SERVICED APARTMENTS ARE ON THE RISE AGAIN
NST-PROP 04/12/2004 by Lim Lay Ying

Serviced apartments were popular in Kuala Lumpur during the early 1990s, a time when there was an influx of expatriates and the country’s economy was thriving. That market however dried up when the Thai baht collapsed bringing with it, the rest of the region’s economies.

There has been a resurgence lately as developers rush to meet the upswing in demand which stemmed primarily from real estate investors’ search for investment opportunities. The new developments however are those which offer condominium units or “serviced residences” for sale, and buyers are given an opportunity to place their units into a rental program to defray the cost of owning them. In most of the cases, participation in the rental program is strictly at the election of the unit owner.

For this type of development, the Ministry of Housing has tracked a total stock of 2,710 units in Kuala Lumpur currently, with another 2,704 units which are in various stages of planning and development. Serviced apartments which are owned and run by hoteliers or other corporations as an alternative to hotel accommodation, make up another 2,197 units from 16 existing developments and are reported along with hotel properties under the Leisure Property Stock Report published by NAPIC (Q4, 2003).

There is a world of difference between the two concepts – each offering developers two distinct business opportunities: the sale of condominium units and the ownership of an operating hotel. Some developers prefer to exit after selling the units, while others view hotel operations as an important opportunity.

“Branded” residences

Often, by affiliating with a branded operator, developers may benefit from a quicker sales pace, and sometimes higher unit prices. Such was the experience for Seri Bukit Ceylon, a 246-unit serviced apartment-cum-business suites project developed by UMLand Bhd. Located at Lorong Bukit Ceylon in the heart of Kuala Lumpur’s Golden Triangle, the developer is partnering with The Ascott Group in managing the properties. The latter’s track record is impressive, being Asia’s biggest serviced apartment operator which manages a chain of 35 serviced apartment properties in the continent, and has a world-wide portfolio of 110 properties in 15 countries.

At the same time, The Ascott Serviced Residences which is developed and owned by Amanah Scotts Properties Sdn Bhd is operated as a hotel property targeting at long-stay guests. Managed by The Ascott Group, the 223-unit “branded” residences offer the services and amenities of high-end hotels, while providing guests with the comforts of a private home. Unlike typical hotel rooms, the units are much larger – ranging from 872 square feet for the one-bedroom apartments to 1,292 square feet and 1,808 square feet for the two- and three-bedroom types respectively.

Over and above the fully furnished, fitted, and fully-equipped (FF&E) apartment amenities (which include electrical and electronic appliances, as well as full cutlery, crockery, and cooking utensil sets), the operator offers a host of hotel services in addition to condominium amenities. These include 24-hour concierge, personalized daily maid service, room service, self-service launderette, laundry and dry-cleaning services, convenience store, 24-hour security (with closed circuit TV surveillance), and wireless internet access.

Despite monthly rents starting at RM13,500 to as much as RM23,400 (that is between RM12 to RM17 per square foot), The Ascott was able to achieve an average occupancy of 80 per cent in 2003. the benefits of an internationally branded serviced apartment management company to the developer/owner are obvious. The Ascott enjoys brand recognition, sophisticated marketing programs, centralized reservation systems, management expertise, along with a wide array of services and amenities on-site.

Hot property

But the latest hot property in Kuala Lumpur in residential properties involves the selling of serviced apartments to individuals, giving them the right to hold the real estate and at the same time having the option to participate in a rental program that can help mitigate the cost of investment and may even produce a profit.

A rental agreement between a participating unit owner and the developer spells out the terms and conditions under which the owner’s serviced apartment unit is rented to guests and allocates both revenues and expenses between the unit owner and the developer. Generally, standard furnishings, fixtures, and equipment (FF&E) are required of each unit – which in some cases have been pre-arranged by the developer and sold as a package deal with the real estate.

Aside from Seri Bukit Ceylon, Berjaya Times Square (1,200 units) at Jalan Imbi, and 38 Bidara (approximately 200 units) at Jalan Bedara, the new entrants to the Kuala Lumpur market include: NAS Pavilion (438 units) located at Jalan Imbi-Jalan Sultan Ismail by Urban Shift Sdn. Bhd; Park View (322 units) at Lorong Perak by Mayland Parkview Sdn. Bhd; The Tower (500 units) at Jalan Munshi Abdullah by Mayland Boulevard Sdn Bhd; Menara Bintang Goldhill (176 units) at Jalan Tun Razak by Nirwana Indah Sdn Bhd, which is a wholly-owned subsidiary of The Goldhill Group; and Golden Avenue (739 units) also at Jalan Tun Razak by Maju Kepunyaan Sdn Bhd (subsidiary of LBS Bina Group).

The newest kid-on-the-block is Berjaya Group’s 1,628 units of serviced suites at Berjaya Central Park. Located at the junction of Jalan Sultan Ismail and Jalan Ampang on a prime 3.04-acre site, the freehold property offers fully-furnished, fitted, and equipped serviced apartments ranging in sizes from 407 to 459 square feet for the studio type and 463 to 864 square feet for the 1+1 bedroom units.


Figure 1: Berjaya Central Park

Spread over two 39-storey tower blocks which sit on an 11-level podium block (excluding 3 levels of basement car park), the amenities include a swimming pool and jacuzzi, a children’s pool, a children’s playground, squash and tennis courts, and a roof garden. Security is in the form of a CCTV surveillance system in addition to 24-hour security services.


Figure 2: Amneties at Berjaya Central Park

The developer, Wangsa Tegap Sdn Bhd (a wholly-owned subsidiary of Berjaya Group Bhd), recently launched the first block featuring 814 units at prices starting from RM414,000 for each of the studio units and RM439,850 for the 1+1 bedroom units. At sizes from 407 square feet for the former and 463 square feet for the latter, the price per square foot ranges between RM950 and RM1,017 (excluding floor loadings). Car park facilities are available for rent at a rate of approximately RM120 a month, while service charges are at RM0.55 per square foot of which RM0.20 goes to the sinking fund.

Approach with great care

Serviced apartments of this nature are complex projects to develop, market, and manage. Nevertheless, with the right steps, developers, owners, and operators can be ensured of success.

For developers this means selecting the right location, financing projects at the lowest costs, finding strong, experienced serviced apartment operators, and properly structuring management contracts with operators. Most of all, it is not a development venture where one just build these properties, sell out, and walk away.

Operators will need to properly structure rental agreements, with individual unit owners, develop programs for efficient managing of inventory, establish control over common-area maintenance and furniture packages, develop realistic budgets for serviced apartment operations, and determine responsibility for operating shortfalls and cost overruns.

Buyers should see their units as real estate properties that may generate rental income and possibly appreciate in value if the project is managed to acceptable standards.

At the end, all parties need to agree on common goals, understand risks, and be prepared to address and resolve challenges as they arise. Serviced apartment projects can be a significant development and investment opportunity for all if approached with great care.