This article first appeared in City & Country, The Edge Malaysia Weekly on February 5, 2024 - February 11, 2024

It is increasingly commonplace these days to find strata commercial properties that are mixed-use developments and integrated with multiple components such as offices, retail, serviced apartments, SoHos/SoFos, hotels, medical centres and even industrial warehouses and shoplots.

The existing laws and regulations in Malaysia, however, have not caught up with the evolving strata development trend, as highlighted by Chur Associates managing partner Chris Tan during his segment titled “A Legal Nightmare” at The Edge Malaysia Property Management Virtual Talk 2024.

The event was held virtually as part of The Edge Malaysia Best Managed & Sustainable Property Awards (BMSPA) 2024, which has opened for submission. It featured speakers and a panel who are members of the BMSPA judging panel, namely Chur Associates managing partner Chris Tan, Architect Centre Sdn Bhd accredited building inspector and trainer Anthony Lee Tee, Rehda Malaysia president Datuk N K Tong as well as ­BMSPA chief judge and The Edge Malaysia editor emeritus Au Foong Yee. 

Presented by City & Country with Nippon Paint as the main partner, the virtual talk and the BMSPA, which will be held later  this year, are supported by the Association of Property and Facility Managers, Architect Centre Sdn Bhd, Building Management Association of Malaysia, Institute of Landscape Architects Malaysia and EdgeProp Malaysia.

During his segment on the first day of the talk with the theme “From Hero to Zero: Buying Ill-Designed Strata Commercial Property”, Tan said the Strata Titles Act 1985 (STA) and Strata Management Act 2013 (SMA) are both due for review, particularly on mixed-use developments and the blurring of the permitted uses in such strata formats today.

“The SMA hasn’t caught up with new circumstances. For example, things like work from home, which has become a norm in today’s context, and disruptors such as Airbnb operations. Questions on whether these are permitted are yet to be adequately addressed,” Tan said.

“The SMA mainly deals with residential strata development and not commercial or non-residential strata development. So there are gaps that need to be addressed urgently,” he added.

Tan also questioned the readiness of strata owners in effectively managing the property and the relevance of the joint management body (JMB) as there have been discussions on having the strata title delivered during vacant possession, which will accelerate the formation of the management corporation (MC).

“The JMB, which is the entity that manages the common property of the strata development between the owners and the developers and what I call the transitional period where the developer passes on all the knowledge of the building to the owners, was created back in the Building and Common Property (Maintenance and Management) Act 2007 and has continued to be adopted by the strata regime. However, with the expectation today in relation to the issuance of strata title upon vacant possession, if this is effectively complied with, there will not be such an entity called JMB any more. Without this transition, would the owners know what to do when they have to manage the entire common property? And what is the role of the developer that originally designed the product?

“There are still a lot of issues that are being challenged in terms of the judicial interpretation of all strata-related law. Therefore, new regulations are needed to plug the gaps,” he explained.

Besides touching on the regulatory challenges, Tan advised property investors to learn about the strata property before committing to buying one. First, consider the cost of maintenance. “Many neglect to consider the convenience of maintaining the property. The harder it is to maintain, the higher the cost of maintenance.

“It’s not just about paying for the absolute price tag, you have to consider the cost of maintaining the property. Even if you rent it out, these things should be [factored] in because they are part and parcel of strata community living. You are not just buying into a property, but also [buying] a membership into the strata community. I always say that when you buy a strata property, you are buying a property with a club membership.”

Next, identify your neighbours. “Understand the composition of the strata community you are buying into. At the end of the day, a strata property is owner-managed, so learn about who is in the community and what are their interests and whether their values align with yours, because in a mixed-use strata development, there will be different owners with different priorities. For example, owners of the residential component of a mixed development would probably want to have quiet enjoyment of their property, but the mall that is directly below their building would want to have high traffic. Can those interests be balanced? These are the things to take note of from day one.”

Tan also encouraged property investors to look at the property’s rate of charges and how it has trended over the years and the minutes of its general meetings to identify issues or concerns, including who is the appointed property manager, whether there were any changes and the reasons for that.

