The rise of serviced apartments
Posted on 27 January 2012 - 09:48am
Last updated on 27 January 2012 - 10:00am
Last updated on 27 January 2012 - 10:00am
Serviced apartments will be the third most popular property type being built this coming half year, after double-storey terrace houses and apartments/condominiums, according to a recent survey of developers conducted by the Real Estate and Housing Developers' Association of Malaysia's Rehda Institute. They replace single-storey terrace houses which took up third spot in the second half of last year (after double storey terrace houses and apartments/condominiums as well).
Serviced apartments are usually defined as furnished abodes let out for short-term or long term stays, which come with cooking, housekeeping and business facilities. The reality however is that developers have for the past few years been marketing conventional residential apartments as "serviced apartments" even though they target owner-occupiers or long-term residents.
Often, they do not come with any housekeeping services, are not furnished, and are located in non-business or tourist centres, such as Batu Caves, Puchong, Kuchai Lama, Setapak, Serdang or Taman Melawati.
The reason given by developers has always been that it is because the building is located on commercial land or above commercial properties. "Our units are like condos but we call them serviced apartments because we have 100 units of shop lots on the ground floor," said one salesperson recently, speaking about her project in Salak Tinggi.
Hidden cost
Besides commercial land costs usually being priced higher, properties on commercial titles require owners to pay peak energy, water and sewerage rates as well as quit rent and assessment charges.
Besides commercial land costs usually being priced higher, properties on commercial titles require owners to pay peak energy, water and sewerage rates as well as quit rent and assessment charges.
"This is an abuse of the word 'serviced apartment'," opines MBPJ councillor Derek Fernandez. "The homeowner must understand the original concept was like with Micasa in KL. It's a commercially run operation. Serviced apartments are paying a premium for the commerciability of places like this. So people should be very hesitant to buy this."
"The buyer is paying property taxes which are normally double those of residential taxes," adds Rehda president Datuk Seri Michael Yam. "Your water price is the same price as the one the Pappa Rich operator pays. The electricity rate is double, and the deposits they take from you are also higher."
Of course, this misnomer can also be very confusing. One Indonesian investor looking for serviced apartments in Bukit Ceylon was disappointed to find at a launch last year that the units being touted as serviced apartments were not much more than "a standard block of condominiums", as he described them later.
"There's no management, rental return, housekeeping services or security policy. It wasn't fully furnished either. I think this is misrepresentation."
In fact, more and more property types are being ambiguously marketed as both residential and commercial, with titles such as SOHO (small office, home office), SOVO (small office, versatile office), SOFO (small office, flexible office), lifestyle suites, serviced residences and serviced suites, among others. Many of these projects' brochures depict young working professionals in suits toting briefcases, next to images of double beds, saunas, barbeque areas and jacuzzis.
A rose by any other name?
parcels need to remain designated as commercial however. Upon applying for strata titles, developers may apply for the title's conditions ("syarat nyata") to be converted to containing residential apartments ("bangunan kediaman") as well as shops.
parcels need to remain designated as commercial however. Upon applying for strata titles, developers may apply for the title's conditions ("syarat nyata") to be converted to containing residential apartments ("bangunan kediaman") as well as shops.
That way, the rate applied to these apartments is a mixed rate ("kadar bercampur") which is less than the rate for commercial shops. "To do this, they just have to pay a nominal additional premium of RM100," says a spokesperson in the strata title department of Selangor's land and mines office.
There may even be a 50% reduction in chargeable quit rent if the number of shops is less than 2% of the number of homes, eg two shops underneath 200 apartments. Alternatively, these shops may be assigned as "common areas" of a condominium, in order to fully designate the development as residential.
Developers still prefer to sell commercially designated serviced apartments however. Some reason as to why was intimated at by Rehda president Yam when announcing the Rehda Institute survey results.
Building permissions for residential developments are based on units or population per acre, while commercial developments are based on plot ratio (total built-up area per land size). For residential developments to be profitable, developers go for large units which allow them to sell more built-up area per acre.
"But we all know the demand for big units, the bungalows in the sky, ended maybe two years ago," says Yam. "Those who can afford them have already bought them." Instead, smaller units sized below 1,200 sq ft and priced below RM500,000 or RM600,000 have been selling like hot cakes at launches.
"Let's say you have a piece of land that is 100,000 sq ft large and you get a plot ratio of 10, so you can build 1,000,000 sq ft of so called offices. Once you have that 1,000,000 sq ft, you can carve those out into any size you want, like 600 sq ft or 700 sq ft."
At the same time, more and more mixed use developments in which residents live, work and play are being designed. "There has been a trend for more self contained developments, where you can live upstairs then go to the gym, to the movies or shopping downstairs," says Yam.
With the advent of the MRT, there will also be more transit orientated developments with high rise apartments and retail spaces clustering around stations. "That sort of concept will be more popular while bigger families will have to move out further because they can't live in the city."
Young adults will prefer to live on top of lifestyle outlets, for convenient access to food and entertainment. They are also in less need of cars, compared to families with children, thus encouraging them to live in these mixed use/transport nodes.
Added to these factors is the softening office market, which industry players believe contributes to increased residential apartments on commercial land. "Developers also think they can sell for a better price when they call their units serviced apartments," opined one source.
The way forward
Demand is ultimately changing and government regulations are not reacting fast enough, believes Yam. "We're trying to engage the government to try to make some changes so that we shouldn't need to differentiate whether it's a residential or commercial property. Just give developers a plot ratio that each location deserves."
Demand is ultimately changing and government regulations are not reacting fast enough, believes Yam. "We're trying to engage the government to try to make some changes so that we shouldn't need to differentiate whether it's a residential or commercial property. Just give developers a plot ratio that each location deserves."
There is also a case for greater flexibility of land law so that strata apartments may have residential titles even though they are located above retail shops. Properties combining residential and commercial uses are after all not new and may be traced back to the country's early shop houses.
More dialogue between property investors, industry players as well as federal and state governments is necessary to achieve a framework that better captures the needs of the evolving populace. This should ideally result in a more accurate treatment and less ambiguous marketing of these properties.
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