Selling sans licenses
First of two partsEARLIER THIS MONTH, the Housing and Land Use Regulatory Board (HLURB) told Century Properties, Inc., one of the oldest property developers in the country, to stop selling its Gramercy Residences @Century City project in Makati.
The company’s application for a selling permit remained pending, the HLURB declared, and it scored the developer for coming out with advertisements for the project in July and September.
Century Properties officials countered that the advertisements the regulator referred to were actually press releases that came out in newspapers, and said the practice of selling while a license application remained pending was actually an industry-wide practice.
"Due to the extended length of time in filling and getting approval for permits in the Philippines, a majority of reputable Philippine developers start pre-selling their projects without a license to sell," Century Properties Chief Operating Officer Jose Victor Antonio said in a statement sent to BusinessWorld when the notice of violation was released to media.
"The problem is not unique to Century Properties, it affect[s] all major developers," he said.
HLURB officials all but confirmed this, with the agency’s Executive Officer and Commissioner Romulo Q. Fabul saying the notice of violation sent to Century Properties was but one of 149 the regulator had issued since the start of the year, said. The list includes practically all of the major property developers, he said.
"You cannot sell without [a] license to sell. It is a reasonable assurance that the papers are in order and the developer’s warranty, approved plan, ownership and capacity to develop are in place," he said.
Under Presidential Decree 957 or the Subdivision and Condominium Buyer’s Protective Decree — the law that governs the HLURB — property developers cannot sell subdivision lots or condominium units unless they have obtained the requisite licenses.
"Those who violate advertising without license, we notify all of them and issue cease and desist orders. They should not sell until they get the license to sell," Mr. Fabul said.
He declined to provide the list of companies that had been issued notices of violations, saying it was "not updated." Noting that he was a "small fry", Mr. Fabul added that divulging the names of the erring firms "would not be good for the real estate sector, which is a pump-primer of the economy."
"We tell the developers that we are partners — we are all after buyer satisfaction," he said.
The regulator, he said, preferred to give things a "positive spin" by posting a list of projects that have already secured licenses on its Web site.
And while the list also has to be updated — as of press time, the site only identifies projects that got approvals as of August 2007 — Mr. Fabul said buyers can always call the HLURB to find out whether the projects are already licensed.
The license to sell, he said, is a way to protect the public from fly-by-night developers. He and property sector analysts said buyers who patronize reputable developers are basically not at risk.
Analysts said property developers would rather advertise ahead of the issuance of their licenses to sell and pay the fine of up to P20,000 than wait for as much as nine months. Doing otherwise, they said, allow the competition to capture their market.
"It is a common experience among developers that the processing time for the issuance of ECC (environmental compliance certificate), building permits, development permits and conversion usually takes several months and, in some instances, even years, depending on the issues that may arise concerning the project," Megaworld Corp. Vice-President for Legal Affairs Gary de Guzman said.
Mr. Fabul claimed that it only takes the HLURB 30 days to process the license to sell, but this is assuming that all other necessary requirements — like the ECCs (which are issued by the Environment department), the building and other local government permits — have already been secured.
"We even help them by processing the license to sell even while they still have to complete their requirements," he said.
Mr. Fabul also said the HLURB offers temporary permits to sell — valid for six months — to developers which only have to submit their building permits. Developers, however, do not want these, he said.
Delays in the issuance of the permits to sell are already being addressed, Mr. Fabul claimed. In particular, other agencies have already agreed through Executive Order 45 to issue their respective permits within prescribed periods, he added.
Media is also to blame, he said, for allotting advertising space and air time for projects that have yet to be covered by selling licenses.
Jones Lang LaSalle Philippines research head Kathy Marcelo, meanwhile, said another cause for violations is the issue of raising the money needed for actual construction.
"Due to the increasing demand in the market, most developers pre-sell their projects to accumulate additional capital for their construction," she said.
Other analysts also noted that the P20,000 fine for an advertisement that will generate millions of pesos in revenues makes for an easy decision to push the sale.
PD 957, however, metes out heavier penalties for the violation, including a 10-year jail term for repeat violators.
Mr. Fabul said property developers who repeatedly violate the rules on selling are told that their applications for permits would be denied. The denial, however, can be appealed, and Mr. Fabul admitted that the regulator has yet to issue a final denial of a permit to sell applications.
Jones Lang LaSalle’s Ms. Marcelo said the fine should be increased to make the system more effective.
Claro Cordero, Jr., Leechiu Associates senior manager for consultancy services, also called for stricter penalties.
"[For] The existing measures that HLURB has, specifically for license to sell issuance, they should have stricter ways of implementing the policies and should impose appropriate penalties let’s say suspension," he said.
CB Richard Ellis Philippines associate director for global corporate services Ryan Isip said the rules need to be tweaked.
"The rules on pre-selling without the license to sell are not clear they should be tweaked so that there are conditions — what can be done, what can’t be done," he said, adding that HLURB monitoring is important given that sales are also being conducted over the Internet and through telemarketing.
One gray area is the charging of reservation fees — Mr. Isip noted that for a buyer’s payment to be considered a sale, he should have put in 30% of the total cost.
"[The] reservation fee is only P20,000," he said.
It is also not clear if advertisements with disclaimers stating that they are being put out "for announcement purposes only" are legal.
Megaworld’s Mr. De Guzman, meanwhile, said their firm has proposed that the processing time for the development permit and the license to sell be cut short. The HLURB, he said, could remove the two-week waiting period between the publication of the license to sell and its effectivity.
Megaworld also wants the assessments and fees be computed as early as possible after the submission of the initial application.
The HLURB could also fast-track its clearance system in connection with the issuance of the development permit and license to sell, he added.
"If these improvements of the existing rules and regulations are implemented by the HLURB at once, the processing time for the license to sell will be greatly reduced to the benefit of the legitimate developers," Mr. de Guzman said.
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