Blacklisting individuals behind parent developer companies may be strong deterrent against misconduct: Expert

New Straits Times

17 hours ago

KUALA LUMPUR: The proposed amendment to the Housing Development (Control and Licensing) Act 1966 should enhance Malaysia's reputation as a reliable property market, attracting more sustainable domestic and foreign investment.
The move will lead to adoption of better governance and financial practices among developers, said an expert.
Universiti Teknologi Malaysia associate professor in property economics and finance Dr Muhammad Najib Razali said by ensuring that both residential and commercial developments are subject to stricter oversight, the reform strengthens overall investor confidence and enhances market stability.
"Developers will be compelled to adopt better governance and financial practices, reducing the risks of stalled or abandoned projects.
"This, in turn, will improve Malaysia's reputation as a reliable property market, attracting more sustainable domestic and foreign investments," Muhammad Najib told Business Times.
He added that the proposed amendment is both timely and necessary, pointing out that although the act has traditionally centred on residential projects, commercial developments are just as vulnerable to delays, financial mismanagement and abandonment.
"Small businesses and investors who purchase units in commercial developments face risks similar to homebuyers, yet enforcement mechanisms have been limited.
"By expanding the scope of the law, the ministry is closing a significant regulatory gap and ensuring comprehensive protection across the property sector," he said.
Muhammad Najib added that the blacklisting of board members of parent developer companies and ultimate beneficiary owners under the proposed amendments could be a strong deterrent against repeated misconduct.
"Historically, some Malaysian developers have dissolved companies or rebranded under new names to escape liabilities, leaving buyers stranded with little legal recourse.
"This has been a recurring issue in Malaysia's property sector, where abandoned and 'sick' projects continue to undermine market stability.
"By targeting the individuals behind these companies, the amendment ensures greater accountability and reduces the chances of repeat offences," he said, adding that the move reflects growing public expectations for accountability in the property sector.
However, Muhammad Najib cautioned that while blacklisting is a useful measure, it should be carried out with proper due process and clear guidelines to prevent unintended repercussions.
He also noted that experts have long stressed blacklisting on its own is not a comprehensive solution, as deeper issues such as fragile financing structures, weak project governance, and speculative development practices persist.
"If executed fairly, however, blacklisting could help break the cycle of abandoned projects that has left more than 42,000 housing units, worth over RM12 billion, abandoned in the private sector alone as reported by the Rehda Institute in 2024."
Muhammad Najib said in Malaysia's real estate sector, the persistent issue of abandoned projects impacts not just homebuyers but also undermines confidence in both the commercial and residential property markets.
"The scale is significant: as of October 2024, Malaysia recorded 113 abandoned housing projects, 212 delayed, and 382 categorised as 'sick', with a total gross development value exceeding RM113 billion.
"High-profile failures such as Plaza Rakyat in Kuala Lumpur, left incomplete since the 1997 Asian financial crisis, or the under-occupied Forest City in Johor, demonstrate that both residential and commercial projects are exposed to financial and governance risks," he said
Global approaches
Muhammad Najib noted that several countries have adopted similar mechanisms to ensure developer accountability and safeguard buyers.
He said in Singapore, developers must channel purchasers' payments into Project Accounts, which are closely regulated to ensure the funds are used strictly for construction purposes.
"In China, the government has tightened rules on real estate financing and imposed restrictions on developers' ability to take on excessive debt through the "three red lines" policy, directly targeting corporate governance and financial responsibility," he said.
He pointed out that in India, the Real Estate (Regulation and Development) Act 2016 enforces stringent disclosure rules, compels developers to place at least 70 per cent of buyer payments into escrow accounts, and blacklists those who abandon or delay projects without valid reasons.
"These international examples show that enhanced accountability, blacklisting of errant developers, and stricter financial oversight are increasingly seen as necessary tools to safeguard property markets and protect purchasers," he added.
Preventive checks
Muhammad Najib said preventive measures are crucial to reduce the risk of housing or commercial projects being delayed or abandoned.
He said that developers should undergo stricter checks before getting a licence, including proving financial strength, clear ownership, and feasible project plans.
"The government also needs to play a stronger role by having rigorous knowledge and thorough evaluation before approving any new development.
"Too often, approvals are given without deep checks into a developer's track record, financial capacity, or whether the project is truly viable.
"With better due diligence, weak or speculative projects can be filtered out early, reducing the chances of them being abandoned later," he said.
Muhammad Najib said this ensures that only serious, credible developers can enter the market, which protects both buyers and the overall real estate sector.