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BUYING PROPERTY UNDER CONSTRUCTION IN MALAYSIA

In Malaysia, it is common to see purchasers buying off the plan. That is, putting a downpayment on units of residential buildings approved by the authorities for construction before the buildings are actually constructed, and then paying progressively as the Developer constructs the building. In this segment, we will explore the issues that buyers need to be aware of when purchasing a property under construction.

# 1 SARAWAK LEGISLATION

▪️In Sarawak, the development of residential buildings and the sale and purchase thereof by a Developer is governed by the THE HOUSING DEVELOPMENT (CONTROL AND LICENSING) ORDINANCE, 2013 and the regulations thereto. The Sale and Purchase Agreement for properties under construction are in standard format and found in the aforesaid regulations, and therefore the clauses cannot be amended.

# 2 DEVELOPER’S LICENSE AND ADVERTISING AND SALE PERMIT

▪️The above items must be obtained by the Developer from the local Housing Ministry before a sale and purchase agreement is signed between the Developer and the Purchaser. Without this items, the sale and purchase agreement is void and illegal.

#3 PAYMENT IN PROGRESSIVE STAGES

▪️The construction of the property will be completed by the Developer in stages as elaborated in Schedule 3 of the Sale and Purchase Agreement. The first 10% of the purchase price is payable upon signing of the Sale and Purchase Agreement. Once each subsequent stage is complete and the project Architect has certified the Completion Certificate, the Developer may issue their progressive claim for that portion of purchase price to be payable within 21 days by the Buyer. Penalties for buyer’s late payment of progressive claims are stated in the Sale and Purchase Agreement default clause.

#4 HOW LONG BEFORE YOU GET YOUR KEYS?

▪️Under current Sarawak law, the Developer has a maximum of 24 months (for landed properties) or 36 months (for strata titled properties) from the date of the Sale and Purchase Agreement to deliver vacant possession of the house to you without incurring any late delivery penalties (“the completion period”).

#5 LATE DELIVERY OF PROPERTY TO BUYER

▪️If delivery of a landed house is late, currently there is a fixed penalty sum (payable by Developer to buyer) of 3% per year calculated from the date of the 24 months expiry date to the date of delivery of vacant possession. If delivery of a strata titled property is late, there is a fixed penalty sum of 8% calculated from the date of the 36 months expiry date to the date of delivery of vacant possession. In addition, there is also a fixed penalty sum of 10% of the last 20% of purchase price payable by the Developer to the Buyer if the common property of the strata estate is not certified as complete by the Project Architect by the expiry of the 36 months completion period.In the meantime, if the Buyer had obtained a bank loan to end-finance the purchase of the property, the Buyer must continue servicing the loan instalments.

#6 EFFECT OF MOVEMENT CONTROL ORDER ON COMPLETION PERIOD

🔸Due to the Movement Control Order (“MCO”) imposed on non essential businesses, most property Developers are among businesses prohibited from continuing with construction without prior approval from the relevant authorities. In such a scenario, the MCO period from March 18th 2020 till May 12th 2020 in Sarawak would not be computed into the completion period as it falls under force majeure (clause 24 in the Sale and Purchase Agreement) unless the Developer had obtained approval from the relevant authorities to continue construction on site.

#7 ONCE I GET THE KEYS , ARE THERE ANY MORE PAYMENTS TO BE MADE TO THE DEVELOPER

▪️You will only get the keys to the house once the Occupation Permit is issued by the local council. This is considered to be at progressive stage 97.5% of the Sale and Purchase Agreement. The remaining 2.5% will be payable to the Developer upon issuance of land title.

#8 IS THERE ANY WARRANTY PERIOD FOR HOUSE BOUGHT FROM DEVELOPER? ▪️Under current law, there is a defect liability period of 18 months from the date of handover of vacant possession whereby within that period, the Developer is obliged to rectify defects in the building. The Buyer is advised to make complaints in writing to the Developer with photographic evidence attached.

#9 WHAT IF THE DEVELOPER REFUSES TO FIX SHODDY WORKMANSHIP AND STRUCTURAL DEFECTS?

▪️The buyer can file a complaint with the Housing Tribunal to seek remedies to be decided by the tribunal at a hearing to be fixed.

Written by:Lilian Chan (Chan & Chan Advocates Kuching)

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