Why developer interest-bearing schemes should be banned

Property News/ 20 September 2014 Leave a comment

The Developer Interest-Bearing Scheme (DIBS) is marketed in such a way whereby the house buyers pay a small down payment during the signing of the sale and purchase agreement (SPA).

The developer will bear the interest due during the project construction period until the handing over of vacant possession where the house buyer will have to come up with the remaining payment.

Developers are fond of the DIBS because it is a smart marketing tool which can be used to entice potential house buyers into believing that they have found a good financing deal, especially those who do not know the implications or read the fine print of the terms of the agreement in the event of project abandonment.

Under the Built-Then-Sell (BTS) 10:90 concept, the law has been amended and is found in Form I (for landed properties) and Form J (for strata properties)  of the Housing Development (Control and Licensing) Regulations, 1989 (amended 2007). It has been in operation since Dec 1, 2007.

Spot the differences

Some developers have even equated DIBS as being the same with BTS 10:90. However, this is not true. If DIBS are not the same as BTS10-90, what then is the difference? Simple.

i) BTS 10:90 uses either Form I or Form J found in the HD Regulations. The BTS 10:90 is the financial model announced by the previous Housing Minister 2012 for financing housing projects come 2015. Under BTS 10:90, should the developer fail to complete the project as promised, the house buyer only faces trouble with the 10% deposit, which he/she may try to recover through the existing legal mechanisms.

ii) DIBS, on the other hand, are a “willing seller-willing buyer” SPA cunningly crafted by developers and are in contradiction with the current housing legislation. Under the DIBS, the house buyer has agreed to be responsible to the banks/financial institutions for the loans signed under the SPA whether the houses are delivered or not. This is the moral hazard the Government is trying to prevent the house buyers from getting into.

Developers, being entrepreneurs, have to be responsible and bear the risks that come with investment. They should not be allowed to enjoy profits at the expense of house buyers who have to bear the risks on their behalf.

Thus, when developers claim that the schemes are good because they “assist new purchasers”, they should be asked to use the BTS 10:90 instead if they are sincere in not wanting to shift the risks to the house buyers. Developers being profit-driven, merely want to sell their products by whatever means, even recommend the DIBS for “first time house buyers” on the guise of “assisting them”.

Are we saying that the Minister of Housing can’t spot the differences? If the Ministry of Housing promotes such DIBS schemes, then surely it must be the developers’ ideal marketing tool.

Interest element factored into DIBS “schemed” properties

DIBS properties are also priced much higher than non-DIBS properties as there is “no free lunch” as the saying goes. Whenever a developer says that expenses such as “interest during construction”, legal fees and/or stamp duty are absorbed by the developer, ultimately the cost of such “freebies” or “rebates” as they are called will be added back and factored to the purchase price of the property.

Based on past samples of comparison between DIBS properties and non-DIBS properties (see chart), the price difference is 10% to 20% and some even as high as up to 25%.

That would mean that if a property was proposed to be launched at RM500,000 and if the developer were to offer DIBS, the developer would be pricing the said property at RM600,000 to cover for so-called “interest cost during construction (say three years)” that the developer is absorbing.

This artificially inflates property price which has a push effect on:

  • Prices of subsequent new launches as future launches must be priced much higher than RM600,000, probably closer to RM700,000, thus making subsequent new properties more unaffordable.
  • Prices of existing properties can also increase overnight by up to RM100,000, thus making existing properties also more unaffordable.

Property prices also have a spillover effect and can push up prices properties in surrounding locations. Properties launched in Mont’ Kiara will immediately push up prices in surrounding locations including Kepong and Segambut which will eventually affect the cost of properties in Cheras, Kajang and Semenyih too.

High level

Once prices of properties have reached an artificially high level, it is very difficult to bring them down again without adversely affecting the owners and banking institutions. What we can do is to slow down the steep escalation of house prices due to excessive speculation and other artificially inflated pricing methodology such as the DIBS.

The DIBS also encourages syndicated speculators to enter the scene. Basically through DIBS, speculators can enter the market with very small capital outlays. In brief the following occurs:

Speculators approach developers to offer bulk purchases or developers offer syndicated speculators bulk sales with “seemingly attractive discounts.”

