Booking date v SPA date – who is to benefit?


Should LAD be counted from Booking Date or SPA Date?


SHEDA (Sarawak Housing and Estate Developer's Association) Augustine Wong said:

"Paying booking fees more beneficial to house buyers than paying 10 pct non-refundable deposit"

as reported in linked above.

KUCHING, March 24: Without the practice of placing booking fees, prospective homeowners will be required to sign a Sale & Purchase Agreement (SPA) and make a 10 per cent non-refundable deposit to developers, says Sarawak Housing and Estate Developer's Association (SHEDA) president Augustine Wong.

He welcomed the decision of the Kuching High Court today in favour of RJ Realty Sdn Bhd, as Wong said in Sarawak, the practice of giving and receiving booking fees enables purchasers to make informed decisions regarding property, without incurring heavy losses.

"In his wisdom, Judicial Commissioner Alexander Siew has recognized that the practice of accepting booking fees in Sarawak grants options to interested purchasers.

"Through the use of booking fees, purchasers are given the freedom to select their preferred units and to reserve their choices of property pending approval of housing loans.

"With a booking practice in place, purchasers will not need to worry about forfeiting a full 10 per cent deposit, in the event housing loans are not approved," said Wong.

He was further encouraged that Siew distinguished the application of the Sarawak Housing Development (Control & Licensing) Ordinance 2013 from the Housing Development Act which is applied in West Malaysia.

"Had the decisions of the Sarawak Housing Tribunal been allowed to stand, the impact would negatively affect the entire housing industry throughout Sarawak, to the detriment of genuine purchasers, who would bear the highest risk.

"Without the buffer time frame provided by the practice of placing booking fees, purchasers would be required to sign their respective SPAs and immediately pay a non-refundable 10 per cent deposit to the developer, without knowing if their housing loans are approved," said Wong.

Wong said SHEDA members were relieved that Siew had ruled that Liquidated Ascertained Damages (LAD) should be calculated from the signing of the SPA.

The Kuching High Court has ruled today that the Federal Court's decision in PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor and Other Appeals was not applicable to Sarawak and Sabah.

RJ Realty Sdn Bhd had applied for a judicial review in the Kuching High Court for cases where the Sarawak Housing Tribunal have been following the Federal Court's decision on PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor and Other Appeals in awarding LAD for late delivery of houses/apartments from the date of booking,  and not from the date of SPA. - DayakDaily.


As above.

Further comment (only a personal view)

The wordings are similar, yet the decision from the two Courts are different, amid the Federal Court's decision being overturned by a lower court (High Court). What are the rationale behind?

It is not here to disrespect the Courts. The below is just discussion from academic point of view without any slightest intention of contempt of Court.

The economic reason of putting the date from SPA instead of Booking paid is to reduce the LAD. This is obvious, and without much argument. We understand the beneficial party - SHEDA or any developer, would use a later date (SPA date) instead of earlier date (booking paid). It is pure business survival.

From the legal point of view. When a booking is paid, it is a sign of offer, which means the purchaser offers to purchase the property. If the booking fee is accepted by the developer, it is seen as offer being accepted - which constitute an agreement of sale, despite the process being subject to loan approval (whole sum of money to be paid).

Now, the tricky part is this.

When a booking is paid, it is not always fully refundable, and on top of it being not a fully exercised agreement (contractual in nature) many purchasers are subject to protracted loan agreement with the financial institutions - hence "conditional" to loan availability and purchasers' credit-worthiness.

If we consider the most optimistic scenario that the purchaser is able to secure his bank loan, the process would immediately proceed to signing the SPA (even within 1 week) and paying up the remaining earnest deposit or cash down payment - be it 10% or more. The difference of booking fee paid to SPA date is very short. Frequently this is not the case, instead there are many exceptions.

Many a time, purchaser will take months (even 3 months) to secure his loan. This may be due to credit worthiness or further guarantor requirement. This becomes significant in calculating the LAD in case the project delayed in vacant possession (1 week v 12 weeks). Largely, this is the issue with the developers who do NOT want to pay such a hefty LAD.

Furthermore, the HDA 1966 and its regulations (amendment 2015 on-wards) prohibits the collection of booking fees. This is similar in the case of HDO 2013 in Sarawak because the law was incorporated wholly into the local setting in Sarawak.

Nevertheless, the market is still practicing the collection of booking fees. Why?

Because it is a good sales tactic to make prospect purchasers to commit to a sale. Based on the above remarks by President of SHEDA, it is a benefit for the purchaser. The rationale is that instead of 10 per cent of NON-REFUNDABLE deposit (loan of 90%), the booking fee is a mere few thousands (usually RM3,000 - RM5,000). So, most purchasers can take out the booking fee and secure the unit that they want during viewing and selection of units. In fact, in order to entice purchasers, developers are offering booking fee of RM99 (during festive occasion) to RM1,000 for special "early bird" benefits. In short, the idea - you get it right - is to get as many booking as possible.

The psychological tactic is to take up bookings to show to all prospect purchasers out there that there is tremendous response in sales of the project. Having almost 50%-80% of the units under "Red pin" will greatly smooth out the progress of sales and success of launch for the great numbers of developers out there. It is just good reputation and public confidence. Not to forget the stock market as well for public listed developers.

Instead, if there is strict adherence to fit and due diligence in filtering purchasers who truly can afford the properties, the actual numbers will be much much smaller. The outcome would be disastrous!

As for NON-REFUNDABLE 10% - the truth be told.

In a legal process of purchasing a property, the purchaser can commit and purchase the property only when the terms become unconditional - meaning all conditions are fulfilled!

This means successful loan, cash deposit 10% (if loan is 90%) and agreeable to all the terms of purchase. This does NOT change with or without Booking Fee. Only when all terms are fulfilled that both parties proceed to a SPA. Before that, everything is still conditional - there is no contract! Therefore, putting the date of booking is also unfair to the developer being that not all bookings will result in successful sale. And, not all successful sale MUST come from a BOOKING!

In other words, a purchaser can proceed to apply for loan (or get his credit worthiness evaluated by the bank) before going to a property sales gallery to look for the right purchase. If he is really determined to buy a property, he would be educated of the total sum required by the sales personnel assisted by the bank officer already camping at the sales gallery. In many countries, this is being done without any issue of delay or non-compliance to any regulation or laws.

It is a perfect normal thing to do. However, the success rate of such process of sales is lower than placing a small token of booking (RM1,000 - RM5,000) versus coming out with RM50,000 cash (RM500,000 property at 10% down payment). You do NOT expect property buyers carrying cash RM50,000 in a sales gallery! Probably only one in a hundred who come to the sales gallery does that - with cheque book!

So, you can understand the reason why booking fee is a market practice! It is NOT about benefiting the purchaser. On the contrary, it in fact benefits the developer even more.

What the HDA 1966 wanted to achieve in West Malaysia is that house buyers are not subjected to sales tactics of the developers. Without placing booking fee is also a new rule that is inserted into the Regulation for the same reason.

It is to protect the purchaser from being persuaded to a purchase without actually willing, able and ready to purchase a property. It makes the purchaser go back to think carefully and really evaluate his financial standing to come back and commit to a big ticket item in his life. Many would NEVER come back - and this is the problem with the developers.

Despite, the true purchaser can always make a purchase, with or without booking for he is willing, able and ready to make a purchase.

BUT, these are the minorities.

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