Unscrupulous developers solicit advance and down payments:

Law to address condo issues

by Rukshana Rizwie

Stringent controls and monitoring measures are to be set up under over the Condominium Management Authority and Apartment Ownership Law to address issues that have risen between developers and potential buyers in the condominium market. This comes in the wake of unscrupulous developers illegally soliciting advance and down payments prior to obtaining the necessary approvals from the authorities, thus raising grave concern

"As a regulator we strive to strike a balance between the developer and the buyer because we need to protect the interests of both stakeholders, however, there is a trend, where developers were demanding advances and down-payments from buyers, even before receiving the required approval," Chairman of the Condominium Management Authority (CMA) C.A.Wijayaweera said.

Speaking to the Sunday Observer, he explained that the authorities had observed several unscrupulous developers illegally soliciting advance and down payments prior to obtaining the necessary approvals from the authority, which was of grave concern. Other issues included questionable ownership of lands which potential buyers tend to overlook when making payments to developers.

Advances for apartments

Wijayaweera told the Sunday Observer the CMA has proposed an amendment to stop developers from soliciting advances from buyers prior to construction of proposed condominium. "Advances and down-payments can only be taken once the developer has declared bona-fide documents after receiving necessary approvals and certificates from the CMA," he said.

Wijayaweera urged potential buyers to seek the opinion of the CMA, prior to making any payments regardless of promises made by developers. "We can check if the developer is accredited and if the CMA has granted approval and if it's valid,"he said.

Wijayaweera said once the buyer has decided to make the necessary payments they should refer to the 'Sales Purchase Agreement' to ascertain if and when they would be given their deeds. "If the developer has not received the approval from the CMA or has breached any guidelines, they may not receive the certificate. Once the certificate is issued from the CMA, the developer must release the deeds within six months and nothing more,"he said.

Questionable ownership

Wijayaweera adviced buyers to find out if the potential developer has the rightful ownership of the designated land. "The buyer can check with the local authority as to who the owner of the land is and if it has been transferred to the developer or the owning company. These details will also be available on the copy of the title deed or abstract of the title deeds. It is of paramount importance that buyers establishes this fact,"he said.

Wijayaweera who has authored several books and publications on condominium management and requests buyers to ask the developer on the proposed system for electricity and water supply to the units. "An important question to ask would be, if the developer has backup generators for a continuous supply of electricity," he said."If the developer has not paid the bulk supply fee for water and electricity supply, there will be disruptions in the services provided, " he asserted.

Putting it in perspective

"Condominiums account for half of the new houses built in the Colombo region and is fast growing. As this sector expands, so has housing options, the size and complexity of the market and the number of people affected has also increased," Kirthi Hewamanne, an award winning realtor who has over 40 years of experience in real estate said. "The issues today are not only legal or technical in nature. Increasingly, they are about relationships within the condominium sector-tensions between owners, other residents, board members, condominium managers, developers, lawyers and others," Hewamanne said. He added that just like neighbors, these stakeholders must learn to work to achieve common goals particularly so in a space that's occupied by many people and several hundreds of housing units.

Supply to take over demand

The Oxford Business Group (OBG) in a report said that supply would overtake demand which would reach 6000 units by 2018-19.

The report mentioned several residential projects including John Keells Holdings' $850m Cinnamon Life Waterfront Project, which is billed as the largest private sector investment in the country, according to the company's website. The 4.5m-sq-foot integrated resort is scheduled for completion in 2018 and will include an 800-room hotel, apartment and office complexes, a convention centre and a shopping mall.

"In the premium residential segment, insufficient demand will be a problem," Pravir Samarasinghe, CEO of Overseas Realty (Ceylon) - the company developing Havelock City had told the OBG. "There is a maximum of take off 500 units a year in Colombo, and there are probably 3,500 under construction over the next three years."

According to the OBG more than a third of premium residential sales are generated by Sri Lankans living abroad, while less than 4% of investments are made by foreign buyers with the balance coming from locally based, high-networth individuals.

Energy demand to overshoot supply

The Deputy General Manager at the Ceylon Electricity Board for the Colombo City Engineer Jayavilal Meegodasaid that he was concerned over rising demand for energy due to the many high rise developments and the lack of supply as well as reliability.

"We know from experience that consumers demand a 100% reliability of electricity at all times but we've also learned that it's not entirely possibly at times," he said. "If the many planned high rises are to come up, energy demand is going to shoot up. We need to have adequate supply and reliability to match, which we don't have at present."

Meegoda who is also a transmission and distribution expert added that in an 'unplanned' city as Colombo, it has become extremely difficult and expensive to even lay cables to supply energy.

He said that excavation has become costly, with companies demanding Rs.12 million to Rs. 15 million to excavate 250square feet.

"There are no service corridors which is a problem in Colombo," he said. Meegoda added that many developers of high-rise buildings were yet to submit accurate figures of energy demand and forecast in Colombo. "We have planned a Colombo Development Project, which is a transmission project that will be completed by 2018."

Water supply

The Asian Development Bank in its sector Assessment of Water Supply and wastewater management of the greater Colombo area cited that 'while various projects have addressed the increasing water demand in the city, significant rehabilitation of the network has not been carried out. As a result, nonrevenue water (NRW) has reached almost 49%.

The report states that about 95% of Colombo, the capital city and economic and administrative hub of the country, has piped water supply. However, the system has low and fluctuating system pressure and intermittent supply; hence, some areas of the city received water only during off -peak hours while others received water for an average of 6-10 hours. Many parts of the distribution network in the city were built 100 years ago."

Wijeyaweera also added that the CMA had sent a proposal to the Cabinet seeking an amendment to clarify the definition of Mixed Developments which includes high rise housing, retail outlets and office spaces.

Mixed Developments

"At present, 'Mixed Development' is ill-defined. The Act does not explicitly state what 'Mixed Developments' are or should be," he said adding that the loophole was proving to be problematic with many developers citing that their proposed vertical spaces will include shopping, office and housing units.

He added that several developers who planned to have more than two or three condominium complexes in one specific location, should legally have separate condominium management corporations. "It has come to a point where we now need to micromanage and troubleshoot issues that arise from separate complexes belonging to a single developer," he said.

"The best way is to have separate management corporations and finally an apex body comprising the president and secretaries of each of these, so if there is an issue arising to water supply, electricity and other amenities which are often shared, they can be resolved amicably and swiftly."

He also added that a proposal to inculcate scattered housing schemes under the Condominium law, was in the offing.

"There are several scattered housing schemes where roads, electricity, water, swimming pools and other common amenities are shared. When a problem arises with water supply or electricity, the developer usually refers the resident to the CEB or Water Board when it is the developer who should find a remedy for the problem?"he queried.