheme is
successfully completed. Many projects fail and become abandoned because of the
unforeseen factor which effect upon the initial calculation of the development. It is
an indisputable fact that at home turf, project failures thus adversely affects our
nation's economic health Tan A.L, (2004). Innumerable unsold properties resulting in
a huge property overhang, which is one of the more pressing forms of project
failures. There is several of the reason for type of project failures, but of failures
causes by project management it is an oversimplification to generalize and categories
failures in term of the time, cost, and quality. Project failures can be primary or
secondary, serious or inconsequential.
3.1 Developers
Developers are the main party that contributed to the factor of the abandonment of
housing project (Esha.Z, 2006). The problem usually arises and result abandoned
housing project. Imperfection of the market system and unethical speculation by
resulting in an overhang and oversupply of housing. Even some of the cases that,
mismatch of housing demand and supply resulted in the abandoned housing
problem. Developers fail to estimate the sales unit price as poor of feasibility study
in term of land cost, finance cost, estimated the returns, gross development value,
and gross construction cost will end up with the construct cost more than the
development cost. For example, that is non-availability of amenities for the site and
developers have to come out with own cost to connect the main water pumping
from outsource to theirs develop areas and unforeseen the high infrastructure cost
during the feasibility study stage. (Dahlan, N.H., 2008)
Additionally, developers forced to stop midway through the project when facing
financial problem as fails to secure the targeted demand to break even due to high or
unsuitable pricing of the product and the lack of feasibility study in choosing the site
for development, the type of development, and precise in supply and demand.
Developers are lack of a feasibility study to gauge its economic and technical
viability from the very onset. The culprit may come from poor planning and
researches as the developers that rush into a development without comprehensive
market study will most likely cause developers stuck in a project due to poor cash
flow. For example, choosing a strategic location to develop is important and
influencing the interested for the consumer to buy the product. Besides that,
developer's insufficient fund or stops to operate and become bankrupt as the
weakness of the company in financial management.
The project may find failures cause to the developers as it appointed the
inexperience project management consultant PMCs or project managers PMs to
manage the project. The repercussion of the problems would be in managing a good
cash flow of the project and causing the project cost overrun, insufficient quality
control, poor planning causes the manpower, lack of supervision and coordination,
quality of the product is low as always delay. The developers fail to constantly date
the first estimated project cost by incorrect fixation and causes insufficient fund to
uncertainty prevails over payment and timing with implications on the contractor's
cash flow; design changes that may adversely undermine timely delivery of the
project; and interpretations of the contract documents which may lead to disputes
and litigations.
For instance, weakness of the developers in the management of the project
organization normally will be the weakness in planning and control. It would cause
the project will fail to complete within the fixed period and project may find too
many people involve and lead to overstaffing slows communication and decision
and increase the changes of personnel thus disrupting smooth progress. Conflict
between landlord and housing developers would invite dispute between family
members for owning the land in selling to developers and the developers may need
tostart advertising house put up for sale but the land case is still unresolved.
It will possible with the case that, the developers used the progress payment
financial from purchaser to another unrelated matter (own investment) then the
money on following month is stuck and unable use of project construction payment.
But, when they try to get the loan from financial institutes as their financial record of
the developers is instability causes hardly to get approval in application of bank
loans. Site investigation and design stage both fall under the standard that is crucial
for the success of the project. For example, the developers fail in studying the rule
and regulation of the plot ration requirement in that area for developing with not
fulfillment design type of housing will cause him unable to get the approval from
authority.The irresponsible attitude of the developers as give priority to the profit by
awarding tenders to incompetent contractors.
3.2 Government body
Statutory provision provided by Ministry of Housing and Local Government
(MHLG), Local Authority, planning authority and technical agencies had failed to
strictly monitor the term in legal provision and requirements in the
1966 (Act118) and its regulations, are blatantly disregarded by developers without
any punishment being meted out to and legal action taken by the authorities against
them and RM200,000 as a deposit for the housing development account are
considered minor and little for recovery if they was an abandoned housing project.
The low-cost policy which requires developers to develop a certain percentage of
low cost housing with the maximum selling price amount able to RM 42,000 will be
tied and this is burdening the developers. Additionally, inefficient development
control process by the Local Planning Authority in 'filtering' and assessing the new
housing development application may also contribute to oversupply of housing and
subsequently exacerbated the problems in the housing market.
