Tony Pua (okay, okay, MP Tony Pua) raised an interesting issue in his blog. There, he expressed his approval for the build first and then sell later arrangement (build-sell) proposed by the Selangor state government in replacing sell while building arrangement (sell-build?).[1]
While the build-sell model does have its benefits, namely having the potential of reducing the number of cases of buyers being cheated by developers, the currently popular sell-build structure does have its benefits too.
First of all, it allows individuals to purchase home at a cheap price. Developers, assuming there is no fraud involved, will be willing to sell yet to be built or completed homes at a discount to accommodate any risk undertaken by the purchasers. Furthermore, time value for money faced by the developers encourages them to accept smaller amount from purchasers here and now compared to any time in the future.
Secondly, it encourages developers to be bold and thus, encourages growth in the construction industry. This is due to convenient cash flow. If the developers had to wait for months before they could see the first cent of revenue coming in, I think a lot less developers would be willing to participate in building homes. Or at least, smaller developers would have less opportunity to do business. Small developers most likely could not withstand the large net outflow of cash they would have to suffer between the start of construction and completion date. In the end, not only the construction industry could see less growth, a build-sell world could create a world close to a monopoly in which only large developers which could withstand sustained net cash outflow until the date of completion survive. I am well aware that financial institutions are there as underwriters but then again, through what limited experience I have, banks are very risk-averse and that increases cost of doing business.
Anyway, I am ambivalent in the debate between build-sell and sell-build, if there is a debate at all. But I am certainly would be unhappy if the state decided to coerce developers into adopting a particular structure.
[1] So when I read that the Selangor state government intends to implement the “build then sell” concept of housing, I’ll all hands in support. [Build The Sell. Philosophy Politics Economics. July 2 2008]
