High cost under new law may affect property investors' profit margin

Strata regime: Return on investment will always be a consideration as higher cost would certainly affect the possible margin of profit in today’s buyers’ market.

Counting the cost: Investors' profit margin may be affected under new law

PROPERTY has topped the list of investment options for those who have extra cash. Property investors and those who prefer other instruments, are trying to gain maximum returns on their hard earned money.

Property investment has gained momentum because of the price boom in the last 10 years as seen by the massive development and high take-up rate.

Because the bulk of these properties are stratified residential properties, legislations have been updated for a more efficient delivery of strata titles. Essentially, these new legislations provide more protection to house buyers.

Among these are the Housing Development (Control and Licensing) (Amendment) Act 2012 (“HDAA”), Strata Titles (Amendment) Act 2013 and Strata Management Act 2013 (both “Strata regime”). The Strata Management Act came into effect on June 1, 2015.

Return on investment will always be a consideration as higher cost would certainly affect the possible margin of profit in today’s buyers’ market. While having new legislations are good news for house buyers, these new legislations could also impact the cost of any investment in strata residential property.

For a start, there is now higher compliance cost for the housing developers, as there is an increase in the amount to be deposited in the housing development account.

There is also the new requirement to maintain the common property defects account prior to the delivery of the keys to the house buyers.

This means that under the new regime, developers will have a higher compliance cost, which may indirectly result in fluctuations of property prices. This means developers need to be financially strong and there is the possibility that they may incur financial costs as they try to maintain a feasible and sustainable cash flow.

This will discourage the smaller players. Having fewer choices is definitely not good news for the investors.

In addition, there is also a higher transactional cost for those who plan to flip their properties.

The earlier issuance of strata title upon delivery of vacant possession will require investors to fork out expenses related to the stamp duty before selling the completed property to the next buyer.

In other words, there is no longer savings on the stamp duty on transfer for those investors who bought directly from the developers. This lowers the return on investment, not to mention having to bear with the longer and complicated process of double transfers for those who are eager to dispose of the property on delivery of vacant possession.

The new template of the prescribed sale and purchase agreement HDAA (Schedule H) also requires that the payment shall be in compliance with the schedule of payment and no person shall act as stakeholder to collect such payment.

In simpler sense, the developer is no longer allowed to collect booking fee from the investors for their preferred unit and the unit they have selected is only secured upon the signing of the sale and purchase agreement with the 10% payment.

As such, there is no turning back once you have signed on those dotted lines and there is no way to secure your unit of choice with lower amount while you are working on the full 10% deposit.

Another cost that will burden property investors is the maintenance fees charged by the management office when they get their keys to their properties. The new strata regime has provided for the possibility of limited common property usage and the exclusive use of certain facilities – a privilege – which comes with a price tag. If the management adopts any limited common property, they are looking at a two-tier service charges and sinking fund, with one for those who have the use of one set of common properties and the other for the use of limited common property, to be enjoyed only by a selected few.

Despite monetary cost, time cost is also a factor for investors. A purchase into a strata development now calls for more involvement in the management as the management corporation of the development is formed much earlier now with the possibility of having the title and the keys delivered at the same time.

The new strata regime requires the active participation of all owners, as the tenure of the office bearer is limited. Other owners are required to sit in the management corporation committee on subsequent years. Despite the fact that taking up the responsibilities of committee members offers monetary gains, any misconduct or negligence may now result in a penalty.

The new restrictions on advertisement and representation by the developers also mean that the investors are required to spend time on research and do their own due diligence to better understand the investment. There is no longer permitted representation such as time/distance from a particular venue, projected monetary returns/gains and rental income. Thus, before making decision to invest, the consumers have to do more personal research on the investment.

While property investment remains feasible over the longer term, investors are advised to take these legislations into consideration to come out with a realistic projection of investment return.

By CHRIS TAN Real Legal

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General duties of a proprietors according to the Third Schedule of Strata Management Regulation 2015

WHILE last week's article covered the general by-laws under the Third Schedule of the Strata Management Regulation 2015, this week, we look at what is required and prohibited by the proprietor who is the house owner.

