Updated: Nov 18, 2019
I recently posted a rant on FB after a working trip to Singapore about the horrible maintenance of our high-rise residential buildings. This problem bugs me. Besides being an eyesore, it is the primary concern for me when considering to live in a condominium or serviced apartment.
In this post, we'll look at the problem and explore solutions. The purpose of this post is to push for much needed reform in the maintenance of your properties. Better maintenance equals better investment returns for you.
Say Doc, What's the Problem?
For the majority of people, a home purchase is a long-term commitment. That means they're going to be living in it for 5 years or more. They'll also be taking out mortgages for 20 - 35 years. And all of them will be looking at the purchase as an investment.
But do you get the feeling that when you buy a high-rise residential property, it has a short shelf-life? Like after 10-years, its price appreciation will plateau or depreciate? You're right in feeling so, because that's what may happen.
Price appreciation is not the only problem. Most people buy into a high-rise residential property because of the building's aesthetics, facilities, and security. You'd expect it to always deliver on these features. If over time the building starts to deteriorate, facilities become visibly worn or out of order, and security features start to breakdown, you've paid for a very expensive degradable product.
Metropolitan Square in Damansara Perdana is one good example I'm familiar with. In 2004, I remember seeing the site with advertisements on the perimeter boards that touted a beautiful, high-speed internet ready condominium with amazing pools and facilities. Fast forward to 2019 and the whole development is a rundown version of its former self. Prices have dropped and rental prices have not increased.
The price phenomenon can be attributed to market conditions since 2015 but it cannot be ignored that the overall upkeep of the place has contributed to this negative condition.
Many good condominiums have slowly slipped down the ladder becoming shabby shadows of their former self. There are simply too many to name.
How many condominiums have you been to where 2 of the 4 treadmills are out of service, or the sauna has been temporarily closed, like forever? One lift in a serviced apartment building I know was perpetually shut for at least a full 1.5 years!
Owners of non-stratified properties have the luxury of beautifying and upgrading their properties over time on their own accord. With stratified properties, this luxury is absent. That means, you may have bought a gorgeous condominium today but it could be a slum in a few years.
Slum? Ok, I'm exaggerating a little but that's creative license to drive home a point.
What do most people do? Over time, they just move out and upgrade to better condominiums. The void is filled by a different set of residents. The population mix in condominiums can therefore change significantly over time. You could be living with neighbours who share similar values today and strangers with opposite values tomorrow.
So what are you paying maintenance fees for? You're also contributing to a sinking fund.
If you're wondering, here's the definition of a sinking fund (Oxford Dictionary):
A fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset.
So nearly every condominium or apartment in Malaysia has a sinking fund for the purposes of "replacement of a wasting asset" but about 80% of them (just a guess) can't replace wasting assets.
Ironically, the JMBs or building management will always use "lack of funds" as an excuse for not maintaining the building as it should be.
Isn't That The Truth? The Lack of Funds Bit.
If there's a lack of funds to maintain a building, keep it spanking new throughout it's life span, and ensure that EVERYTHING works, then there's only 3 explanations:
Residents are not paying their maintenance fees
Someone has done a poor math job on exactly how much money is needed
There is poor management
In many buildings, it is all 3 of the above. In fact, they're all linked.
If residents are not paying their maintenance fees on time, there are proper legal procedures in place to make them pay culminating in a warrant to seize the movable property of the defaulter. There is also the Strata Management Tribunal that can help with recovery.
Long before it even escalates to that point, there are many things the property manager can do to coax payment. This includes constant reminders by phone, blocking access cards, disallowing the defaulter from using the facilities, and displaying a list of defaulters on notice boards in the building.
In truth, most times the collection is not done effectively.
Not having enough funds due to miscalculation of the fee needed is a serious problem and must be addressed immediately. Again, this requires efficient property management.
This is a true story...
My mentor bought what he thought would be an exclusive apartment in Port Dickson as a holiday home. It fronted a beautiful beach with direct access. However, it deteriorated due to poor management and a lack of funds.
My mentor decided to take charge and became chairman of the JMB. Very quickly he fixed many of the issues and brought some order into the building. From a lack of funds, he handed over to a new team with significant surplus.
All it took was good and efficient management.
So what's needed are good property managers and a competent and honest JMB team.
Where Do You Find a Good Property Manager?
You'd think that we should have plenty of good property managers. Let's take a look at what it takes to become a property manager:
A degree qualification recognised by the board
2 years of continuous training and experience under supervision of a registered property manager
Submission of a work log
Test of Professional Competence at the end of 2 years
Trying to become a property manager can essentially take 6 years or more! But like many things regulated and licensed in Malaysia, these requirements seem to be superficial at best.
Don't take my word for it. Take a look at the buildings around you.
I was driving in Kuala Lumpur city centre today and I observed the beautiful lights adorning the new Exchange 106. I then shifted my attention to the former tallest towers in Malaysia - the Petronas Twin Towers. The globe on the pinnacle of one tower was only partially lighted.
This is the iconic Twin Towers that tourists from all over the world flock to see and the property manager has overlooked replacing worn out lights!
What we need to do is review the process of accrediting property and facilities managers. 2 years of supervision and work logs ain't cutting it.
We need property managers to be exposed to best practices and high global standards. We need people who understand aesthetics and design. Who don't stick ugly notices with tapes on lift walls and pillars.
We need people in the industry who give a damn and are accountable.
We need management companies where heads roll if worn lights are not replaced, if common areas are not cleaned to the highest standards and if anything doesn't work.
Until the bar is raised to conform with top international standards, you can bring in the best architects in the world to design magnificent condominiums but it will not hold. The building will deteriorate.
What Can You Do to Raise the Bar?
Attend the AGMs of your JMB.
I've attended quite a few AGMs for different buildings and sadly the turnout is pathetic. I've never tried to get appointed to the JMB but do you know how easy it would be for me to orchestrate a "take-over" should I so wish? Very easy.
That's because of the poor turnout. If I can influence 20-30 residents to support me, which isn't very hard to do, I could even become chairperson.
When you don't attend your AGM, you're putting your interest in your property at risk. Your absence allows potential for mismanagement, which happens all too often. Overpriced 3rd party services, vested interests in contracts, diversion of funds and poor budgeting is common.
Every resident therefore should attend these AGMs and demand for competent management. Look at the accounts. Check the minutes of the last AGM. You're a shareholder in this stratified property. Give it the same attention you'd be giving your stock portfolio.
Make your JMB and building manager perform. Vote them out if they don't.
The accounts is one of the most important reports that should get your scrutiny. That doesn't mean you should be "penny wise, pound foolish." You should be the check and balance for prudent spending and good preventive maintenance.
For example, if JMB is spending RM300,000 per year on security guards, it's not cause for alarm if the price paid for the quantity of guards conforms to market prices.
You should however be concerned if there are too many or too few guards.
Preventive maintenance can greatly reduce maintenance costs. I learned this first hand when I was managing my stable of AirBnB apartments. To illustrate, I drastically reduced air-conditioning maintenance costs by having a regular maintenance schedule. There were less emergencies and major repairs as a result.
Ensuring the efficiency of your JMB is partly in your hands. Make it your priority today.