Property booking fees have actually been illegal since the 1980s and developers are not allowed to collect any fees to secure a buyer a unit.

When it comes to property transactions between buyers and developers, there exists what experts call an imbalance of power. The weaker party is often the buyer, chained down by stack upon stack of agreements and contracts lined with terms and conditions that very subtly favour the developer. With their hands tied, some buyers have little say when it comes to purchasing their own property. One matter in particular has existed since before the 2000s and is still running rampant in showrooms today: The illegal collection of booking fees.

Property booking fees have actually been illegal since the 1980s. Despite seemingly being a common practice in Malaysia, developers are not allowed to collect any fees to secure a buyer a unit. The Housing Development (Control and Licensing) Regulations 1989 (HDR 1989) stated that “no person, including parties acting as stakeholders, shall collect any payment by whatever name called except as prescribed by the contract of sale.” 

Yet the first thing agents require after hearing the buyer say yes is a booking fee payment. The issue has been brought up time and time again, with many buyers’ rights organisations like the National House Buyers Association (HBA) advocating against such unscrupulous practices.

Real case of illegal collection

For example, in a landmark decision on January 19, 2021, the Federal Court, in the case of PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Another & 6 Other Appeals, shed light on the pervasive and illegal practice of collecting booking fees by housing developers. The court highlighted that under the HDR 1989, it explicitly prohibits developers, or any parties acting on their behalf, from collecting any form of payment from purchasers before the sales and purchase agreement (SPA) is signed.

This widespread practice is not merely a breach of contract but constitutes a criminal offence under HDReg 13(1), carrying penalties that include fines or imprisonment. Despite this clear legal prohibition, the collection of booking fees has continued to be a common industry practice, often to the detriment of unsuspecting purchasers.

According to the regulations, anyone who collects booking fees can be fined up to RM50,000, jailed up to 5 years or both. This applies not just to developers, but also to any parties acting as stakeholders. The court ruled that the late delivery payment, or the liquidated ascertained damages, should be calculated from the date the purchaser paid the booking fee, not the date the sales and purchase agreement was signed. This is to protect the purchasers' interests, as the developers could otherwise abuse the timing of the SPA signing.

Fee collections still blatant

This ongoing issue raises some important questions. Why do developers keep asking for booking fees when they are illegal? And why is the government not stepping in more decisively to tackle this problem?

One reason developers continue to push for these fees is the competitive nature of the real estate market. With so many people looking to buy property, some developers may feel they can get away with ignoring the rules. For them, collecting booking fees is not just about getting some cash upfront. It is also a way to test the waters and secure a commitment from buyers. This can be especially tempting when buyers feel pressured to act fast, fearing they might lose out on a property they finally decided on after weeks of agonising over the decision.

Sadly, many potential buyers go to showrooms and agent meetings unaware of their rights in these situations and might feel stuck when faced with payment requests that they are not legally required to make. This creates a stressful environment where buyers may feel they have no choice but to comply with what is essentially an illegal demand.

Another root of the problem is that consumers often lack awareness about the legal protections available to them. Many first-time homebuyers might not know about the HDR 1989, which should shield them from these illegal practices. Without more public education on buyer rights, many people figure that paying a booking fee is simply standard practice and tap their cards unknowingly.

There is also the big question of enforcement. While we do see occasional legal actions taken against developers for these practices, it is far too few and the penalty is far too small to make any impact. If developers face little to no consequences for collecting booking fees, why would they stop? The lengthy legal processes can intimidate buyers, leaving them feeling like it is easier to just pay the fee rather than possibly delay or complicate their property purchase.

Homebuyers’ rights

To help shift this narrative, there needs to be more awareness and advocacy for homebuyers. With the power imbalance within the transaction, providing educational programmes might sometimes feel as daunting and hopeless as herding cats. However, informing people about their rights in property transactions lets them know when their rights are being violated. It might also be beneficial for the government to tighten the screws on enforcement, setting up more efficient channels for buyers to report illegal practices. 

Creating a solid complaint system would allow buyers to raise issues without feeling like they might face backlash from developers. After all, everyone deserves to enter into a property deal confidently, knowing that they are not being taken advantage of.

A more casual approach to real estate could be just what we need. By bringing both developers and buyers to the table in a more equal way, it could be the catalyst towards fairer practices. Perhaps introducing mandatory training for real estate agents and developers on the laws surrounding transactions would help ensure that everyone is on the same page.

As Malaysia continues to grow and change, making sure that buying a home is a fair and transparent process is more important than ever. Buyers are vulnerable and need to be protected, so by increasing awareness, strengthening penalties for non-compliance and integrating more supportive systems for buyers, a housing market where everyone feels safe and informed about their rights becomes even more possible.

This article was first published in Starbiz7.

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