“This information is easily available from the general meeting minutes. If not, get them from the seller. If they are not diligent, you can probably form your own conclusion on whether to buy or not. Of course, the profile of the property developer is also an important consideration.

“Lastly, look at whether the property has won awards. There is a difference between an award awarded to the property and an award given to the developer. Look for the former. The Edge Malaysia BMSPA’s criteria is a good benchmark.”

Property ownership requires time, money and effort, emphasised Tan during his segment titled “Get it Right from the Start!” on the second day of the talk with the theme “How to Destroy Your Housing Property Value”.

“If it is a strata property, owners are encouraged to contribute and get involved in the strata community. Even for a non-strata property, owners will still have to keep track of the property’s condition and maintain it by servicing or replacing equipment and parts to get the best enjoyment possible from the property.”

Nonetheless, as a property’s life cycle starts from the developer, Tan encouraged property developers to look beyond just the construction and sales. “Developers should also get the input of property valuers, building surveyors and lawyers for a complete picture of the entire property development cycle.”

Property developers must also equip themselves with property management skills, he said. “This is because the formation of the MC [and] JMB in relation to strata management falls on the property developer. It is their legal obligation. They’ll need to call for the first annual general meeting and continue to handhold the owners until the MC is formed.”

Next is investing in user education. “This can start during the sales pitch to your potential buyers. This is important because it lets them know what kind of products they are buying into. If the product you are offering is something very new and different, it is important to walk the buyers through on what they can expect and what is expected of them. Properties are getting more sophisticated, so it is worthwhile for developers to consider these things. Otherwise, you may not be getting the right product to the right target audience.”

According to Tan, an important feature of products today is flexibility. “As a judge of BMSPA, I look forward to seeing how property owners adapt to current circumstances, especially after having gone through the Covid lockdowns. The world today is very different from the world before. So what is the dynamism of the product? Is it able to evolve? How does it impact the owner and their enjoyment of the property? These are important considerations for property developers.”

Property developers can also consider having an owners’ orientation programme, Tan suggested. “This is to familiarise the buyers with the features of the property and what to do in terms of upkeep and maintenance. A sample general meeting agenda can be circulated to all owners to remind them of what to do in relation to property management in the fifth year, 10th year and so on. Being the party that designed the property, developers can also provide a sinking fund utilisation model as a guide for the owners when the MC is formed.”

In addition, an owners’ manual or guidebook on how to use and maintain the property can help owners maximise their enjoyment of their property, especially with the increasingly sophisticated products today, he said. “A tracking system to monitor the property and remind owners of its scheduled maintenance and upkeep can also be created. There is a lot of technology that we can leverage for this.”

Tan advised property buyers to consider the cost and convenience of the property’s maintenance by first looking at the quality and specs of the features of the property, in considering the financial sustainability or the resources needed to be put aside for this investment and for managing the property.

“In addition to the hardware, the software is also important. Most of the time, disputes start with the software rather than the hardware because it’s the human interaction that is harder to regulate. I think it’s important to have community engagement, other than the general meetings, to help everyone feel at home and take ownership of their property,” he explained.

Tan also advised prospective buyers to give the property a financial health check. “Take note of the property’s value track record. Look at similar properties or units within the same property. What is the trend of its value appreciation in the past? Look at the rents, yields and tenants. This is to balance your potential income to cost.

“And for strata properties, look at their general meetings and accounts to see if it is underfunded or overfunded. Check the credibility and credentials of the appointed property manager.”

He also told prospective purchasers to look beyond the unit they are buying. “Check out the common property, the level of maintenance, and the friendliness of the property’s design and planning. It is very common for buyers to just look at their own unit or at best their allocated parking bay, but it’s important to look beyond that and at the common areas such as the facilities because the enjoyment of a property is more than just within one’s own unit. Similarly, if you are buying a non-strata unit, walk around the neighbourhood to see how well it has been maintained.”

Tan stressed the importance of getting it right from the start when it comes to property investment. “For the purpose of protecting, preserving, creating and enhancing property value, property ownership can never be passive. After all, property is one of the biggest financial commitments for many.”

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