FACULTY OF ARCHITECTURE, PLANNING AND SURVEYING

UNIVERSITI TEKNOLOGI MARA,

SERI ISKANDAR, PERAK

AP114 4G

DQS356
CONSTRUCTION ECONOMY III

ASSIGNMENT 1
BUILD AND SELL POLICY

PREPARED BY:
NAME STUDENT ID
ABDUL RASYID BIN ABD.RAOF 2020830612
RAJA HAKIMI BIN RAJA MUSTAFFA KAMAL 2020882104
MUHAMMAD ARIFUDDIN BIN PAUZI 2020863486
TABLE OF CONTENTS

ABSTRACT ............................................................................................................................................................ 1

INTRODUCTION..................................................................................................................................................... 2

THE CONCEPT OF SELL-THEN-BUILD (STB) SYSTEM ..................................................................................... 4

THE PROBLEMS OF THE TRADITIONAL SELL-THEN-BUILD METHOD ........................................................... 6

THE BUILD-THEN-SELL SYSTEM CONCEPT...................................................................................................... 8

THE PROBLEMS OF IMPLEMENTING THE BUILD-THEN-SELL POLICY IN MALAYSIA ............................... 10

CONCLUSION……………………………………………………………………………………………………………….12

REFERENCES………………………………………………………………………………………………………………………………..13

LESSON LEARN…………………………………………………………………………………………………………………………….14
ABSTRACT

The Sell Then Build (STB) method has been utilised for decades in the Malaysian real estate
market. Over 70 percent of the nation's anticipated housing units have ultimately been
constructed utilising this strategy and concept. Despite its effectiveness, problems such as
abandoned projects, late delivery, and inferior craftsmanship have placed a cloud of shame
over this system. Realizing the unfairness of the system against homeowners, the Malaysian
government agreed to deploy Build Then Sell, an alternative housing delivery strategy that
serves the interests of purchasers more effectively (BTS). However, there is a
counterargument arguing that there is no promise that purchasers will be willing to acquire
BTS houses once they are introduced to the market because to the anticipated price
increases. The Malaysian government has implemented a new housing delivery strategy
known as "Build Then Sell" (BTS), which requires builders to complete a housing project prior
to delivering individual units to clients. This new strategy is contrasted with the current "Sell
Then Build" (STB) system, which lets builders to sell homes and collect progress payments
while residences are being developed and hence are not yet inhabitable. The so-called BTS
system is still a foreign notion in Malaysia, despite being the norm in the majority of wealthy
nations. In April 2007, the government stated that the BTS system will function concurrently
with the old STB system for a two-year trial period, with a package of incentives provided to
businesses who use BTS. Clearly, considerable work is required before the BTS system can
be implemented. This paper examines the options for facilitating the complete deployment of
BTS in Malaysia. To achieve this purpose, a series of focus group interviews with the major
BTS system stakeholders were conducted. Several strategies for effectively implementing the
BTS are presented and discussed.

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INTRODUCTION

A long-standing practise in the housing sector called "Sell Then Build" (STB) enables
builders to sell homes and collect money after obtaining Ministry of Housing and Local
Government advertising permits. The Real Estate and Housing Developers Association
(REHDA), the representative body for property developers in Malaysia, claims that this system
has successfully addressed the backlog of housing needs for more than 40 years and
generated more than 3.5 million affordable housing units for all income groups in the nation.
The nation's multifaceted goals of fostering economic growth, creating jobs, and addressing
the social need to meet the housing needs of those with lower incomes have all been
successfully and efficiently accomplished, according to REHDA.

Although STB has achieved its housing goals, the system still has issues. When it
comes to providing enough housing through the STB system, both the public and private
sectors have overall, outperformed themselves since the country's independence, according
to an assessment of housing provision performance in five years of Malaysian Plans.
However, this was not the case during the 4th and 5th Malaysian Plans (which covered the
years 1981 to 1990), during which both sectors underperformed and missed their goals
because of the global economic crisis. However, some developers were able to complete their
projects without suffering significant financial consequences, but at the expense of unwary
homebuyers, because they were able to sell houses before they were built to raise money to
fund construction or secure bridge financing through "joint venture" agreements with banks.

