The Developer
Interest-Bearing Scheme (DIBS) is marketed in such a way whereby the house
buyers pay a small down payment during the signing of the sale and purchase
agreement (SPA).
The developer will
bear the interest due during the project construction period until the handing
over of vacant possession where the house buyer will have to come up with the
remaining payment.
Developers are fond of
the DIBS because it is a smart marketing tool which can be used to entice
potential house buyers into believing that they have found a good financing
deal, especially those who do not know the implications or read the fine print
of the terms of the agreement in the event of project abandonment.
Under the
Built-Then-Sell (BTS) 10:90 concept, the law has been amended and is found in
Form I (for landed properties) http://www.hba.org.my/laws/housing_reg/2007/schI/schI-2007.htm and Form J (for strata properties) http://www.hba.org.my/laws/housing_reg/2007/schJ/schJ-2007.htm of the Housing Development (Control and
Licensing) Regulations, 1989 (amended 2007). It has been in operation since Dec
1, 2007.
Spot the differences
Some developers have
even equated DIBS as being the same with BTS 10:90. However, this is not true.
If DIBS are not the same as BTS10-90, what then is the difference? Simple.
i) BTS 10:90 uses
either Form I or Form J found in the HD Regulations. The BTS 10:90 is the
financial model announced by the previous Housing Minister 2012 for financing
housing projects come 2015. Under BTS 10:90, should the developer fail to
complete the project as promised, the house buyer only faces trouble with the
10% deposit, which he/she may try to recover through the existing legal
mechanisms.
ii) DIBS, on the other
hand, are a "willing seller-willing buyer" SPA cunningly crafted by developers
and are in contradiction with the current housing legislation. Under the DIBS,
the house buyer has agreed to be responsible to the banks/financial
institutions for the loans signed under the SPA whether the houses are
delivered or not. This is the moral hazard the Government is trying to prevent
the house buyers from getting into.
Developers, being
entrepreneurs, have to be responsible and bear the risks that come with
investment. They should not be allowed to enjoy profits at the expense of house
buyers who have to bear the risks on their behalf.
Thus, when developers
claim that the schemes are good because they "assist new purchasers", they
should be asked to use the BTS 10:90 instead if they are sincere in not wanting
to shift the risks to the house buyers. Developers being profit-driven, merely
want to sell their products by whatever means, even recommend the DIBS for "first time house buyers" on the guise of "assisting them".
Are we saying that the
Minister of Housing can't spot the differences? If the Ministry of Housing
promotes such DIBS schemes, then surely it must be the developers' ideal
marketing tool.
Interest element
factored into DIBS "schemed" properties
DIBS properties are
also priced much higher than non-DIBS properties as there is "no free lunch" as
the saying goes. Whenever a developer says that expenses such as "interest
during construction", legal fees and/or stamp duty are absorbed by the
developer, ultimately the cost of such "freebies" or "rebates" as they are
called will be added back and factored to the purchase price of the property.
Based on past samples
of comparison between DIBS properties and non-DIBS properties (see chart), the price difference is 10% to 20% and some
even as high as up to 25%.
That would mean that
if a property was proposed to be launched at RM500,000 and if the developer
were to offer DIBS, the developer would be pricing the said property at
RM600,000 to cover for so-called "interest cost during construction (say three
years)" that the developer is absorbing.
This artificially
inflates property price which has a push effect on:
> Prices of subsequent
new launches as future launches must be priced much higher than RM600,000,
probably closer to RM700,000, thus making subsequent new properties more
unaffordable.
> Prices of
existing properties can also increase overnight by up to RM100,000, thus making
existing properties also more unaffordable.
Property prices also
have a spillover effect and can push up prices properties in surrounding
locations. Properties launched in Mont' Kiara will immediately push up prices
in surrounding locations including Kepong and Segambut which will eventually
affect the cost of properties in Cheras, Kajang and Semenyih too.
High level
Once prices of
properties have reached an artificially high level, it is very difficult to
bring them down again without adversely affecting the owners and banking
institutions. What we can do is to slow down the steep escalation of house
prices due to excessive speculation and other artificially inflated pricing
methodology such as the DIBS.
The DIBS also
encourages syndicated speculators to enter the scene. Basically through DIBS,
speculators can enter the market with very small capital outlays. In brief the
following occurs:
Speculators approach
developers to offer bulk purchases or developers offer syndicated speculators
bulk sales with "seemingly attractive discounts."
I stress on the words "seemingly attractive" discounts because in reality, the selling price is
already being marked up. From this marked-up price, a discount/rebate is given
by way of a credit note.
This credit note is
then converted and deemed to be deposit/down payment paid by the speculator
buyer.
Thus one can see that
one can buy a property with near zero upfront payment. This scheme may not work
without the collaborations of valuers and banks. Sometimes bogus sales based on
inflated prices are executed to set elevated benchmarks so that valuers can
justify the inflated values based on the price that was last transacted. Thus,
it can be seen that houses prices are pushed up on two counts.
Firstly, developers
have to factor in the interests that they have undertaken to pay on behalf of
the buyers, secondly they do so to offset the rebate/ discounts that they have
built into such schemes.
Banks traditionally
base the quantum of loan against the valuers' report. Being loan disbursements
target-orientated, they pay scant attention to the actual values of properties
that their clients have purchased.
Laughing to the bank
The chief
beneficiaries of the DIBS are the developers - they can flock off their
products quickly and the banks/financial institutions - they can give out
higher loans to achieve their monthly target.
DIBS - dubious scheme
DIBS or any other
permutation similarly "schemed" cannot be allowed to continue for the
betterment of the housing industry as it risks creating a property bubble as
the property prices have been artificially increased and they create a snowball
effect. As property prices get more unaffordable, the younger generation cannot
afford to own their own properties, social problems can also arise.
DIBS prohibition
announced in Budget 2014 had been effective in curbing the unbridled escalation
of house prices. DIBS must continue to be prohibited and outlawed. Do not allow
first time house buyers to be deceived.
Imagine, these young
adults are just entering the work force and these burdensome loans (with DIBS
factored in) comes with a financial commitment to service a debt. The young
people must diligently pay monthly instalments to the banks they are committed
to.
They may be sued by
the banks for breach of contract or non-performance or risk their home being
foreclosed should they default in any of the periodical instalments. Do you
want our young adults to be enslaved by the banks and financial institutions?
From another
perpective, an undesirable household economic situation is created when a large
proportion of household income is taken up to service a housing loan.
Responsible individuals are compelled to ensure that they do not default on
their loans. Malaysian household debts are already among the highest in the
world. All these enticements will only worsen the situation.
Many households may
fall victim to temptation and may overstretch themselves financially and
eventually get into the "camel's back" situation. It also creates an unbalanced
economic situation in the country whereby in order to service the housing
loans, families will drastically cut back on other expenses such as
entertainment, holidays, clothing, education, etc.
In sum, families' are
compelled to lower the quality of life, all for the servicing of housing loans!
Consequently, the other sector of the economy such as the entertainment,
travel, food and beverage and garments will end up picking up the crumbs.
Chang Kim Loong AMN is
the secretary-general of the National House Buyers Association, a non-profit,
non-governmental organisation manned purely by volunteers.
