Marketing Gimmicks: Here’s How Some Developers Get Too ‘Creative’

Should you flip through a newspaper/magazine or scroll through your Facebook feed today, you will most probably be bombarded with glossy advertisements of attractive residential projects. All advertisers aim to entice their readers or consumers, but some go the extra mile in creating picture-perfect, too-good-to-be-true products. Unfortunately, property developers are not exempted.

Here are the 5 ploys aspiring homebuyers should watch out for:

1. Artist’s impression ONLY

Many homebuyers have bought a property just because they were attracted to the artists’ impression of the project as well as the lifestyle represented by the sales brochure. These naive purchasers only realise too late that the image painted was too good to be true and the project doesn’t live up to their expectations.

Common advertising pitfalls include:

Example 1: Your apartment faces a landmark view (eg. KLCC ) as advertised in the sales brochure. Later, you find that it is being obscured by a neighbouring tower/apartment block or the view is too distant and obscure.

Example 2: Your actual clubhouse is nowhere as glamorous as the one represented in the glossy brochure and the actual gymnasium is devoid of the promised high-tech equipment and facilities.

Example 3: You find that your neighbourhood is not thronged with beautiful, caucasian women swimming and sun-tanning at the poolside as represented in the sales brochure.

Example 4: Your “uptown” Mont’Kiara address is situated in the vicinity of Segambut. As a property’s location is valuable, developers will always cash in, or as it is said in Malay, tumpang on the neighbouring prime residential address.

Example 5: 15 minutes to Petronas Twin Towers (if by flight – pun intended). Homebuyers will not get to enjoy this luxury as commuting estimates are always given under perfect traffic conditions. It is only possible if you travel in the wee hours of the morning, while everyone else is asleep.

This brings us to the burning question – The question is: Can you take the developer to task? Is the developer liable for these “misrepresentations”? Can a developer be sued for these inaccuracies and provide compensation to their purchasers?

Chances are nothing can be done unless these representations are incorporated as part of the sales contract’s terms and conditions. Besides, more often than not these representations are precluded by an all-too-familiar fine print. These disclaimers such as “All illustrations are artist’s impressions only” or “The brochures do not form part of the contract” usually sit in one obscure corner of the brochure. And are almost invisible except to those who own a magnifying glass.

2. Public-listed, award-winning developer OR its unknown subsidiary?

Many properties have been snapped up like hot cakes due to the distinction that it is being built by some well-known developer, one who has won multiple property awards. In actuality, the project is being developed by some second-rate subsidiary or an affiliate. This nugget of information is only discovered upon the signing of the Sales and Purchase Agreement (SPA).

The SPA is legally binding upon the parties that signed the dotted lines of the contract. If there is any default on the terms and conditions of the contract, the aggrieved party may sue the other whose name appears. If for instance, the buyer is the aggrieved party, he has no rights to sue the award-winning parent company of the subsidiary or associate company. It is in law called ‘privity of contract’.

These housing developers know better than to put all their eggs in one basket. If a risky project fails, all they need to do is to disassociate themselves from the subsidiary company as quickly as possible.

Say the developer defaults on the project, a home buyer must then consider whether he has the stamina to take on the cash-strapped developer. The latter will have an arsenal of lawyers at his disposal, waiting to carry out his every beck and call.

Aggrieved buyers can pursue a legal action against developers for such misleading or false advertisement but legal fees are expensive. A legal suit costs money and most people can’t afford to take on wealthy developers who can drag the case on for years up to the high courts.

3. Developers must provide full disclosure of approved plans

Housing developers are mandatorily required to provide purchasers with the complete and detailed set of documents of the approved property layout plans since the Housing Ministry issued a circular on 15 August 2014. It is now stated in the Developer’s License (in Malay) that:

“Satu salinan pelan yang diluluskan oleh Pihak Berkuasa Tempatan (PBT) hendaklah disertakan bersama Perjanjian JualBeli seperti Peraturan 11, Peraturan-Peraturan Pemajuan Perumahan (Kawalan dan Pelesenan) (Pindaan), 2015 dalam bentuk hardcopy saiz AO atau A1; atau dalam bentuk soft copy (format pdf) menggunakan cakera padat (compact disc) atau media elektronik lain yang bersesuaian.”