The unfortunate experience of abandoned projects during the 1980s and early 1990s
economic slump serves as evidence that the STB system is vulnerable to misuse by
developers who chose to exploit the system. Home purchasers frequently complained about
poor construction, delayed home deliveries, and abandoned projects at this time. The first
instance of an abandoned home project was documented in 1983, amid the nation's economic
downturn, which also sparked a housing bubble in other regions. The fact that home
purchasers paid for these incomplete homes in instalments while also making rent payments
on their current residences made the problem worse. Numerous parties involved in the real
estate sector have advocated against keeping the STB system in place to safeguard
homebuyers' rights because of these issues.

Many business observers pointed out that few real estate developers are prepared and
able to switch to the BTS system, where developers are required to complete housing projects
before selling them, when the idea of implementing BTS was first raised by the government.
This model divides the risk between the developers' lending banks and the developers
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themselves. The National House Buyers Association (HBA) proposed a system known as the
"10:90 model" to help spread the risks assumed by developers under the BTS system.
According to HBA (2005), the 10:90 model strikes a balance between the STB's current
progressive payment system and the full BTS system. The 10:90 model requires homebuyers
to make a 10% deposit when they sign their Sale and Purchase Agreement (S&P), with the
remaining 90% due when the property is finished, and a Certificate of Fitness for Occupancy
is issued. Only competent developers would be permitted to participate in this system, which
might assist improve the industry's reputation. However, significant industry participants
including developers and REHDA responded unfavourably to this concept. They felt that, given
the tiny number of bad developers, BTS and the 10:90 model were not essential to safeguard
homebuyers' interests. They argued that since other people's mistakes had occurred, good
engineers shouldn't be penalised with a BTS or 10:90 system.

There has been much discussion about the advantages and potential of the BTS and
10:90 models, but little study has been done on how the new system or a derivative of it may
be implemented successfully. The limited studies that are currently available frequently
concentrate on the benefits, drawbacks, and potential modifications of the BTS system as well
as the question of the key stakeholders' readiness to implement BTS. As a result, systematic
research is required to investigate stakeholder opinions about what must be done before the
new system can be implemented. The development of tactics that can improve the likelihood
of the BTS or 10:90 models being implemented successfully is particularly understudied.

Therefore, the primary goal of this paper is to investigate the stakeholders'

perspectives on the BTS implementation in Malaysia in the hopes that these perspectives will
then be considered when formulating strategies to fully implement the BTS system. The BTS
and the 10:90 system are treated as one system in this essay for the sake of clarity.

Without a doubt, a portion of Malaysian developers support BTS quite strongly. They
might be driven by self-interest or as a part of a business plan to break into a very cutthroat
industry. Even if their goals may not be the same, housing activists and NGOs have also
expressed strong support. Apart from the incentives it has provided, the government's
assistance is not clearly articulated. Financial institutions have stubbornly remained silent
during the whole discussion. This could be an indication that they are taking a "wait and see"
approach before choosing whether to support BTS. The stakeholders with the clearest motives
for promoting or opposing the development of a BTS system include developers, housing
advocates, NGOs, the government, and financial institutions. Following a discussion of the
BTS stakeholders, the methodology used will be covered. Discussions on significant snippets
obtained from focus groups with the key stakeholders will then follow.

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The Concept of Sell-Then-Build (STB) System

In Malaysia, both housing developers and homebuyers have come to recognise the
STB system as a viable option. STB refers to a system in which properties are sold prior to
their construction or during the construction process. It may be inferred that both incidents
involve residences that were unfinished when their developers offered them for sale. As a
result, as a guide and first impression for homebuyers, the developers utilised colourful
blueprints and three-dimensional models of residences. Unfortunately, the design and
craftsmanship may change from the real product that is constructed in the future. The STB
method requires homebuyers to submit a down payment and then "progress payments" as
key building milestones are completed.

In Malaysia, the STB system has traditionally been employed to provide appropriate
housing for the people in a relatively short amount of time. Regarding STB, as a developing
nation trying to catch up with more established nations, the government viewed STB as an
adequate approach to enhance the nation's housing supply in a relatively short period of time.
Since the 1960s, this strategy has effectively and profitably accomplished the housing
objective.

