Up close and personal with gated-&-guarded communities
30/07/2005 NST-PROP

We seem to be at a tipping point, in the words of author and New Yorker Magazine journalist Malcolm Gladwell, in our residential development sector, what with the proliferation of gated-and-guarded housing schemes, or gated communities (GCs), as they are commonly called. We see advertisements almost daily, exhorting the virtues of GCs as a new “privatised” way of life.

What has happened is that a managed approach to creating a safe community, through the provision of security and exclusivity as part of a community’s lifestyle, has taken root.

The upside about this tipping point is that property developers are reinventing themselves in response to the needs of an increasingly affluent population. It can’t be helped - in this day and age when product life cycles are getting shorter (as are lifestyle concepts), they have to keep pace with the rapid changes in trends and consumer preferences in order to thrive.

GCs are not new to our shores, for in the strictest sense of the term, condominium and apartment developments fall within this ambit. Today’s GC schemes are largely landed in nature, with individual titles issued to each unit that is essentially an evolution of the condominium-type development.

These schemes offer developers an opportunity to experiment with a new type of development for well-heeled house buyers (and investors too).

The issues

However, there have been mixed reviews on the performance of the GC concept. Most of these schemes are of the high-cost residential type, concentrated in the urban conurbations of the Kuala Lumpur Metropolitan Area, the rapidly urbanising South Johor Corridor and Penang.

The main issues that have surfaced are:

• Suitability of GCs to our way of life;

• Developers’ innovative styles evolving faster than legislative reform; and

• Need to streamline existing legislation to cater to GCs.

These few issues alone give rise to a plethora of questions requiring concrete answers - despite GCs springing forth all over the country, pushing wide the envelope offered by prevailing land laws and regulations.

The following questions, and the answers provided, are only meant to highlight the prevailing situation. They are not conclusive answers, so readers are advised to consult their professional advisers before making any decision.

1. Are gated community schemes a new phenomenon?

The short answer is “no”. The concept of GCs applies to strata titled and non-strata titled buildings as well as condominiums, since they have the hallmarks of a GC development.

In Australia where GCs are common, they have been given a proper legislative framework and this has helped to create a significant real estate sector that was previously unexplored in that country.

In Malaysia, a GC often means a development that includes terrace houses, townhouses as well as detached and semi-detached houses, coupled with common services and amenities (such as security, cleaning and a clubhouse) that are privately managed at standards higher than what a local authority can provide.

It is therefore generally referred to as a “landed property gated-and-guarded community scheme”, but this does not mean that it cannot encompass a condo as well, or even shops. In this article, all references to GCs will refer to the landed property type.

Some early examples include Country Heights in Kajang and Sierramas in Sungai Buloh, both in Selangor, where superior infrastructure, landscaping, facilities and amenities for the benefit of the residents and their guests were introduced.

One of the earliest GCs was Wangsa Baiduri in Subang, Selangor. The local authority, in allowing this type of development in 1985, was clearly ahead of its time - and what it approved was outside the ambit of the then prevailing laws and regulations. However, a host of problems ensued thereafter, making this development an extremely interesting case study.

In a test case, Lee Choong Kheng took developer Emko Properties Bhd to court. The scheme in question comprises condos as well as terrace houses, which were referred to as “townhouses” in the development plan. However, the local authority approved the entire development as a “condominium scheme”.

2. What about GCs elsewhere?

GCs are a worldwide phenomenon that come in various forms. Besides retirement villages, active adult communities, club communities and common interest communities, they include the closed cities of Russia; the security parks of South Africa; the gated communities of the United States, China, Mexico and the Philippines; the Datcha settlements of Bulgaria; the condo fechados of Brazil; the Barrios Cerrados of Argentina; and the “Expatriate Compounds” of Saudi Arabia, Lebanon and other Middle Eastern countries where security is a major concern.

3. How is the concept defined?

A GC is a “sub-division” or a “neighbourhood” that is surrounded by a manned barrier, to which entry is restricted to residents and their guests.

In the modern form, it is a closed community where urban space is privatised and is characterised by security guards controlling an entrance (or exit) to provide access to one or more smaller residential streets, with the entire development surrounded by a perimeter wall or fence.

It is a closed community lifestyle with one or more types of residential units. Common areas and amenities within provide residents with day-to-day activity requirements.

4. What are the main attractions of GCs?

Three stand out: Security, lifestyle and protection of property values. I would like to add value enhancement, but one should always remember that this depends on how well the development is managed.

As for the protection of values, the intrinsic characteristics that help sustain it are standards of architecture and design that allow for the doing away of protection features such as grilles.

There are also clear development guidelines for individual-style homes, which helps to keep house designs at an acceptable standard without too much homogeneity.

One very important feature of GCs is that building standards are more flexible, leading to more efficient land utilisation - more openness without the need for walled boundaries and fences.

Better quality “public” services, such as garbage removal and park maintenance can be expected as these jobs are privatised, leaving local authorities to concentrate on the provision of other aspects.

Gated communities are perceived as the answer or deterrent to crime, which is becoming more challenging to manage day by day. As part of a lifestyle, GCs also provide the “niceness” of enjoying privacy and peace of mind, and perhaps homogeneity of the population within the community.

5. What about social impacts arising from GCs?

It is too early to pass judgment on this because the GC concept is only now catching on in Malaysia. It is clear though that GCs in the country are high-end landed residential developments.

A litany of literature exists on GCs. Good reads on their socio-economic and socio-cultural implications include the works of Edward J. Blakely and Mary Gail Snyder, entitled “Fortress America”.