According to Sufian.A and Rahman.R (2008) the Street, Drainage and Building Act
1976 (SDBA) and the UBBL do not impose any specific duty on the local authority to
inspect the construction work done by a contractor. In the Selling-Off-The-Plan
System, the duty of inspection lies on the qualified person who submitted the plan.
Therefore, the local authority will only conduct an inspection if there is a report on
the failure of the building (Section 70B, SDBA). This will cause the unethical
architects to approve the developers on the monthly claims which actually is claims
overestimated, allowing the developers to draw more money from purchasers and
the bank. There are also weaknesses projected in the Local Authorities’s planning
approval system where housing applications were being permitted without taking
into due consideration the actual demand and the process for approval the
application always delay plus the need for a long period as the applicant have to
refer various departments. This will cause the developers to "face the music" on the
increase in the building cost as the period of waiting the material cost lengthen.
3.3 Contractor
Contractor failures will be one of the issue contributed to the abandoned of housing
project. The causes of the contractors to abandoned housing project because
firm idea to source for funds others, then the progress payment from the developers
and will invites project abandonment due to insufficient funds or project financing.
3.4 Financial Institutions
This is understandable, as in the economic recession, banks would be reluctant to
grant housing loans to the developers and house buyer as they are many bankruptcy
in the country. This may cause the party difficulties in getting bank loan as the bank
may set the higher qualify and requirement for grant housing loan to protect its
interest as the show business couples with high gearing ratio of borrowing and less
generating profit by banks, traders and business entitle. The small and medium size
developers may face difficulties to obtain the bridging funds from the bank and
finally will cause them weaker financial capability. Furthermore, this phenomena
keeps on recurring especially during the economic downturn and the inflation rate
are high where it may cause the financial institutions not to approve any loans or
even loans are approved. The charges of interest rate will certainly go up drastically
and high to the developers and when the interest rate increases, it will cause the
management of company operation cost to increase and this will reduce the
developer's profit. Meanwhile, the problem may rise up as the bank simply approve
the claims and without conduct further due diligence investigations and
verifications of the truth of the certificates issued by the project architects and
presented by the developers in the Sell-Off-The-Plan system
3.5 Other Factors
Every step prescribed under the Housing Development (Control and Licensing) Act
(the Act) is being taken by the Ministry of Housing and Local Government (MHLG)
to minimize the number of abandoned housing projects in the country. Nevertheless,
there are unforeseen of the environmental factor beyond the control of the ministry,
such as the Asian financial crisis of 1997-1998, that have hurt many small housing
developers and caused project abandonment. (Parameswaran.G, 2006).
Subsequently, building cost not stable with the insufficiency of building material
and this will cause the contractors unable to finance the costs and delays in or
deferment even worst building project get abandoned. Against a backdrop of an
economic boom, the traditional lump sum contracts and coupled with an era of high
inflation can generate considerable uncertainty over the prices and supply of input
resources. It will influence for the Selling-Off-The-Plan system as this system take
longer authority approval period.
Furthermore, the question facing by the nation, especially in the construction sector,
which is a shortage of skilled and unskilled workers. Insufficient supply of
manpower will lay the construction work, lack of machinery to carry out the heavy
construct work and cause the project poor performance or unproductively. On top of
that, the problem may be found when that is a technical difficulties, for example, the
crack and failures of development foundation and causing the work have to be
demolish and re-construct when the house is nearly to complete.
4 Impacts that caused by Abandoned Construction Projects
The impacts of the abandoned construction projects are referring to the side effects
or problems bring while a development project is said to be abandoned. Those
impacts are negative to the public mean that it will be caused of loss for the entire
impacts. The impacts here are varies in many aspects where it could be personal of
company impacts, social-economic impacts, environment impacts and country
impacts;
4.1 Personal and Company Impacts
The very first impact; personal and company where the “personal” here referred to
the individual party that have influenced by the abandoned project. When the
project is abandoned, the victims that suffer would be fall on the house buyers
because they having monetary loss where there are a monthly loan repayments and
deal with financial institution for the entire abandoned project. Followed by for
those houses buyers who are not capable for repayment loan they will have a big
bankruptcy, the image of personal was no longer good in applying loan from any
financial institution or might be blacklisted.