General duties of a proprietor

• Promptly pay to the management corporation the charges and contribution to the sinking fund relating to his parcel, and all other monies imposed by or payable to the management corporation under the Act;

• Promptly pay all quit rent, local authority assessment and other charges and outgoings which are payable in respect of his parcel;

• Permit the management corporation and its servants or agents, at all reasonable times and on reasonable notice being given (except in the case of an emergency when no notice is required), to enter his parcel for the purposes of:

a) checking for leakages or other building defects;

b) maintaining, repairing, renewing or upgrading pipes, wires, cables and ducts used or capable of being used in connection with the enjoyment of any other parcel or the common property;

c) maintaining, repairing, renewing or upgrading the common property; and executing any work or doing any act reasonably necessary for or in connection with the performance of its duties under the Act or the regulations made thereunder or for or in connection with the enforcement of these by- laws or additional by-laws affecting the development and forthwith carry out all the work ordered by any competent public or statutory authority in respect of his parcel other than such work for the benefit of the building or common property;

d) repair and maintain his parcel, including doors and windows and keep it in a state of good repair, reasonable wear and tear, damage by fire, storm, tempest or act of God excepted, and shall keep clean all exterior surfaces of glass in windows and doors on the boundary of his parcel which are not common property, unless the management corporation has resolved that it will keep clean the glass or specified part of the glass or the glass or part of the glass that cannot be accessed safely or at all by the proprietor;

e) maintain his parcel including all sanitary fittings, water, gas, electrical and air- conditioning pipes and apparatus thereof in a good condition so as not to cause any fire or explosion, or any leakages to any other parcel or the common property or so as not to cause any annoyance to the proprietors of other parcels in the development area;

f) forthwith repair and make good at his own cost and expense any damage to his parcel if such damage is excluded under any insurance policy effected by the management corporation and to carry out and complete such repair within any time period specified by the management corporation, failing which the management corporation may carry out such repair and the cost of so doing shall be charged to the proprietor and shall be payable on demand;

g) not use or permit to be used his parcel in such a manner or for such a purpose as to cause nuisance or danger to any other proprietor or the families of such proprietor; not use or permit to be used his parcel contrary to the terms of use of the parcel shown in the plan approved by the relevant authority; and

h) notify the management corporation forthwith of any change in the proprietorship of his parcel or any dealings, charges, leases or creation of any interest, for entry in the strata roll; and use and enjoy the common property in such a manner so as not to interfere unreasonably with the use and enjoyment thereof by other proprietors. Follow our column next week to learn of the general prohibitions of proprietors, power of the management corporation and changes to by-laws that are possible.

BY Datuk Pretam Singh Darshan Singh, a lawyer by profession, has previously worked as Senior Federal Counsel, Deputy Public Prosecutor with the Attorney General's Chambers and legal advisor to several government departments and agencies. He is currently the partner in a legal firm while simultaneously serving as President of the Tribunal for Home Buyers' Claims. Leveraging his vast knowledge and decades of experience and knowledge, he contributes articles to local and international journals, besides delivering lectures and talks in relevant forums.

Email your feedback and queries to: propertyqs@thesundaily.com

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By-laws governing strata property management in Malaysia, part 1

Third Schedule of Strata Management Regulation 2015

WITH the demise of the Deed of Mutual Covenants, the Third Schedule of the Strata Management Regulation 2015, now known as by-laws and any additional by-laws made under the Strata Management Act 2013 (“the Act”) shall bind the developer, the joint management body, the management corporation or the subsidiary management corporation, as the case may be, along with the purchaser, parcel owners or proprietors.

It also binds any chargee or assignee, lessee, tenant or occupier, of a parcel to the same extent as if the by-laws or the additional bylaws have been signed or sealed by each person or body mentioned above, and contain mutual covenants to observe, comply and perform all the provisions of the bylaws or additional by-laws.

These by-laws shall apply to any development area:

• during the management by the developer before the joint management body is established;
• during the management by the joint management body;
• during the management by the developer before the first annual general meeting of the management corporation;
• during the management by the management corporation after first annual general meeting of the management corporation ; and
• during the management by the subsidiary management corporation after it has been established in respect of the limited common property .