6. Is there any specific legislation applicable to GCs in Malaysia?

There is none.

7. How then are GC schemes being developed?

Since there is no specific legislation, the law used to approve such schemes is based on the type of buildings to be developed. Generally, the laws and regulations will be based on the:

• Housing Development Act;

• Strata Titles Act;

• Local Government Act;

• Town and Country Planning Act;

• State land laws;

• Sabah and Sarawak laws on strata titles; and

• City or municipal council by-laws, regulations and circulars.

This means their approach will be the same as with conventional housing development. Titles will be issued for the terrace, semi-detached and detached landed properties, with roads, drains, open spaces and public utility areas surrendered to the local authorities for Certificates of Fitness for Occupation to be issued.

Once this is done, the developer will enter into agreements with its local authority to “privatise” the management and maintenance of the “public areas”, or the “common facilities” located behind the gates, and recoup costs by levying a charge on all parcel owners.

This contractual relationship between the parcel owners and developer is spelt out in a “Deed of Mutual Covenant” (DMC) imposed on GC unit buyers when they sign the standard Sale and Purchase Agreement (SPA) under Schedule G of the Housing Development Act.

Besides the levies payable to the developer or property manager, parcel owners will also have to pay assessment and quit rent to local authorities. So, owners of GC properties will be paying twice for the “services”. This is an important point for any prospective purchaser to consider.

Another is that the roads within a GC may remain “public” even though they are privatised - meaning that the “public” cannot be refused entry.

That being so, can a developer put up a sign restricting entry to public roads? What if there is an accident? Will the Road Transport Act apply?

The strength of the DMC, read together with the SPA and coupled with representations made in the marketing collaterals of a development, are promises made by the developer to provide the services and facilities so declared. This was highlighted in the celebrated case of “Datuk Soo Lai Sing vs Kumpulan Sierramas (M) Sdn Bhd”.

There is no real “common property” in a GC, only “common facilities”. If a clubhouse is provided, it will, more often than not, sit on a parcel of land belonging to the developer. It is therefore not a “common facility” in the strict sense of the world, but a facility provided upon the payment of a fee.

The Housing Development Act, National Land Code and the Strata Titles Act do not compel a developer to provide common facilities in a GC. If it does, then such facilities are purely contractual, arising from the clauses in the DMC and from warranties and representations made to the purchaser in brochures and advertisements.

The Strata Titles Act in its present form cannot apply to bungalows, terraces or semi-dees. Wide interpretations have been made to Section 6(1) of the Act, which developers take to mean that strata titles apply to “any type of housing from one storey upwards”.

However, the authorities have not agreed with this interpretation, insisting that the section allows only “horizontal” subdivisions, and not “vertical” subdivisions.

Therefore, going by the strict wording of Section 6(1), a single-storey type of real estate can be issued strata title, but not a two-storey building within a GC, unless it is a townhouse comprising two units with separate entrances from the main road.

A lot of developments today, GCs included, are being marketed as strata titled developments, even though the existing legislation does not provide for it.

If the word “strata” is used to market a development, prospective purchasers should be vigilant to ensure they do not sign their SPAs under Schedule H for strata landed property. This is because Schedule H applies only to apartments and condos, which fall under the Strata Titles Act. The correct agreement is Schedule G, because for all intents and purposes, these are “landed property” for which individual titles are issued.

Owners selling their landed property in a GC must pay heed to the provisions of their SPAs and DMCs, which would inevitably state that the developer’s consent is required, and a consent fee payable, before the property can be sold.

A dispute over the “reasonableness” of this consent fee was addressed in the case of Lee Wai Kin vs Yulek Sdn Bhd.

An added contractual requirement of the owners is that they must ensure their buyers sign the DMCs. This is no easy task if the property is landed and the title has been issued, for in such an event, the transfer can take place the normal way and the DMCs would lose their importance.

Another point to note is that because the Strata Titles Act cannot apply to a GC with landed property, a management corporation (as provided for under the Act) cannot be formed.

At best, a “management company” or a “home-owners’ company” can be formed to manage the “common facilities”. This entity can be given a legal basis only under a separate contract between the owners and the developer.

Some changes can be proposed to the Strata Titles Act to allow for the creation of “vertical” subdivisions for landed properties in a GC, thus allowing for the development of “cluster housing” that will marry the concept of a conventional landed housing scheme with the “condo” living concept.

If this is done, conventional landed housing styles can be allowed in a stratified scheme, making the requirements for road reserves within a cluster housing GC more flexible.

8. So how does a GC affect property values?

Experience worldwide has shown that GC schemes actually enhance property values. In a study by Michael La Cour-Little and Stephan Malpezzi, where the benefits (real or imagined) of gated subdivisions were capitalised into house prices, it was revealed that two-thirds of the total premium in the property values came from neighbourhood homogeneity created by homeowner association restrictions and one-third from the fact that the development was gated.

The experience in Malaysia is more varied, where the marked premium in property values is more obvious in high cost developments compared to others.

However, a major value detraction is the fact that there is no legislation to allow for a transparent structure for gated housing, with re-sale fraught with the need to obtain the developer’s consent, fees to be paid and resistance to the DMC. All these, if fully factored, may depress values rather than increase them.

Gurjit Singh monitors real estate trends and is an author of numerous articles and a book on property management. He is a Fellow of the Land Institute, United Kingdom, a Fellow of the Cambridge Commonwealth Society and holds a Master of Philosophy in Land Economy from the University of Cambridge. He can be contacted at gurjit8@yahoo.com