Federal Court decision on LAD could be negative for property developers

KUALA LUMPUR: The Federal Court’s decision concerning the calculation of liquidated ascertained damages (LAD) could be negative for property developers, analysts observed.

Earlier this week, the Federal Court ruled in favour of house buyers concerning the calculation of LAD to be paid by housing developers on the account of late delivery of vacant possession of their units.

According to a report by Bernama, the Federal Court ruled that the LAD is payable by housing developers to purchasers for the late delivery of houses and it should be calculated from the date of payment of booking fees and not from the date of the sale and purchase agreement (SPA).

Maybank Investment Bank Bhd’s research team (Maybank IB Research) viewed this landmark decision as potentially damaging for property developers as they may now have to pay higher LAD.

“We see higher risks in developers which have more high-rise/mixed-use development projects,” it remarked.

“We are negatively surprised by the latest ruling by the Federal Court. Those developers that at the border to pay LAD, those already paid or those which are already late in delivery would now have to pay more LAD as the transition between booking and SPA could take months to complete,” it added.

It also pointed out that the actual damages are difficult to ascertain at this juncture as the additional LAD payment are only for specific case.

“From our channel checks with some industry players, the LAD is also retrospective and this makes thing (potential losses) even more complicated,” the research team said.

For now, pending further information on this development, Maybank IB Research retained its ‘positive’ stance on the property sector in Malaysia.