In the STB system, homebuyers are responsible for financing the construction of new
homes through bank loans. Before the Sales and Purchase (S&P) Agreement can be signed
between property purchasers and developers, the homebuyers are required to pay a down
payment of between 5 and 10 percent of the entire purchase price. The homebuyers must
additionally pay the remaining sum till the construction of the homes is complete. It may be
assumed that any housing developer with insufficient cash is permitted to enter the business,
and that they are nevertheless able to have their housing plans approved by the government
and ready to collect deposits from homebuyers. By permitting these developers to operate,
the government exposes homebuyers to greater risks, such as unfinished projects, project
delays, housing `overhang and surplus, poor craftsmanship, etc.

Multiple flaws under the STB system have placed the sector under the attention. Never
had the business been so widely criticised for abuses of customers and buyers. As a result,
certain parties recommended the establishment of Build Then Sell (BTS) as one of the
alternatives to protect homebuyers and eventually improve the sector.

There are two primary functions of pre-sale conditions. First, a pre-sale proves that the
development has a particular amount of marketability. With the STB idea, developers may sell
properties prior to constructing housing developments. Therefore, developers may estimate

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the number of homes required for a housing development. Second, the pre-sale can reduce
the amount of bridging finance necessary to support the cost of completion if the developers
are unable to secure additional sales following the distribution of bridging funding (The
Association of Banks in Malaysia, 2009). With the STB idea, the developer may reduce the
likelihood of incurring a loss.

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The Problems of the Traditional Sell-Then-Build Method

In Malaysia, the STB system had been in place for half a century and had achieved
the desired housing market goal. Nonetheless, the introduction of the STB system has resulted
in human-caused housing difficulties. Many homebuyers are dissatisfied with the property
market as a result of these challenges. Under the STB system, homebuyers encounter a
variety of issues, including defects, late delivery, difficulties obtaining a Certificate of
Occupancy (CFO) and land title approval, and abandoned projects.

In recent years, some homebuyers have expressed dissatisfaction with the inadequate
quality of residences produced by developers. Numerous homes constructed using the STB
method are affected with flaws such as wall and floor cracking, foundation sinking, roof leaking,
retaining wall collapse, inoperative septic tank, and clogged pipes (Property Times, 2005).
Due to the fact that developers collected funds from homebuyers throughout the development
phase, this scenario is feasible. In an effort to increase profits, the unethical contractors will
rush the construction of the properties. Their recklessness resulted in the emergence of
problems, and they evaded responsibility once they had received all of the payment. As it is
well-known, under the STB concept, unbuilt houses are marketed to potential buyers using a
model. Unfortunately, there is a possibility that the construction and design of the real housing
units produced by developers would differ from the model house.

In addition, the STB system is constantly afflicted mostly by problem of late delivery of
properties. Although the developers agreed to build the houses by the date specified in the
Sales and Purchase (S&P) Agreement, the completion of the properties is constantly extended
(Ng, 2007). This problem remains and bewilders possible homebuyers. Again, the difficulty of
getting CFO and land title permission have made homebuyers to be frustrated with the lack of
available properties.

The abandoned project is the most significant housing issue under the STB system.
Since developers may legally market unbuilt houses to homebuyers and collect payment
before construction is complete, there is a chance that they would flee with the funds before
the residences are finished. National Housing Buyers Association Malaysia (2006) revealed
that developers abandon their projects when practically all of the houses have been sold.

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 From the perspective of developers, the number of abandoned home development
projects is negligible and not a significant issue. However, as victims, homebuyers in Malaysia
must face a significant amount of financial loss and are disappointed with the property market.

Most homebuyers have been adversely affected by the lack of available dwelling units
throughout the years. Therefore, the government is attempting to find a remedy for these
issues. Therefore, the government advocated implementing a BTS system in Malaysia to
avoid these recurring issues.

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The Build-Then-Sell System Concept

The concept of a BTS system is different from that of an STB system. STB system
enables developers to sell housing units prior to completion and acquire funds from
homebuyers to fund construction or seek bridging financing via "joint venture" agreements
with banks (Nor' Ain Yusof, 2009). At the cost of unknowing homebuyers, this may provide
certain developers with the opportunity to complete their projects with little financial
implications.