I stress on the words “seemingly attractive” discounts because in reality, the selling price is already being marked up. From this marked-up price, a discount/rebate is given by way of a credit note.

This credit note is then converted and deemed to be deposit/down payment paid by the speculator buyer.

Thus one can see that one can buy a property with near zero upfront payment. This scheme may not work without the collaborations of valuers and banks. Sometimes bogus sales based on inflated prices are executed to set elevated benchmarks so that valuers can justify the inflated values based on the price that was last transacted. Thus, it can be seen that houses prices are pushed up on two counts.

Firstly, developers have to factor in the interests that they have undertaken to pay on behalf of the buyers, secondly they do so to offset the rebate/ discounts that they have built into such schemes.

Banks traditionally base the quantum of loan against the valuers’ report. Being loan disbursements target-orientated, they pay scant attention to the actual values of properties that their clients have purchased.

Laughing to the bank

The chief beneficiaries of the DIBS are the developers – they can flock off their products quickly and the banks/financial institutions – they can give out higher loans to achieve their monthly target.

DIBS – dubious scheme

DIBS or any other permutation similarly “schemed” cannot be allowed to continue for the betterment of the housing industry as it risks creating a property bubble as the property prices have been artificially increased and they create a snowball effect. As property prices get more unaffordable, the younger generation cannot afford to own their own properties, social problems can also arise.

DIBS prohibition announced in Budget 2014 had been effective in curbing the unbridled escalation of house prices. DIBS must continue to be prohibited and outlawed. Do not allow first time house buyers to be deceived.

Imagine, these young adults are just entering the work force and these burdensome loans (with DIBS factored in) comes with a financial commitment to service a debt. The young people must diligently pay monthly instalments to the banks they are committed to.

They may be sued by the banks for breach of contract or non-performance or risk their home being foreclosed should they default in any of the periodical instalments. Do you want our young adults to be enslaved by the banks and financial institutions?

From another perpective, an undesirable household economic situation is created when a large proportion of household income is taken up to service a housing loan. Responsible individuals are compelled to ensure that they do not default on their loans. Malaysian household debts are already among the highest in the world. All these enticements will only worsen the situation.

Many households may fall victim to temptation and may overstretch themselves financially and eventually get into the “camel’s back” situation. It also creates an unbalanced economic situation in the country whereby in order to service the housing loans, families will drastically cut back on other expenses such as entertainment, holidays, clothing, education, etc.

In sum, families’ are compelled to lower the quality of life, all for the servicing of housing loans! Consequently, the other sector of the economy such as the entertainment, travel, food and beverage and garments will end up picking up the crumbs.

>> Chang Kim Loong AMN is the secretary-general of the National House Buyers Association, a non-profit, non-governmental organisation manned purely by volunteers.

Source: StarProperty.my

  1. engineer
    September 20th, 2014 at 14:11 | #1

    Thank you Mr Chang for standing up for us who cannot afford decent housing anymore because of unscrupulous practices in the housing market that benefit only the rich, sidelining the average people.

    I do not know why SueYou Lim keeps calling for the DIBS to be re-introduced, knowing that it only benefits the developers, but home-buyers would eventually have to pay more. If you’re a short term speculator where you rely on zero upfront payment with no payment until OC, DIBS enables you to buy as many units as possible without having to get into cash flow problem.

  2. developernbanker
    September 20th, 2014 at 15:49 | #2

    I don’t care. I want suck all your $$$! Muahahahaha…

  3. DIBS
    September 20th, 2014 at 16:18 | #3

    KL property nice than DIBS, example 500k property u pay 1% down payment after loan approve, developer casback 50k as DIBS, 50k already enough to u pay the interest to bank while under construction, balance u masuk pocket, but this never happen in penang, u pay 5k, developer gv u 50k.

  4. joe
    September 20th, 2014 at 21:00 | #4

    PG developer is damn calculative one….. 10% downpayment u have to pay all 10%, then interest not cover, even some don’t cover your legal fee / disbursement/ stamp duty fees…

    very ‘calculate die grass’ -> 算死草

  5. Father
    September 20th, 2014 at 21:46 | #5

    yes thank you Mr Chang … we need more people like you to speak up against those greedy & dishonest developers a.k.a. daylight robbers like that shameless conman Jerri demanding the return of DIBS … the authorities must be firm and not bow to pressure from these blood sucking groups

  6. wei jin
    September 21st, 2014 at 23:09 | #6

    what is die grass?????!!!!!?????