And for company aspect, same as with the personal impact where while there is
abandoned project mean that the company are not work diligent until failure or
delay in delivery their products hence their company image toward public is
affected because the people who wish to purchase a house will not be purchase from
them due the disappointing to the company. Besides that, when a project is
abandoned is causing a huge in monetary losses therefore the company might be
bankruptcy due to unable to pay the debt left behind by the abandoned project.
Additionally, the company will be blacklisted by the government in applying of any
other development and same as well blacklisted from the financial institution in
recruit funding of any new development.
4.2 Social and Economic Impacts
Rather than the personal and company impacts, the social life of public also being
affected where the abandoned project become the abandoned place for illegal
gambling, illegal sexual activity, drug addict, gangster activity and homelessness
encampment. With this situation, it is seriously influence the neighborhood security
not matter is in term of personal or family security because there will be an
increasing of chances in stealing cases by the drug addict and robbery problems by
gangsters. Besides that, from the illegal sexual activity there also will be a serious
spread of diseases such as acid toward the surrounding environments.
In additionally, when a project works is abandoned many workers end up in
employment because construction company nowadays normally established in
macro-group and their employee required to run the company as same as in the
macro-group size as well. Therefore, the unemployment rate is increasing and causes
the economic quality of life decrease upon people loss their job. Furthermore, while
unfurnished building structure and cause negative aesthetic values, pleasures and
contribution toward the public become eyesore to the vicinity.
At the end, all the social-economic impacts bring out by the abandoned project has
cause the value loss of the area at the same time the value of the property related to
the surrounding abandoned project will be decrease concurrently in result the
market values of the overall market collapse.
4.3 Environment Impacts
Upon left behind uncompleted building structure from the abandoned project, it
promote the habitat for the dangerous animals such as reptiles like snake and rat,
mammals like lion and insect like flies and mosquito. Those dangerous animals are
threaten to the public where snake poison might lead to people dead and the rat,
flies and mosquito may create new diseases which lead the public healthy in a poor
situation. And yet due to the place it occupied by those rat, flies and mosquito, it
created the air pollution toward public at the same time where bad smell spread out
from the abandoned project due to lack on maintenance or care of the entire project.
4.4 Country Impacts
By gather all the impacts that mentioned of above, it may destroy the image of our
country toward other country where the poor management skill of our country lead
to a lot of abandoned project occurs and follow by those social-economic impacts
and the environment impact which may cause loss in the tourism sector in Malaysia.
In addition, due to the abandoned project that cause the overall market value
collapse will lead to the country economic collapse as well because too much of
unemployment cases in our country.
5 Recommendation: Method to Overcome Abandoned Issue
5.1 Policy and Role of Government
The government has a responsibility in providing quality housing and adequate for
However, it was beyond the responsibility of the government to rehabilitate
abandoned private sector housing projects because the house purchase was a
transaction between the buyers and a private company. It is the responsibility of the
original developer. However, being a responsive government for the public, the
government of Malaysia has worked out a method to revive abandoned housing
projects as a special additional measure of the government. The right policy has to be
enacted to overcome the repetition of this endless abandoned issue.
Despite the abandoned caused by private developers’ project, the government plays an important role in rehabilitating abandoned housing projects and addressing the
different consequences of such projects. The MHLG has monitored the existence of
housing project's abandonment in Malaysia since 1986. In 2008, a new division was
established under the MHLG called the Division of Rehabilitation of Abandoned
Projects under the Department of National Housing (DNH), which is entrusted by
the government to specifically tackle and settle the problems of abandoned housing
projects, including undertaking proactive steps to rehabilitate the abandoned
housing projects and help the aggrieved purchasers. MHLG has implemented stiffer
actions by compounding and prosecuting errant developers and blacklisting some.
The government further take steps to monitor and coordinate the abandoned
projects by establishing systematic Special Task Force Rehabilitation of Abandoned
Private Housing Projects. This team chaired by the Chief Secretary General of the
Government and there were three working groups that focus on the progress of the
national housing policy establishment, maintenance and restoration project of law
enforcement.