Under the STB system, many homebuyers made complaints about poor construction,
late delivery of houses, and abandoned projects. As a result, the government introduced four
initiatives, including the establishment of a new One Stop Centre (OSC) at local authorities,
the introduction of the Issuance of Certificate of Completion and Compliance (CCC) by
professionals to replace the CFO and BTS system, and the introduction of a new One Stop
Centre (OSC) at local authorities (INTAN, 2007).

The principle behind the BTS system is that developers must finish a housing project
before selling it to homebuyers. Therefore, under the BTS system, developers cannot take
payment from homebuyers before the completion of the housing project. The only parties who
bear the risks of house building are developers and their lending institutions. Therefore, fewer
developers employ BTS systems than STB systems, because only developers with large
financial support can deploy BTS. The statutory standard S&P agreements are not applicable
to home developments constructed and promoted under the BTS system.

As opposed to the STB system, the BTS system does not let the developer to obtain
progressive payments from end-financiers. The developer must borrow more funds from the
bridge-financier in order for the development project to be successful. Therefore, the bank
must play a major role by providing bridge financing for building expenditures, which will
enhance the financial institution's risk exposure. In general, banks prefer to give loans to
individual buyers in several smaller pieces as opposed to giving the entire amount to the
developer in a single parcel. Therefore, it is difficult for newly founded businesses who lack
the required track record to convince banks to give them with funding for the new BTS system.

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The parties participating in the development project include developers and bankers, and it is
anticipated that the new idea will have an influence on the present financing procedures
including types of financial resources such as regular and bridge financing. It is also thought
that the BTS system will have a significant influence on developers and the whole real estate
business, as only bridging finance is available to support building operations.

In Malaysia, the BTS system is not completely foreign, since a few financially stable
developers with buildings in key locations have implemented the system. Complete BTS
systems and partial BTS systems are the two primary types of BTS system. The complete
BTS is when the developer develops the home and sells it after it is completed CCC or CFO.
Since there is no previous agreement as in the STB system, the developer is entitled to sell at
the market price upon completion. Partial BTS, on the other hand, is a housing delivery system
that combines BTS and STB. For partial BTS, the S&P agreement is signed prior to the
commencement of construction, and the developer can receive a portion of the initial payment
during the signing of the S&P agreement. After completion, the remaining balance will be paid
using CCC or CFO. The percentage of partial BTS might be 10:90, 20:80, or 30:70, depending
on the developer.

The administration is more concerned about 10:90 BTS than incomplete BTS. In
actuality, the 10:90 method is still a "Sell first then Build" approach, as the houses are not yet
constructed at the time the S&P deal is signed. However, if the developer fails to complete the
project and abandons it for any reason, the purchasers are safeguarded against any
catastrophic consequences. Ministry of Housing and Local Government (MHLG) has adopted
this option in which a 10% deposit is given to the attorneys as a down payment upon signing
the S&P agreement and the sale is "locked in" while the remaining amount is due upon
completion of CCC or CFO.

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The Problems of Implementing the Build-Then-Sell Policy in Malaysia

Both the government and prospective homeowners suffer losses as a result of housing
projects being shelved without proper completion. The Malaysian government's proposal to
implement the Build-Then-Sell (BTS) Housing Delivery System is an effort to address the issue
of unoccupied homes in the country of Malaysia. However, in order for this to be successful,
it is necessary to enlist the assistance of real estate developers who are accustomed to the
Sell-Then-Build (STB) system, which involves selling homes before constructing them. The
Malaysian government has proposed the 10:90 BTS housing delivery system in order to
address the concerns of homebuyers who have purchased properties in housing projects that
have since been abandoned. However, the plan of the government to require housing
developers to adopt the 10:90 BTS system in 2015 was not carried out because the
developers raised several issues related to its implementation. In 2015, the government did
not require housing developers to adopt the 10:90 BTS system. In light of the challenges that
are presented to homebuyers by housing projects that have been abandoned, the federal
government established the Ministry of Urban Well-Being, Housing, and Local Government in
order to bring these projects back to life. When discussing matters pertaining to the real estate
market, it is essential to take into account the perspectives of all relevant parties. This is done
to ensure that the system for delivering housing is technically feasible and acceptable, and
that the problem of abandoned housing is resolved to everyone's benefit.

