Property developers’ ‘fix low sell fast’ formula misleading

KOTA KINABALU: At the 5th Sabah Surveyors Congress last week, Chartered Surveyor Liaw Lam Thye told the audience that some property developers’ ‘fix low sell fast’ formula towards marketing strata development and the related service charge for maintenance is misleading in some cases.

Liaw was presenting his paper on how to calculate the service charge for strata titled properties.

“In Malaysia, there is no statute provision for fixing service charge for maintenance. It is normally fixed by developers. It is more complicated if it is a mixed development,” Liaw said.

He said some developers usually do not inform buyers of the actual cost of maintaining their collective property, facilities and common areas with other unit owners over the years.

Chartered Surveyor Liaw addressing the congress

In West Malaysia, initially, some developers of condominiums would subsidise the maintenance costs by charging a low service charge fee to attract buyers and when the owners took over the management vide their management corporation, they found out belatedly that their service charge or maintenance fee paid could hardly cover the actual maintenance cost of the housing project. By then, the developers had washed their hands off their development projects and took off with their profits.

Most buyers on the other hand do not seriously inquire about the cost of maintaining their property in the long run.

They are usually susceptible to the low maintenance or service charge calculated by the developers which usually fixed the management service charges low in order not to put off prospective purchasers of their project.

This is also because developers are also responsible for the service charges of the unsold units so the service charges are fixed low to their marketing and profitability advantage.

Later, when service charges need to be increased for proper maintenance, some buyers would complain of the high service charge or maintenance fee.

Complaints would reach the Ministry of Local Government and Housing for some residential properties.

“Problems of insufficient fund, lack of maintenance, increase of service charge eventually go up to the Housing Controller. Does it solve the problem?”

Liaw should know, for he said he was asked to appear before the ministry and the Housing Controller numerous times with regard to his firm’s management of some strata housing estates, not to mention the unflattering press reports.

As a solution towards better transparency, relevance and accountability, the Ministry of Local Government and Housing now requires developers to get a certificate from a registered valuer to fix the service charge for their proposed development.

Liaw suggested, “Perhaps, there is a need to make it mandatory to have a valuation report on the calculation of service charge for each proposed development.”

Such a move will improve the income of practising registered valuers in Malaysia.

According to Liaw, the best approach for the calculation of service charge is the budgetary approach to work out the total estimated monthly expenses for the proper management, controlling and the administration of the common property, building maintenance and improvement, sinking fund, paying Quit rent, rates, insurance premiums, management corporation costs.

Then, practitioners can work out the number of units (total floor area) of the development and divide the total expenses with the number of units (floor area) to work out the share cost for each parcel unit to fix the service charge.

Liaw regretted that a number of strata property development sale and purchase agreements drawn up by lawyers do not include clear pertinent information like share units and service charge calculation.

“Share units are important because share units determine contributions, voting rights and equity,” Liaw explained.

Liaw stressed that, “It is prudent for developers to fix the share units for each parcel unit at the onset of the development so that the owners will know what they buy into.”

That would be good for transparency and accountability.