In fact, this has all along been a legal requirement. As far as landed properties are concerned, the approved layout plan and the approved building plan are to be included in the SPA as the 1st schedule and 2nd schedule, respectively.

With respect to strata titles, developers must attach the approved plans ( 1st & 2nd schedules):

• site plan
• layout plan
• floor plan of the parcel
• storey plan of the building
• accessory plan and common facilities plan

Recalcitrant developers have taken advantage of purchasers’ lack of knowledge; enabling these developers to have free reign in making unauthorised alterations in order to cut costs, such as:

• Manipulating unit measurements
• Design amendments
• Using sub-standard or alternative materials
• Changes in wiring and plumbing

These developers dare to flout the rules as they are banking on their purchasers not discovering these limitations/defects in time, at least not throughout the defects liability period.

4. Take note of (advertised) features not stated in the SPA

Many purchasers buy into the atmosphere of a housing estate or the portrayed overall living concept. Often enough, purchasers are persuaded by a project’s external features such as the playground and generous open spaces. Young couples are especially vulnerable to such “perks”, but they are blindsided about the existence of an “active” graveyard nearby or an oxidation pond right next to the recreational area.

If the developer promotes such features as the playground at the time of sale, then you (as the house buyer) should take down the answers, the name of the developer’s staff and designation and have your solicitor confirm this in writing.

It may constitute what is known in law as “a collateral oral warranty to the transaction” and may be read into the SPA to make it binding on the developer. These matters are not provided for in the SPA because the SPA is a standard form to be used in a whole range of property transactions where the details vary.

However, it does not mean these details cannot be added in as the law allows it (Tun Suffian in Lee Poh Choo v SEA Housing Corp).

Nevertheless, it is rare for a developer to provide such liberties, hence why a purchaser must appoint his own lawyer and not rely on the legal firm selected by the developer.

Even with the new requirement, the purchaser may still have to rely on the collateral warranty argument with respect to things not mentioned in the SPA. This includes whatever advertised perks or features where developers try to give the impression that they are meant to be part of the housing estate, but in actuality are not included in the developer’s approved layout plans!

Homebuyers also have to pay caution to the area density, which is the number of houses allowed to be built within the housing estate. Sometimes, greedy developers will quietly increase the number of houses from the originally approved amount when they see their project is selling well. A few dozen “additional’ units make all the difference between spaciousness and over-crowding.

A purchaser who was promised a certain quality of life has a cause of action against the developer who had reneged on his original development plans. The developer then cannot brush off the purchaser’s claim as “This was not paid for in the SPA”.

The quality of a housing estate may also be affected by the types and number of houses and other buildings such as shophouses. Their distribution must also be studied beforehand as it may affect the resident’s convenience.

5. Beware of freebies

Developers Interest Bearing Scheme (DIBS)

DIBS or any other permutation of an interest capitalization scheme has been outlawed by Bank Negara Malaysia and Housing Ministry since Budget 2012. DIBS is where the developer services the buyers’ loan interest during the construction period not realizing that the said interest element has been factored into the purchase price.

According to a survey conducted by the National House Buyer’s Association (HBA), the ban had been successfully implemented. However, it appears that fresh ideas are being concocted by some irresponsible developers to revive the equivalents of DIBS through creative financing packages offered to purchasers.

Free legal fees

Generally, “free legal fees” would mean that the developer will pay for the legal fees on the SPA. However, the offer of free legal fees may not cover disbursements such as stamp duties, searches fees, registration fees, printing charges, purchase of documents costs, etc. The purchaser will have to pay for them.

In other words, the offer of “free legal fees” would in its plain and obvious meaning suggest that the legal fees that the purchaser would have to pay to the solicitor would instead be paid by the developer. It would, therefore, be understood that if the purchaser had appointed a solicitor, the developer would pay for the solicitor’s fees.

What happens actually is quite different. An erroneous understanding of “free legal fees” exists in the housing development industry, much to the dismay of purchasers having disputes with developers. Therefore, there is nothing free about it as far as the purchaser is concerned. It can only be considered free if the buyer receives independent legal representation and does not have to pay for it.

A lawyer cannot represent both the vendor and purchaser. If you are using the vendor’s panel lawyer, often, when disputes happen, the lawyer is unlikely to represent you against their bigger client.

And so who is to say you have not been pre-warned!

This article was first published on iProperty.com.my and was contributed by the National House Buyer’s Association (HBA).