  7. Home buyer
    September 22nd, 2014 at 08:04 | #7

    Chang kim loong , u did the right thing and very well written . Look at our property prices , all thanks to DIBS. There is still alot of home buyers struggling to own a decent unit .

  8. Spiderman
    September 22nd, 2014 at 11:55 | #8

    Thank you Mr Chang. I support you and your association on NO DIBS.
    Also, first time housebuyers and fresh graduates can easily enticed by DIBS easy enter scheme and then lured into speculative activities, hopeful for quick, no-cost gain.

  9. BS
    September 22nd, 2014 at 13:05 | #9

    Sounds like a bunch of bullshit to me..

  10. cicakman
    September 22nd, 2014 at 14:22 | #10

    Hi BS,

    Bullshit? Why? Care to share?…:)

  11. karma
    September 22nd, 2014 at 22:03 | #11

    well done Mr Chang …, hope some seemingly “clueless” authorities are now enlightened and not fall for these unscrupulous developers gimmicks

  12. BS
    September 23rd, 2014 at 12:31 | #12


    I will give you one example why such article or “law” is BS. Remember months ago we saw an article about developer who work hand in hand with Ganster contractor will be blacklisted? well lets just say despite all the efforts of residence reporting to Jagdeep and police, no actions were taken to these unscrupolous developer. Still the gangster runs their business as usual.

    Now, banned DIBS? C’mon, please do not joke. We know very well some developers give cash/cheque to buyers once they S&P stamped to offset the interest or some form of cash vouchers to buy furnitures and etc. In other words, buyers are compensated since no more DIBS.

    Untimately, again, such article are meant to only show public that our state govt are doing something to curb something, but not everything. That is why, sounds like a bunch of bullshit to me.

  13. NBS
    September 23rd, 2014 at 13:04 | #13


    You’re right in a way to say that it is “not easy” to ban DIBS, as it can come in many forms. However, that doesn’t mean it’s impossible to be done. It is only a matter of how bad you want to do it.

    A proposal was actually made to keep things under close watch by selling all properties through a state agency. So example, (1) developer builds the houses (2) developer tells state agency how much per unit (3) home buyers buy properties through state agency at the price determined by developer (4) in the end, the developer does not know who buys what, only the state agency knows.

    With that mechanism of not having direct contact between developer and buyer, much hanky-panky that results in price distortion can be avoided. Sure, you can say we don’t have any laws right now to do that. But we can always come up with new laws to do things in a new way. Right?

  14. BS
    September 23rd, 2014 at 13:24 | #14


    Yup, good to know such proposal is under consideration. But then people may ask if such state agency is trustworthy since now they hold the right to whom they will sell premium units to?? Lets not talk about this, there will be no ending.

    Anyway, it is just unfortunate that we (malaysians) have been practising this way of working. The state are not even able to defend the public/residence from obvious problems of gangster contractor who extorts money just like daylight robbery. What more on less critical problems like DIBS? LMAO.

  15. Spiderman
    September 23rd, 2014 at 14:19 | #15

    The article is actually from National House Buyers Association, represented by their Mr Chang to housing ministry and state govt agencies to oppose the return of (or lifting ban on) DIBS as proposed by some developers association. Genuine house buyers therefore should support Mr Chang and NHBA.
    In Budget 2014, we know DIBS and other forms of permutations are banned, however, we also know enforcement are damm poor (and yes, bullshit) as developers changed them to other all kinds of cash or cashless forms.
    However, if we do not continue to support the ban of DIBS and permutations and any state govt agency new proposals, then we will lose hopes and things could get back to even worse and worse and affected everyones. Yes, I like NBS comment too esp last sentence.
    Just my 2 cents worth.

  16. NBS
    September 23rd, 2014 at 17:08 | #16


    You don’t trust state agencies? Hehehe…..SueYou Lim’s state agency also you don’t trust ah? Then……eh…..you need to migrate already loh!

  17. exposed
    September 23rd, 2014 at 23:42 | #17

    @BS must be one of those greedy unscrupulous developers .. full of smelly bullshit

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