5.2 Rehabilitation
Most of the rehabilitation of abandoned housing projects in Peninsular Malaysia
were left to the discretion of the rehabilitating parties with the cooperation and
assistance of the chargee, lender banks, purchasers, local planning authorities, local
the land offices and MHLG. The stringent laws governing housing development,
land, banking, planning and building, were mostly made relaxed and flexible to
accommodate the needs and to facilitate the due execution of the rehabilitation
scheme. For example in Hongkong and Shanghai Banking Corporation Ltd v. Kemajuan
Bersatu Enterprise Sdn. Bhd [1992] 1 LNS 26 (High Court), the court allowed the
application of the creditor to appoint a provisional liquidator pending the disposal
of a winding up petition for the purpose of rehabilitating the abandoned housing
project carried out by the respondent company.
Nevertheless, there are situations where there are no required help and facility to
smooth out the rehabilitation scheme, to the detriment of the purchasers desiring the
project so abandoned to be revived. For example in Mohammad bin Baee v.
Pembangunan Farlim Sdn. Bhd. [1988] 3 MLJ 211 (High Court), the court refused the
application of the purchasers to have the abandoned housing project revived by the
newly appointed receiver and manager because of the difficulty to supervise the
rehabilitation process. However, the court granted damages to the purchasers. In
other situations, the court allowed the application of the creditor bank to order the
foreclosure of the project land charged on the default of the borrower developer in
the repayment of the bridging loans, to the detriment of the purchasers’ right to have
the project revived. (Nuarrual, 2011)
According to MHLG, any purported rehabilitation cannot be carried out due to the
following factors:
• There are no or insufficient purchasers interested to buy the houses;
• Works on the sites of the projects have not been commenced or are still at the stage of soil works because of the hard rocks, granite and soils’ problems;
• The original developers have been wound up and the project financiers have auctioned off the projects or sold off the projects to other parties. If the projects have
been taken over by other new developers and the construction of the projects are
resumed by them, then the projects so undertaken are considered to be new projects
cannot be considered abandoned housing projects. This also means, new sale and
purchase agreements will have to be executed between the purchasers and the new
developers;
• The application to Abandoned Housing Projects Fund (AHPF) of Bank Negara or
Syarikat Perumahan Negara Berhad (SPNB) has been rejected as the project is not
viable for rehabilitation. This is because, according to AHPF and SPNB, if the
purported rehabilitation were still to be proceeded with, it would, otherwise, cause
substantial losses and adverse financial effects on the rehabilitating parties;
• The developer has absconded and the existing purchasers are not interested or are unwilling to rehabilitate the projects so abandoned; and,
• Interested parties such as the land-owners, developers, bridging loan bankers and purchasers are unwilling to compromise. They prefer to resort to legal action for
settling the problems faced (Division of Supervision and Enforcement, Ministry of
Housing and Local Government. (MHLG, 2013)
From January 2009 to February 2015, the Division of Rehabilitation of Abandoned
Projects has been responsible for and has completed the revival of 164 (75.92%) out
of 216 abandoned housing projects in Malaysia. (DNH MHLG, 2015)
Syarikat Perumahan Negara Berhad (SPNB), which is the MOF incorporated and
funded in 2001, assigned with the major role of rehabilitating abandoned projects.
Until 2010, the SPNB has successfully completed 77 projects involving 24,326
housing units, with 11 other projects under construction . (SPNB, 2010)
However, under the latest policy, abandoned projects would be fully managed by
the MHLG through the Commissioner of Buildings. The SPNB will no longer
rehabilitate such projects due to a policy change. The ministry will work with private
developers to revive abandoned houses. (Bernama, 2012)
The concern was over the escalating costs to restore private developers' housing
maintain the original house price. For medium cost houses, there would be no issue
to attract private developers as the price can be set to a competitive level, thus the
substantial profit can be made. The effort to revive low cost and low medium cost
houses does not guarantee lucrative profits for the private developers who get the
task. Furthermore, the developers will have to put up with spiraling costs.
5.3 Alternative Housing Delivery
The one way of solution that was proposed to overcome this problem is the
implementation of the Built Then Sell (BTS) concept, which was launched by the
Prime Minister in 2004. The BTS is nothing new in house purchasing sectors for
other countries. In Malaysia, the system has been well accepted among house buyers
due to the negative outcomes by its counterpart, the Sell Then Built (STB) concept.
