To future-proof a property, there must be sustainable financial management for long-term maintenance, according to Architect Centre Sdn Bhd accredited architect, building inspector and trainer Anthony Lee.
He added that future-proofing a property should not be an afterthought and that it has to be financially sustainable. Therefore, it would be important to ensure a property has enough residents, and that everyone is paying maintenance fees and towards the sinking fund.
“It [a future-proofed property] is planned, designed and executed beyond aesthetics and features by responsible developers and team … Don’t let features and aesthetics fool you because these will let you down if the property doesn’t collect enough funds,” he reiterated in his session entitled “Future-Proofing Your Investment” at The Edge Malaysia RealTalk 2022 forum, with the theme “Investing in Volatile Times: How, What, Where?”, held on July 16.
“The end game here is that strata ownership, management and maintenance can be future-proofed, so that when you [the residents] eventually take over, you know everything is in a good place. The deal breaker is that without the ability for planned management, maintenance and financial sustainability, any property regardless of location and price point will surely and eventually descend into an expensive investment mistake. You want to avoid this kind of property.”
Answering a question from the floor on what would be a sufficient number of residents in a development, Lee cited the landed development he was currently staying in. While it is an individual-titled landed development, it is managed like a stratified landed development where the residents pay a monthly maintenance fee, Lee said.
“I live in a landed development, not a stratified development but we come together to pay maintenance fees. There are 700 of us and I am paying about RM300 per month. Anything less than 700 will be painful for residents,” he explained.
“No property will be financially sustainable if there are not enough people paying. If you want exclusivity, you need to pay more … the cost of security is full-time, other than things like landscape, cleaning the drains, fencing, CCTV and so on. In [a] landed development, you might not have piping issues but you will have the same other issues like other stratified high-rise developments. You need to know how many people are there [in the development], how much [the residents] are paying [for the monthly maintenance fee] and whether it can cover the cost.”
Lee noted that the building of mixed-use developments is a “moving” trend and it means stratified developments are here to stay. Therefore, it is important to future-proof one’s property.
“In marketing brochures, there could be [various benefits] of a property, such as exclusivity, sanctuary, swimming pools etc, but what’s the catch? [One of them] is low density, which actually means higher service charges as fewer people pay more for all the facilities that are within a property. But is this practical, maintainable or even financially sustainable?” he asked.
“We are not talking about GBI (Green Building Index)-certified buildings or sustainable environment, but whether you will have enough money for the maintenance charges or to pay for the sinking fund. This is where it is important to understand the situation and not do things blindly.”
During the talk, Lee compared a stratified residential project with a mixed-use development to show the complexity of the latter. The stratified residential project comes with 180 units and nine lifts, while the mixed-use development has 1,540 units and 25 lifts.
The former, he said, is an exclusive development due to the ratio between the number of units and lifts. It involves 1,144 installations excluding piping, air conditioner, toilet bowl and so on. In comparison, the latter has 2,047 installations.
“The problem is who is maintaining the development and future-proofing is important in this situation. Planned preventive maintenance is important, and it is the technical know-what-how-when. Architect Centre has seen that many properties have this wait-and-see attitude, which is wait until things break down then only fix it. This happened a lot during the pandemic where different things broke down and there were no spare parts. Preparedness is something that we advocate,” Lee said.
Preparedness means saving money for future repair and maintenance of the property. However, he observed that maintenance fee problems make up most of the strata management tribunal cases.
The issue becomes complicated when there are unsold properties, which become a burden to developers as they have to pay the maintenance fee.
“When you invest in a property, you have to look into the future, such as for both the operating expenses and capital expenditure (which is the sinking fund). A property may look nice in the first two years but if you don’t have the money, it is going to [fail],” said Lee.
“An illustration here is that every 10 years you will have to repaint the building, or else it will start looking bad. At the same time, you have to start the waterproofing. Then, there is also inflation where prices go up. Pipes and pumps also need to be changed every 15 years and so on. This is what we mean by lifecycle and it involves maintenance fees and sinking funds. If you don’t put aside the money, what will happen is that you can’t replace those things and over time, your buildings will be harder to save and they become a safety concern.”
He has also seen badly-designed developments, such as a complicated piping system that makes it difficult for maintenance. These properties are not designed and constructed with maintainability in mind.
Based on Lee’s experience, he reckoned that a property would have to fork out higher maintenance costs if it were to take a longer time to finally do the maintenance works, due to the amount of repair involved.
“There is also another problem about the future, which is the chargers for electric and hybrid cars. These cars are becoming common but how many such chargers do most condominiums have? Eventually, this will become a problem. We have done some consultations and we realised that many condominiums, even the high-end ones, cannot [sustain] the wiring for these chargers,” he said.
Lee added that buyers and investors could refer to the eight future-proofing criteria set in The Edge Malaysia Best Managed & Sustainable Property Awards that address issues in property maintenance. He noted that future-proofing a property is “beyond location and price point”.
The eight future-proofing criteria are maintenance (mechanical and electrical systems, cleanliness, indoor air quality); administration, procedures and transparency of accounts; collections procedures of service charges, debtors defaulters; financial sustainability, adherence budget, cost savings initiatives; security (technology, CCTV, proactive measures); community and communications to encourage harmonious living; development value (comparative growth and rental yields) as well as crisis management and preparedness.
The Edge Malaysia Best Managed & Sustainable Property Awards was created in 2017 to benchmark Malaysian property management practices against the best-in-class globally. Since then, it has not only raised the bar for the industry, but also kick-started the urgently needed conversation among property stakeholders for Malaysian real estate to be designed, built and maintained sustainably.