Build Then Sell Concept Finance Essay

The physique so sell is the new bringing system that implemented and introduced in April 2007 by the Malaysia authorities. This system was proposed by the old Malaysia Prime Minister, Tun Abdullah Bin Ahmad Badawi as a manner to an effort to advance better quality lodging and supply greater protection for place purchasers. In add-on, this system besides to work out the job of abandoned undertaking one time and for all.

The authorities announced that the physique the sell construct will be executed together with the sell so construct construct during two old ages of passage period in twelvemonth 2006. Therefore, the farther rating and reappraisal within two old ages. Under the physique the sell system, purchasers are able to analyze the finished houses and the milieus before make up one’s minding to purchase ( House Buyers Association, 2003 ) .

There are several states implemented this construct such as United Kingdom, United State and others. Therefore, the Malayan authorities are seeking to accommodate the same construct to work out the issues such as abandoned lodging or hold undertakings. There are the sum-up of physique so sell system in Malaysia from old ages 1980 until 2006.

Definitions Of Build Then Sell Concept ( Bts ) .

There are many definition of the physique so sell system define by several parties. Harmonizing to ( Zulkfli Ahmad, 1999 ) , selling of completed belongings with Certificate of Fitness for Occupation ( CFO ) . A system where the developers are required to construct and finish their lodging undertaking first before selling the completed houses to the house purchasers ( House Buyers Association, 2005 ) . There are two discrepancies of physique so sell system applied which is completed build so sell 0:100 and partial physique so sell 10:90.

Under the completed physique so sell, the developer merely sell the houses when it is to the full completed and ready for occupied with the issue of the Certificate of Compliance and Completion ( CCC ) ( National House Buyers Association, 2004 ) . The developers can merely sell the houses development undertaking after the sum of building works together with CCC.

Whereas for physique so sell 10:90, the house purchasers will pay 10 % sedimentation upon subscribing the Sale and Purchase Agreement with the developer and the balance of 90 % is made upon the completion of the houses or with the issue of Certificate of CC. The partial physique so sell 10:90 was implemented in Malaysia since 1 December 2007 and the Housing Development ( Control and Licensing ) Act 1966 and Regulation was amended to suit the new bringing system.

Financing Of Build Then Sell System.

In the physique the sell system, the developers will non acquire the fiscal or progressive payment made by the house purchasers to developers during or before the building phase. Under the BTS scenario, a few developers used their ain money or support from fiscal establishments or bank to transport out undertaking development without other beginnings of funding from house purchasers or terminal moneymans ( Rehda, 2004 ) .

Therefore, the developers will hold to use more funding from the fiscal establishments or used their ain capital or both to cover all the costs in the development undertaking. The bank should play an of import function by supplying the extra funding up to the phase of completion in order to do certain the physique so sell system smoothly work. On the other manus, there is no progressive payment from house purchasers. It means that developers required higher bridging loans in order to finance the undertaking. Therefore, the fiscal establishment or bank increases the higher hazard. The higher hazard means that the bank or fiscal establishment will increase the loan pricing.

Under the build-then-sell system developers and bankers have to bear the overall development hazards as they are investors. Therefore, both of the parties have to understand the lodging market before shiping into any development and would be cautious into perpetrating bad undertakings and developers are to re-engineer their concern operation of undertaking development.

There are troubles to financing the loans under bridging finance because the fiscal establishment or Bankss will give the loans merely to the experient developers who have required good path record and equal fiscal strength. However, it can be disadvantages to the smaller developer who are weak in fiscal and path record to build the physique so sell undertaking. The relationship of house purchasers, bank and developers in the physique the sell system are shown in Figure 1.

Figure 1: Relationship between House Buyers, Bank and Developer in Financing of Build the Sell System. ( Beginning: Raymond, 1981 )

From the figure 1, it shown that the relationship between three parties involved in funding of build so sell system. Each of the parties have their ain responsible such as bank give bridging loan to the developers to transport out the development while terminal finance loan to the house purchasers to buy the belongingss. In add-on, upon subscribing the Sale and Purchase Agreement the house purchasers can pay 10 % of selling monetary value and non necessitate to do any more payment after the Certificate of Completion Compliance for the houses has been issued. The balance of 90 % will be paid after the completion of undertaking. This manner can avoid jobs that are associated with the Certificate of Fitness before this where the house purchasers get house keys but can non travel in because the Certificate of Fitness has non been issued.

The Differences Of Build The Sell Concept Malaysia And Others Countries

The differences of physique so sell system in Malaysia and other states based on the theoretical account or discrepancy of physique so sell that enforced and the feature of the theoretical account. Each of the characteristic sometime gives advantages or disadvantages to the house purchasers, banker and developer on these states such as United Kingdom, Thailand, USA, Singapore and others. In Malaysia, the discrepancy construct so sell system that implemented is partial 10:90 where upon subscribing the Sale and Purchase Agreement, the 10 % of selling monetary value was paid and the balance of 90 % payment will merely collectible upon due the completion of houses with the issue of CCC. This system besides non affect of progressive payment made by house purchasers during or before the building phase and all the building cost will bears by the developer with the finance of bridging loan from bank or fiscal establishment.

