The attractions and hidden
costs of serviced apartments
08/04/2003
City & Country By Sreerema Banoo
At RM120,000 the 1-bedroom serviced apartment in the heart of Kuala Lumpur
seems like a dream investment for Lee. Her office is close by and although
the unit is only a modest 400 sq ft, Lee, an executive, is not put off -
she is single and does not need a lot of space. And should she decide not
to stay in the unit, she could always go for the leaseback option offered
by the developer.
Lee is among the increasing number of property investors who buy serviced
apartments, as attested by developers of several serviced apartments who
tell City & Country that many of their buyers are owner-occupiers. One
developer says that about 70 per cent of his buyers are owner-occupiers.
Given the growing demand, it is little wonder then that developers with
commercial land are watching this segment of the market like hawks.
Unlike apartments and condominiums, serviced apartments are built on land
with commercial status. Since the commercial subsector of the property
market is not very exciting these days, building serviced apartments
instead of shop offices and the like would seem like a good bet.
There are serviced apartments and there are serviced apartments. Since
Kuala Lumpur's maiden serviced apartment development - the 240-unit Micasa
Hotel Apartments along Jalan Tun Razak was completed in 1988 - there are
now some 8,642 units scattered both within the city centre and in the
suburbs. The Residential Property Stock Report (3Q 2002) by the National
Property Information Centre indicates that during the period under review,
986 units were under construction while work on another 120 units started.
In addition to that, the authorities approved the building of yet another
208 units.
While serviced apartments started off catering to the business traveller
and the expatriate, they are also now popular with tourists. Thus
developers' targeting of investors who are open to leaseback schemes tied
to the sale.
DTZ Debenham Tie Leung executive director Brian Koh says besides
housekeeping, a serviced apartment should also provide room service,
business centre service, concierge, self-service laundrette, cafe,
nursery, security and repair services.
Serviced residences
Of late however, a new breed of serviced apartments has entered the scene.
Simply identified by the market as "serviced residences", this property
type is also targeted at owner-occupiers. Unlike most serviced apartments
which are often found within the city centre, these serviced residences
are mushrooming in the suburbs like Sri Hartamas, Mont'Kiara, Petaling
Jaya and Shah Alam.
While these properties may appear to be an attractive option for
prospective homeowners - like Lee - there are underlying differences
between owning a serviced apartment and an apartment and it pays to be in
the know.
Serviced apartments, for example, carry certain "hidden costs" like higher
utility charges. Their development is also not governed by the Housing
Development Act.
Side stepping the Housing Development Act?
Zerin Properties CEO Previndran Singhe suspects that developers are
selling residential-based properties as serviced apartments as a way
around the strict rules and guidelines of the Housing Development Act
(HDA).
But Malaysia Land Properties Sdn Bhd (Mayland) general manager Eva Hui
disagrees, arguing that "developers have to look at the location factor
and that although the land may have a commercial title, it does not mean
that they have to build an office building". (Mayland, a member of the
Hong Kong-based Far East Consortium Group, has several serviced apartment
projects in the Klang Valley and Johor Baru.)
"We use location to decide on the product [and] when we buy land we look
at location which is why we focus on areas like Sri Hartamas or the city
centre," Hui says. Apart from serviced apartments, the company is also
developing landed and strata housing and shop units.
Previndran stays unconvinced. He maintains that developers go for serviced
apartments to avoid the HDA. "The developers [of serviced apartments] do
not have to get a Housing Developers Licence, apply for the Advertising
Permit and Housing Developers Account before launching and collecting
deposits and payments. In the HDA, there is a compulsory adoption of the
standard sale and purchase (S&P) agreement under schedule G and H. There
is no scope for any negotiations on the terms and conditions. Also in the
HDA no bookings can be collected, only the 10 per cent deposit, the
timing for the completion is also strictly governed," he argues.
Developers of serviced apartments contacted by City & Country, meanwhile,
say although they are not bound by HDA regulations, they do adopt some of
the rules. The developer of a serviced apartment in Shah Alam says in
their case, the S&P is modelled as far as possible after the HDA. He,
requesting anonymity, concedes that they do not follow it strictly.
"Before the amendment to the act [HDA], buyers of projects that were
abandoned were not given a refund for money paid, but we included that
[clause] in our S&P agreement," he continues.
As far as Previndran is concerned, prospective buyers should pay attention
to the S&P agreement and its terms. His advice: Ensure that the S&P is
equitable for both parties, there is no such thing as a standard S&P
agreement. Details like the completion time, available recourse if the
development is delayed, duration of the defects liability period and the
setting up of the management corporation must be taken note of.
Hidden costs?
Prospective investors of serviced apartments should take note that they
are technically commercial properties and the water and electricity
charges are therefore levied accordingly.
While this has put off some prospective buyers, a developer in Shah Alam
says it has discussed with Tenaga Nasional Bhd for the electricity charges
of its current development to be based on a residential property. "We have
received indication that the rates will be similar to residential
property," he says.
Property consultants point out that besides the higher utility bills,
owners of serviced apartments are also slapped with higher assessment
charges and quit rent. According to Previndran, quit rent in Kuala Lumpur
is calculated at 65 sen psm for residential land and RM4 psm for
commercial land. The assessment charges for residential and commercial
property, meanwhile, are calculated at 6.0 and 12 per cent of the annual
value, respectively. (This means owners of condominiums in the pricey
Bangsar or Mont'Kiara area will probably pay higher assessment fees than
those of serviced apartments in, for instance, Shah Alam.)
DTZ's Koh says car parks may not be sold as part of the accessory parcel
in serviced apartments, so parking charges may be levied. Most developers
charge housekeeping and laundry services on a pay-per-use basis.
Property management
In any strata housing development, property management - involving the
maintenance of common property and ensuring a growth of the capital value
of the property - is key.
In the case of Mayland's serviced apartments, Hui assures buyers that they
have nothing to worry about as both the management and maintenance are
undertaken by Dorsett Hotel International - a chain owned by the Far East
Consortium Group.
Besides managing the Dorsett Regency Hotel on Jalan Imbi, Kuala Lumpur,
Dorsett Hotel International is behind the management of all of Far East
Consortium Group's serviced apartments worldwide.
Managing a serviced apartment development and providing the full range of
housekeeping services is not an easy task, Hui stresses, adding that a
developer with no experience may find it difficult to provide good
service.
Similar to a strata housing development, the owners have to set up a
management corporation upon issuance of the strata title. "If at the end
of the day they decide that they do not want Dorsett [Hotel International]
they can ask other property managers to manage the property, but whether
the latter can provide the services is another matter," she adds.
Seeking recourse
In January this year, Housing and Local Government Minister Datuk Seri Ong
Ka Ting said although serviced apartments were not governed by the Housing
Development Act, the ministry would help mediate between buyers,
developers and local authorities if any problems arise.
In the meantime, DTZ's Koh says an avenue for buyers to seek recourse
would be via the courts, as is the case for any commercial property. |