Building Industry Presidents Council Meet

            I had chaired the BIPC (Building Industry Presidents Council) meeting on 22 August 2011, upon request for having one from the BIPC Secretariat, to discuss issues affecting the industry. There were 5 issues tabled and discussed, i.e. on:

·       Construction Industry Payment and Adjudication Act

·       Role of Malaysian Service Providers Confederation (MSPC)

·       Joint Response for the Amended CIDB Act

·       Federal Agency on Housing

·       Build Then Sell (BTS) Concept

The issues on BTS Concept and role of MSPC had to be referred to the RISM Council for a stand to be adopted by RISM. This was made during the 2^nd RISM Council Meeting on 25 August 2011.

On the role of MSPC, MBAM (Master Builders Association of Malaysia) had raised their concern over the lack of effectiveness of MSPC (in which RISM is a member as well).  The main criticism was that MSPC did not perform its role of mobilizing service providers to prepare for the full liberalization of services. Thus, it was felt that BIPC should withdraw its membership from MSPC and that members of BIPC should have a common stand on this matter.

Evidently, there are two sides of the coin.  On the one hand, if withdrawal of membership is made, RISM would no longer need to pay the yearly subscription to MSPC. Additionally, concerns regarding the liberalization of professional services could be taken up through our own (RISM), as well as through BIM (in which we are also a member; noting that our Past President John Loh, is currently President of BIM).  Furthermore, the large scope of services covered by MSPC, including in business and professional, logistics, ICT, construction, education and training, environmental, healthcare, advertising, tourism and distributive trade services had rendered it ineffective, as a platform in formulating common strategies to deal with government. On the other hand, with continued membership, RISM could have another avenue to channel its grievances, at a cost of paying annual membership fee, which is not that very significant.

After due deliberation by the Councillors in its 2^nd RISM Council Meeting, it was decided that the proposal made by MBAM be supported and that withdrawal from MSPC be made en bloc by BIPC and its members.

As known to many, the BTS is a new concept introduced by government where housing developers have to complete a housing project before selling it to buyers.  The concept is supposed to be a panacea to prevent the incidence of abandoned projects to the detriment of buyers. The Ministry of Housing and Local Government has announced that the BTS implementation, as a sole system in housing development, will be made mandatory by 2015 despite objections from many parties, including REHDA. This issue was discussed at the BIPC Meeting to seek the possibility of BIPC coming up with a joint stand of objecting the government’s decision.

The BTS approach in fact is not entirely sound.  While it protects consumers from being stuck in case a development project is abandoned, it however cannot prevent a development project from being abandoned in the first place. Risks associated with property development would still exist with or without BTS approach.  These include increases in project cost, capacity of contractors, etc.  Under the BTS approach, the developer does not receive progressive payment from end-financiers and therefore requires higher financing from the bridge-financier in order to fund the project.

In the absence of progressive payments from end-financiers, it means that the developer would most likely require higher bridge-financing to complete the project.  To lessen the likelihood of project abandonment, the financier would most likely fund only experienced developers with adequate financial strength.  This invariably means that smaller developers would have great difficulty obtaining financing for a BTS project. The higher risk of financing a BTS project too can mean that the bridge-financier will increase its loan pricing. Since the purchaser/end-financier no longer part-finances the project construction, the developer would most likely pass this higher financing cost to the purchaser.

Furthermore, under the BTS approach, the developer has to shoulder the bulk of project financing.  This will likely lead to a smaller number of projects being launched as well as reduce the quantum involved given the smaller scale of launches.  On the whole, the aforementioned situation could lead to a higher price of houses that may be beyond the means of many.

Considering the above scenario and the fact that there maybe the introduction of an insurance scheme to protect house buyers in the case of abandoned projects, the 2^nd RISM Council Meeting had then decided that RISM take a position that the current practice of two systems, i.e. BTS and STB (Sell Then Build) be continually allowed to exist side by side.

WISHING YOU ALL SELAMAT HARI RAYA AIDILFITRI. MAAF ZAHIR & BATIN.