The issue of abandoned housing projects is not unfamiliar among buyers of under-construction houses in Malaysia. Some buyers face the problem of prolonged abandonment of housing projects, which can last for almost 20 years, to the extent that some homeowners have passed away. In Malaysia, a total of 301 private housing projects in Peninsular Malaysia were recorded as abandoned from 2009 until January 31, 2023.
7 Things You Must Know If You’ve Bought an Abandoned Housing Project in Malaysia
What can you do if the first house you bought is from an abandoned housing project? Can you cancel the Sale and Purchase Agreement (SPA) with the developer or claim compensation from them? Can you terminate the housing loan with the bank?
These are common questions from buyers of abandoned housing projects. This article will help you understand your rights as a buyer if the housing project you purchased is facing issues of non-completion or abandonment.
1. What is an Abandoned Housing Project?
It is important to understand the definition of an abandoned housing project. An abandoned housing project refers to:
- Housing projects that have not been completed by the developer within or beyond the agreed timeframe stated in the Sale and Purchase Agreement (SPA).
- No significant construction activity has taken place at the construction site for a continuous period of six (6) months.
- A winding-up petition (bankruptcy petition) has been filed at the High Court under Section 218 of the Companies Act 1966.
- The housing project has been certified as abandoned by the Minister of Housing and Local Government (KPKT).
If the developer has not been wound up and the construction of the housing project is still ongoing, albeit at a slow pace, it is not considered an abandoned project. Instead, it is categorized as a problematic or delayed project.
2. How Does the Purchase of an Abandoned Housing Project Impact Buyers?
An abandoned housing project not only affects the national property market but also directly impacts buyers’ aspirations of owning their own homes.
Generally, under-construction houses are sold based on the concept of sell-before-build. Buyers usually apply for housing loans from banks to purchase such properties.
Developers typically commence construction after receiving cash inflow from buyers. If the project is abandoned or left unfinished, buyers are still obligated to fulfill their monthly commitments with the bank as scheduled.
This becomes problematic for buyers because the house is not completed, but they still need to make regular monthly payments.
3. What Can You Do If Your Housing Project is Certified as Abandoned?
If you find yourself in a situation where the housing project you purchased is abandoned or unfinished, you can consider the following actions:
i. Section 8A of the Housing Development (Control and Licensing) Act 1966 (Amendment 2015)
Can you cancel the Sale and Purchase Agreement (SPA) with the developer if the project is abandoned? If the developer fails (intentionally or unwillingly) to continue the housing project for a continuous period of six (6) months, buyers have the right to TERMINATE the SPA.
However, this is subject to the condition that the failure is certified by the housing controller and the buyer obtains written consent from the bank.
Conditions for Termination of the Sale and Purchase Agreement or Filing a Lawsuit Against the Developer
As a buyer of a housing project, you have the right to terminate your Sale and Purchase Agreement if you encounter problems with an abandoned housing project. As mentioned above, the Sale and Purchase Agreement can be terminated subject to the following conditions:
- The developer refuses to carry out, suspend, postpone, or stop work for 6 months (or more) from the effective date of the agreement;
- The buyer obtains written consent from the financing bank. The bank cannot unreasonably reject or deny permission to cancel the agreement;
- The housing controller acknowledges that the developer has refused to carry out, suspend, postpone, or stop work for 6 months (or more) from the effective date of the agreement.
ii. Refund of Payments
After the agreement is canceled, the property developer must refund all payments to the buyers within 30 days from the date of termination of the agreement.
If the refund is not made, the developer can be charged or fined. If found guilty, they may be fined not less than RM50,000 and not more than RM250,000.