However, there are three group of states implemented the three discrepancy of construct the sell system such as completed 0:100, BTS discrepancy ( 10:90, 15:85, 20:80, 30:70 and 40:60 ) and construct so sell discrepancy. United Kingdom, USA, Thailand and Netherland implement the complete BTS. The features of this discrepancy are the buyers buy the house merely when the house is to the full completed and there will be no aggregation of payment from buyers and house purchasers before completion of the undertaking. In add-on, the developers obtain the funding from Bankss or utilize their ain fund to finance their undertaking and the development cost involves an component of hazard which is borne by the developers and Bankss.

For the BTS ( 10:90, 15:85, 20:80, 30:70 and 40:60 ) , Thailand, Singapore, Australia, Taiwan, Netherlands, UK and US. Under this theoretical account, the buyers pay sedimentations runing from 10 % to 40 % . The sedimentation aims to lock in the buyer at the beginning of the development for lodging procedure. The fiscal facets besides similar with complete physique so sell where the developers finance their undertaking with ain fund and Bankss besides utilizing the purchaseraa‚¬a„?s sedimentation. Different with China, Hong Kong and England, the developers build the houses foremost and in certain needed clip, the developers can get down selling the houses.

Deduction Of Build Then Sell – Advantages

Build so sell system normally have advantages and disadvantages to the house purchasers, bank and developers. The chief advantages of physique so sell system to avoid the undertaking from abandoned and hold. First, construct so sell system give advantage to the house purchasers during purchase the houses. The house purchasers can acquire to see the completed lodging before paying any money to the developer. Apart from that, the house purchasers can analyze the quality and craft of the developer in building the lodging undertaking. So that, the house purchasers can avoid from being cheated particularly through advertizement. This is because the advertizement sometimes non gives accurate feeling such as design, layout and specifications of the belongings.

In the fiscal facet, the house purchasers merely pay when the belongings issue with the CCC because the developer responsible for financing the building until the completion of the undertaking. The developers can acquire profit from exempted given by authorities in physique so sell system. The developers besides get to be paid the loans lump amount of the full purchase monetary value. The developers which have good path record and strength in the development besides get benefit to concept and pull off the physique so sell undertaking. On the other manus, the Bankss besides get advantage through given high funding to the developers.

Deduction Of Build Then Sell aa‚¬ ” Disadvantages

One of the most disadvantages of physique so sell construct is the industry will be control by merely large developers who dictate the cost and pricing of the belongingss. Therefore, merely a few developers can transport out this physique so sell construct because of fiscal capacity. On the other manus, the costs of funding addition and this will be transfer to the buyers and the merchandising monetary value of belongings besides higher. This is because the developers add the development cost in the merchandising monetary value. Some of the developers will set about lodging development in more entree location. This will do the lower income groups of purchasing the belongingss even though the belongingss are low or medium cost.

The bankers besides fund higher bridging loans and troubles to the developers to borrow that loan. Under build so sell construct, it allows buyers to pay the initial 10 % sedimentation and non pay a individual cent until the undertaking is completed. The absence of progressive payments from the house purchasers means that the developers would most likely require a higher bridge-financing from the Bankss to develop the undertaking. At the same clip, there is deficiency of confidence that the buyers will take ownership of the belongings upon undertaking completion. ( Datuk Alan Tong, 2012 ) . Other than that, in any concern, there should be a binding understanding between purchaser and marketer to guarantee the trade is fair for both parties, and neither party should take advantage of the other.

The Incentives By Government

The manner that authorities to pull the developers to implement the physique so sell construct with given the inducements. By and large, the intents of giving the inducements to the developer to promote them affect in the development undertaking and assist them to diminish the fiscal. Under build so sell construct, the authorities have provided four types of inducements to the developers which involve in the development undertaking. The first inducement is the revenue enhancement freedom on involvement income. This revenue enhancement freedom is given by banking establishments to the delivering contractor or developer. Apart from that, delivering developer be given a dual tax write-off on involvement paid and all direct costs incurred in obtaining loans.

Another inducement provides which is stamp duty freedom. This freedom means that all instruments executed for the intent of transportation of land or houses are exempted. So that, delivering the developers in term of casts responsibility. Apart from that, freedom of cast responsibility besides given to the original house purchaser in the abandoned undertaking such as on all instruments executed for the intent of obtaining extra finance and the transportation of the house. All the inducements provide by authorities normally give benefit to the three parties such as developers, bankers and besides lodging purchasers involves in physique so sell construct.