SALIENT FEATURES OF THE BY-LAWS

Functions of the management corporation are to maintain in a state of good condition, service and repair, where necessary, including:

• renew or upgrade the fixtures and fittings, lifts, installations, equipment, devices and appliances existing in the development area and used or capable of being used or enjoyed by occupiers of two or more parcels;
• maintain, repair and, where necessary, renew or upgrade sewers, pipes, wires, cables and ducts existing in the development area and used or capable of being used in connection with the enjoyment of more than one parcel or the common property;
• where applicable, establish and maintain suitable lawns and gardens on the common property;
• where applicable, manage, maintain and secure suitable operators for any of the common utilities, amenities and services in the common property, such as launderette, convenience store, cafeteria, nursery and others, to reasonable standards of safety and health for the convenience, comfort and enjoyment of the proprietors and occupiers;
• renew and upgrade common property where necessary for the purpose of retaining and adding the market value of parcels in the development area;
• on the written request of a proprietor of a parcel and on payment of a fee, which shall not exceed RM50, furnish to the proprietor, or to a person authorised in writing by the proprietor, the copies of all policies of insurance effected under the Act or effected against such other risks as directed by the proprietors by a special resolution, together with the copies of the receipts for the last premiums paid in respect of the policies;
• set up, manage and maintain proper procurement procedures and tender process in a fair and transparent manner for all purchases, acquisitions or awards of contracts in connection with the management and maintenance of the common property;
• set up, manage and maintain a good credit control system in the collection of maintenance charges and contribution to the sinking fund and any other charges lawfully imposed by the management corporation; administer and enforce the bylaws and any additional by-laws made under the Act; and
• and without delay, enter in the strata roll, any change or dealing notified to it by any proprietor.

COMMON PROPERTY FOR COMMON BENEFIT

The management corporation shall control, manage and administer the common property for the benefit of all the proprietors, provided that the management corporation, by written agreement with a particular proprietor, grant him for a defined period of time, the exclusive use and enjoyment of part of the common property or special privileges in respect of the common property or part of it, subject to appropriate terms and conditions to be stipulated by the management corporation.

To impose a fine, the management corporation may, by a resolution at a general meeting, do so, of such amount as shall be determined by that general meeting against any person who is in breach of any by-law or any additional bylaws made under the Act.

It is important to note that defaulters of service charges et cetera, can have theirs and their family’s access card denied and also be imposed a fine.

A defaulter is a proprietor who has not fully paid the charges or contribution to the sinking fund in respect of his parcel or any other money imposed by or due and payable to the management corporation under the Act, at the expiry of the period of 14 days of receiving a notice from the management corporation. Any restriction or action imposed against a defaulter shall include his family or any chargee, assignee, successor-intitle, lessee, tenant or occupier of his parcel.

If any sum remains unpaid by the proprietor at the expiry of the period of 14 days, the proprietor shall pay interest at the rate of 10% per annum on a daily basis or at such rate as shall be determined by the management corporation at a general meeting, until the date of actual payment of the sum due.

The management corporation may prepare a defaulters’ list showing the names of the defaulting proprietors, their respective parcels and the amount of the sum that remains unpaid. The management corporation may also display the list of defaulters’ names on the notice boards at the building, provided that such a list shall be updated by the management corporation at the end of every following calendar month.

The management corporation may, at the expiry of the period of 14 days, and without prior notice, deactivate any electromagnetic access device, such as a card, tag or transponder, issued to a defaulter until such time, that any sum remaining unpaid in respect of his parcel has been fully paid, together with a charge not exceeding RM50 that may be imposed by the management corporation for the reactivation of his electromagnetic access device. During the period of the deactivation of his electromagnetic access device, the management corporation may require the proprietor to sign in a defaulters’ register book each time that the defaulter requires any assistance for entry into or exit from the building or the development area. The management corporation may also stop or suspend a defaulter from using the common facilities or common services provided by the management corporation, including any car park bay in the common property that has been designated for the use of the defaulter.

The management corporation may accept payment of any sum due by a defaulter which is made by his chargee, assignee, successor-in-title, lessee, tenant or occupier, and any of the aforesaid persons, who had made such payment, shall be deemed to be irrevocably authorised by the defaulter to do so.

Follow part two of our article next week touching on the general duties and prohibitions of strata title proprietors.

By DATUK PRETAM SINGH DARSHAN SINGH The Sun (Malaysia)

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