Upon conviction, the developer can also be fined not exceeding RM5,000 for each day the offense continues.
iii. Establishment of an Action Committee
You can also establish an action committee among the buyers involved in the abandoned housing project. The purpose of this committee is to:
- Engage with the bank for the purpose of disposal, suspension, or rescheduling of monthly installment payments while awaiting an official decision with the Ministry of Housing and Local Government (KPKT);
- Recommend to KPKT the appointment of a new developer to take over and continue the project at the expense of the new developer, subject to terms and conditions set by KPKT and agreed upon by the buyers;
- Recommend to KPKT to restrict the withdrawal and return of deposit money and any excess balance in the original developer’s Housing Development Account (HDA);
- Make offers to buyers who are still interested in continuing the project with terms that do not disadvantage the buyers;
- Recommend that the deposit or excess balance in the original developer’s HDA be used to partially cover the monthly loan payments of the buyers with the bank
4. What Happens If an Abandoned Housing Project Is Not Declared?
In essence, buyers of abandoned housing projects who do not declare this matter will face the following issues:
- Buyers will not have the opportunity to make a second withdrawal application from the EPF Account for the purpose of purchasing another house;
- Government housing loan buyers will not have the opportunity to apply for the suspension of loan repayments and interest to allow for a new loan application for another house;
- Buyers will not have the opportunity to restructure their loans or defer loan repayments with the bank.
5. What is the Importance of the Abandoned Project Certification Letter?
The Abandoned Project Certification Letter is usually issued by the Abandoned Projects Recovery Division, National Housing Department. It is intended to assist homebuyers in obtaining consideration for:
- Applications for reducing interest rates and restructuring loan repayments;
- Second EPF withdrawal applications for the purchase of another house;
- Applications to the Government Housing Loan Division for loan cancellation or interest rate suspension.
6. How to Get the Abandoned Project Certification Letter?
If you want to obtain the Abandoned Project Certification Letter, you can follow these steps:
- First, check whether your project is listed under the abandoned housing project on the Ministry of Housing and Local Government’s website before making an application;
- If your housing project is listed under the KPKT abandoned housing project, you can make the application by submitting a copy of the applicant’s identification card and a copy of the Sale and Purchase Agreement through:
💻 Integrated Complaint System;
📠 03-8891 4228;
✉️ Bahagian Projek Perumahan Terbengkalai, The Ministry of Local Government Development, Level 33, Block 51, Persiaran Perdana, Presint 4, 62100, Wilayah Persekutuan Putrajaya.
If your housing project is not listed under the KPKT abandoned housing project, a check must be made with the Private Housing Monitoring Division.
7. What Initial Actions Can Buyers of Abandoned Projects Take Against Developers?
Buyers are advised to make claims against the developers of abandoned housing projects in writing by registered mail. Buyers can also fill out the Proof of Debt Form available at the Malaysian Insolvency Department. This step must be taken before the valid period of the Sale and Purchase Agreement expires.
Any licensed housing developer who fails to complete a housing project and causes it to be abandoned is considered a criminal offense. If found guilty, the developer may be fined not less than RM250,000 and not more than RM500,000, or imprisonment for a term not exceeding three years, or both.
The amendment to Section 18A of the Housing Development (Control and Licensing) Act 1966 provides broader guarantees and rights to buyers, in addition to preventing more abandoned housing projects.
Conduct Comprehensive Checks, Avoid Choosing Abandoned or Incomplete Home Developers
Conduct a thorough investigation and avoid choosing developers involved in abandoned, neglected, or unfinished projects to prevent the bitter experience of buying such a property. To safeguard yourself from becoming a victim of an abandoned housing project, consider the following steps before purchasing your home:
- Verify the credibility of the developer. Conduct a background check on the developer, including checking their records with CTOS (Credit Reporting Agency Malaysia Berhad). Without detailed research, you may fall victim to unlicensed and unauthorized developers in Malaysia;
- Choose housing developers with a good reputation and name. Established developers usually have a strong portfolio, experience, and financial stability to ensure a smooth construction process;
- Additionally, consider the developer’s reputation on social media. Legitimate developers generally have a positive reputation on social media platforms. Check the comment section to find reviews from other buyers;
- Seek advice or opinions from friends or family members who have experience in purchasing properties;
- Ensure that the housing developer is not blacklisted by the Ministry of Housing and Local Government. This step is crucial to ensure that you do not purchase a housing project from an unreliable developer. You can refer to the comprehensive list provided to identify developers involved in abandoned housing projects.
Hopefully, this information will help you understand your rights in the event of purchasing an abandoned housing project. Furthermore, if you want to get home insurance for the protection of your house, visit the Qoala website for more information. Qoala is Malaysia’s most comprehensive and best online insurance comparison platform.