First and foremost, there will be a reduction in the number of developers who are able
to carry out housing developments due to their lack of financial resources. As a result, the
industry will be monopolised by only the most powerful players, who will set the prices of
properties and determine their costs and as a result, people with lower incomes will have a
harder time purchasing real estate, even if it is a housing unit with a low or medium price tag,
because developers are more likely to build homes in areas with a higher concentration of
wealthy residents. On the other hand, they are much less likely to build major housing projects
in more rural areas.

After that, if a housing developer is unable to secure bank borrowings, it will require a
significant financial investment and commitment from the company's shareholders. However,
banks will be hesitant to finance a project based on a BTS concept due to the nature of the
risks involved in such an endeavour. When it comes to securing financing for a project,
previously unidentified developers will have very few options. Having said that, how many
organisations with significant market capitalization are capable of adopting the BTS concept.
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 And another reason that BTS is difficult to be implemented in Malaysia is there will also
be repercussions for businesses further down the supply chain, as a reduction in the number
of housing projects and the scale of housing development will have an impact on other
industries, such as construction, building materials, professionals, and banks. This could have
severe repercussions on all fronts, including the economy, politics, and social life.

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Conclusion

In conclusion, we may learn that the Build-Then-Sell system is important as a house delivery
system in Malaysia because it is designed to protect the buyer in the event that the contractor
failed to provide the buyer with the house that they promise to build and delivered to them as
promised in the contract. In other words, we may come to the conclusion that the Build-Then-
Sell system is important in Malaysia. The administration of housing assistance ought to
prioritise the provision of housing that is both secure and available at prices that are affordable
to its recipients. Even though a lot of people think that BTS is a better system than the standard
STB system, the implementation of it should still take into account the factors that were
brought up in this study so that it can be accepted by a wide variety of stakeholders. Because
of this, BTS will have a successful outcome. The idea of the BTS was developed as a solution
to the problems that were experienced under the traditional STB system. These problems
include delays, abandoned projects, and houses of poor quality, all of which are common in
the current real estate market. As a result, all interested parties ought to collaborate in order
to make certain that the BTS adoption goes smoothly and that the BTS serves as a housing
delivery system that is both viable and sustainable in Malaysia.

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ShafieiSofriYahyaMarwaniRidzuan, Nor'AiniYusofPersonEnvelope, Shafiei, M. W.
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new housing delivery system introduced by the Malaysian government in which
housing developers must complete a housing project before selling individual houses
to buyers. This new system differs from the cur, Akbal, S. S., Atkinson, A. A., Harian,
B., & Miles, M. B. (2009, July 14). Strategies to implement the "build then sell"
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4. Online, T. S. (2019, July 29). Build-then-sell concept to benefit all. The Star.
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sell-and-build-or-build-and-sell

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Lesson Learn

By, RAJA HAKIMI BIN RAJA MUSTAFFA KAMAL

I think that Malaysian developers should think about the Build-Then-Sell (BTS) concept as
our practise as we are one of only two nations in the world that uses the Sell-Then-Build
(STB) technique as the only way to provide homes. As the buyers will be happy because of
build-then-sell since it will always decrease the number of complaints about flaws in the
future. Naturally, this approach requires developers to have more financial resources, which
will effectively screen out the weak businesses. There won't be an overbuilding issue,
therefore projects are less likely to be abandoned.
As a result, there would be fewer mediocre buildings because of this strategy. The shift to
BTS would encourage developers to work harder to provide high-quality buildings. This
would promote the use of new technology and innovation in the production of building
materials and processes. Furthermore, developers would exercise the conscience to cap the
number of units based on their feasibility analyses with finance institutions, resulting in a
more flexible supply sector and preventing the emergence of property gluts.

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By, ABDUL RASYID BIN ABD. RAOF

Malaysian developers should consider the Build-Then-Sell (BTS) concept because we are
one of only two nations that uses the Sell-Then-Build (STB) technique to provide homes. As
build-then-sell reduces future flaw complaints, buyers will be happy. This method requires
developers to have more money, which eliminates weak businesses. No overbuilding means
fewer abandoned projects.
This strategy would reduce mediocre buildings. BTS would encourage developers to build
better buildings. This would promote innovation in building materials and processes.
Developers would cap the number of units based on feasibility analyses with financial
institutions, creating a more flexible supply sector and preventing property gluts.

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