The initial idea of the establishment of BTS system in Malaysia entered conversations
as early as 2002. (Zairul, 2008)
There are currently two variants of BTS i.e. the complete BTS 0:100 and partial BTS
10:90. The complete BTS is where the developer only sells the house when it is fully
completed after the issuance of Certificate of Compliance (CCC), which there will be
no down payments of progress payments as per schedule G & H involved. While in
partial BTS, the developer can sell house units before the issuance of Certificate of
Compliance (CCC).
Under the 10:90 concept, buyers will make a 10% down payment to reserve a
particular house unit upon signing the sell and purchase agreement (S&P). The
purchaser would resolve the remaining 90% when the house is ready. The benefits of
this concept are that the rights and responsibilities of the buyers and financial
institutions are able to fund housing projects, as there is proof of sales transactions.
However, the proposal seems not well received by many developers, including the
adopt the BTS concept. Only big developers that have strong cash flows and good
financial position will be able to successfully adopt the BTS method. The developers
also complaining as they would have to build the properties with no assurance that
buyers would stay.
The house price also will be highly increased after the issuance of CCC as the
operational cost and financial interest bare by the developer much higher along the
progress of the project. The house buyer will not enjoy the initial affordable price as
it may increase double or more from the original price offered under the STB
concept.
5.4 Financial Restructure
Another option to avoid abandoned housing project is to review the deposit paid by
the developer to get a developer's license for each housing project. For example,
raising the deposit required from the current RM200,000 by 5%. Or another example
is to increase to 5% out of the construction cost. This will ensure only developers that
have strong financial background can enter the market to avoid later issue of
abandoned project.
Another way to overcome this issue is to introduce the housing insurance scheme as
suggested by the REHDA, to provide a boost to buyers. REHDA is proposing that
insurance companies take on the risk to protect buyers, if a project is abandoned.
(REHDA, 2005)
The insurance scheme for developers is a way to cover the risk of their inability to
complete projects. The insurance scheme would also protect house buyers. If the
project is abandoned for whatever reason, the house buyers will be protected. They
will either get the final product or their money back. This insurance plan seem to be
as an answer the question of abandoned projects. The levy will come from the
developers and at the end of the day, if all the developers come in and subsidize the
As for the aggrieved buyer, the financial institution should be able to reschedule the
payment of the housing loan to reduce the burden of the unfortunate buyer and
avoidance of becoming a bankrupt person. The private financial institution still have
not come out with any alternative on the financial restructure for the victimized
purchaser. Nonetheless, for the government servant under the government housing
loan scheme who involved with the abandoned housing project may seek some
assistance under the government circular for government servant. According to
Treasury Circular No. 5 of 2011 (Pekeliling Perbendaharaan Bil 5 Tahun 2011),
borrowers involved with abandoned projects / problems can:
“1) Cancel the loans and interest rates are excluded from the date of the confirmation
letter abandoned projects / troubled by the Ministry of Housing and Local
Government (IPPF) / authorities concerned; and,
2) For borrowers who want to resume lending, interest exemption is granted from the
date of the confirmation letter abandoned projects / troubled by IPPF / relevant
authorities subject to a maximum of 5 years. However, interest exemption is
terminated from the date of the first payment vouchers issued after the project is
realized. Accordingly buyers involved should obtain written confirmation of
abandoned projects of KPKT (Part Rehabilitation of Abandoned Projects), Pusat
Bandar Damansara, Kuala Lumpur in advance and submit it to the Housing Loan
Division (BPP) with a choice of facilities granted to BPP action. However, the
procedure does not allow the treasury housing loans salary deduction as long
dismissed loan repayment is not resolved.”
