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The stratified property industry in Malaysia has come a long way since the early 1970s. Today, it has grown with one in four residential homes and over 40% of retail centres being stratified properties.
How is it then that the problems in strata titled properties seem endless, and the only people who are doing a roaring business are the lawyers? Law suits among owners, developers, Joint Management Bodies (JMB) and Management Committees (MC) are quite common.
The recent Building and Common Property (Maintenance & Management) Act took more than 10 years to draft before it was finally enacted in 2007. Nearly everyone thought this was the ideal law.
A recent seminar entitled “The time bomb returns” jointly organised by the Malaysian Association for Shopping and High-rise Complex Management or PPK and FIABCI (The International Real Estate Federation) Malaysia looked at some of the problems and possible solutions.
More than 13 speakers and panelists with esteemed credentials in the property industry spoke on the main theme – “The cost of maintenance”.
Some problems have existed decades ago, but there is now an even more daunting and challenging phenomenon in the form of mixed-integrated projects. Although such projects are not new, developers are getting more creative, especially considering high land cost. Even an eight-in-one concept has already become a reality! The question is how do you draw up the operational and maintenance cost for the entire project under one title and apportion this to individual owners?
Mixed-integrated developments are being built because of demand. Young businessmen, families or even the corporate sector that cannot afford their own individual buildings or landed homes can still have a piece of prime space at an affordable cost. This is where some developers go one step further, with some giving incentives of a free or very low service rates for a period of time.
As some speakers in the seminar pointed out, there is no such thing as “free” in this world, and so someone has to bear the cost. If you don’t pay now, it may be because you have “paid in advance” with the cost added into your sales price or you will have to pay a higher rate later. So, the perception is that developers and owners have to pay an equitable amount to maintain and operate the property. The next question is how much and how do we arrive at this maintenance amount.
The other major consideration is the sinking fund. It is important to pre-plan the sinking fund from the planning stage. To pre-plan the amount of maintenance charge or service charge is not difficult as one can determine the cost factors from the planning stage.
For example, in a shopping centre, it would be ideal to have a good and well-designed air-conditioning system. It might cost more in capital cost, but it will lower maintenance costs and electricity consumption in the long run. This is where the relevant consultants play an important role.
The next step is simple -- work out the maintenance cost or service charge based on the size of the property. You will be able to at least have a more realistic figure rather than plucking it from the air or looking at figures from other projects.
Do not base your cost on the first year as many of the equipment used in the development have warranties and service free contracts. This means year one and two may have a 20% to 25% difference on all major service contracts for things such as lifts/escalators, air-conditioning, fire fighting equipment and so on.
Manpower cost is also a major concern. A developer will in most cases have in their company a team of experienced managers whereas a JMB or MC may not.
Trying to get a good manager is not easy. The very good ones would not come unless you remunerate them adequately and you can’t do that if your service charges don’t allow it. In the end, you may have to settle for junior personnel but when they do not perform their duties, the owners get upset, which leads to the owners not paying their service and/or maintenance charges.
The costing of service and/or maintenance charges is a major factor in mixed-integrated developments, but what about the apportionment of share ratio or share value? There have been several formulas that go by area, capital and consumption. I have always advocated the consumption formula. A retail lot that has air-conditioning will have a higher service charge than an office or condominium; a kiosk can also be stratified, but is high in capital value and as such can also command a higher service charge.
Some proposals by the speakers and panelists at the seminar are as follows:
* That service charges and the said property be assessed before a JMB or MC is formed. Relook and find the equitable value for service charge before the S&P.
* It is proposed that service charge be paid up front, even before taking a loan and which will be place in a trust. Although this is a good idea, it needs more detailed thought and refining.
* The same action as in point 2 is proposed for the sinking fund and to request the government to allow the sinking fund collection to be a non-taxable income.
* All or some facilities to be placed in a “club house type” system, where those who want to use the facilities will have to pay but at an affordable sum. For example, if someone doesn’t play tennis or snooker, their service charge will not be used to maintain the tennis courts or snooker room.
* It is proposed that the developer plans for a MC when they are planning and conceptualising a project.
* There still seems to be very strong objections, difference of opinions and interpretation of the Strata Title Act as well as the Building and Common Property (Maintenance & Management) Act on who can manage the property and this needs to be urgently resolved.
In conclusion, as mentioned by the speakers and panelists in the seminar, employing retired people is a good choice and this is quite common in the management of small- or medium-sized residential stratified properties in Australia. We have to be more open-minded when it comes to managing assets and properties in Malaysia.
Richard Chan is Director of RCMC Sdn Bhd and an adviser to PPK