5.5 Law and Enforcement
In Peninsular Malaysia, there is no clear provision in the Companies Act 1965 (Act
125) (CA) which expressly imposes a duty on the liquidator, either the official
Receiver (OR) or the private liquidator, to rehabilitate abandoned housing projects
and to protect the interests of the aggrieved purchasers. The liquidator is under no
duty to rehabilitate and to protect the interests of the aggrieved purchasers in
expertise. Meanwhile the duties of the liquidators are to accumulate and realize the
assets of the insolvent company and run the affairs of the wound up company for
the purposes of settling the debts of the creditors secured or unsecured creditors and
other stakeholders including, it is opined, the aggrieved purchasers in abandoned
housing projects insofar as the creditors, contributories, committee of inspection and
the court allow. (Nuarrual, 2011)
It is high time for the Malaysian government to introduce a special legal regime
governing rehabilitation of abandoned housing projects, for instance a provision for
appointment of a caretaker to manage rehabilitation of the abandoned housing
developer companies for the benefit of the aggrieved purchasers/ customers/
stakeholders of the wound-up-housing developer companies and thus can eliminate
the problem as to who should carry out rehabilitation of abandoned housing projects
if the housing developer companies are wound up (Dahlan, 2009).
The Housing Development (Control and Licensing) Act 1966 for handling of
abandoned housing projects ministry at the moment is still carrying out the
enforcement of existing provisions under the act through investigation and checks
on project monitoring reports, compounds and prosecution, blacklist developers and
directors of the company.
The latest amendments made to the Housing Development (Control and Licensing)
Act 1966 (Act 118), effected through the recent Housing Development (Control and
Licensing) (Amendment) Act A1415, are believed to help mitigate the abandonment
of housing projects and successfully complete the revival process. The amendments
apply to all developers who refuse to continue the project or have postponed,
suspended, or stopped the project for a period of six months or more, or past the
original scheduled completion date as stated in the SPA. (Dahlan, 2011)
Licensed housing developer who fails to complete housing projects and causes it
Upon conviction, such developer is liable to pay a fine of not less than RM250,000
but not more than RM500,000, or be imprisoned up to three years, or both. Other
amendments in the Act to reserve the right of purchasers include the following:
i. Deposit increase from RM200,000 to 3% of the total estimated physical
development cost, which also includes professional fees for the
Housing Development Account (HDA);
ii. House buyers having the option to cancel the SPA in the event that the
project does not take place within six months of the agreement being
signed;
iii. Extending the House Buyers’ Claims Tribunal (TTPR) scope to enable
house buyers to claim damages from unlicensed housing projects;
iv. Imposing a maximum penalty of RM 50,000 from RM 20,000 for any
offense of developers on any provisions under Act 118;
v. Prosecuting developers responsible for abandoned housing projects;
and
vi. Expanding the definition of “housing developer” to include
liquidators, in which their role is to revive abandoned housing projects
should the developer companies go for liquidation.
The new amendment of the Act 118, seeks to cover the abandoned project and the
right to impose a legal action against unscrupulous developers. This provision
applies to all developers who are reluctant to proceed with the project or postpone
or suspend or stop for a period of six months or more or the completion time agreed
in the purchase agreement. The Section 8A of the Act 118 gives the buyer the right to
terminate the purchase agreement if the developer refused to continue the project
after six months upon the agreement was signed.
Initially the Bill intends to amend Section 6 of Act 118 which provided that the
deposit for obtaining a housing development license increased from RM200,000 to
3% of the estimated cost of construction. The proposed amendment was to ensure
undertake housing projects. However the deposit amount of RM200, 000 still remain,
but the Act 118 introduces new Section 6B. Under Section 6B of Act 118, the
Controller may forfeit the deposit if any, licensed holding developer involved in a
manner detrimental to the interest of the purchasers, for instant abandoned the
project.
The new Section 16AD introduced to raise the minimum penalty of non-compliance
to tribunal award minimum penalty of RM5,000 to a maximum penalty RM10,000 or
imprisonment for a term not exceeding two years or both.
Conclusion
In conclusion, basically the causes of abandoned housing project can be classified
into five aspect where are mismanagement, unfavorable government policies,
inefficient public delivery system, unfavorable economic condition and financial
problems. And the key personnel involved in driven the problems are developers,
government bodies, contractors and financial institutions. Continuously, the impact
which bring up by the abandoned housing project were categories into four part
where are personal or company, social-economy, environmental and country
preciously. And the challenges in resolving the abandoned housing project issue
have to be considering from few aspects where policy and role of government,
rehabilitation, alternative housing delivery, finance restructure and law
enforcements. At last concluded, abandoned housing project was created a lot of
issues where those issues is not only affect on the overall housing market and is also
affect of the benefit of country such economic of country. Therefore, necessary
implementation should be take action right now to prevent it becoming worst and
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