Changing the Fate Of A Strata Property Close To Being Abandoned in Malaysia

Written by Sr KC Law

Have you encountered strata property developments in Malaysia that have been abandoned and wondered what happened and what could have been done to salvage it?

In this article, we want to look at the role of the Joint Management Body (JMB)/ Management Corporation (MC) and the function of the Strata Management Tribunal in ensuring effective strata property management.

In Malaysia, urbanization, scarcity of land, and an increase in land prices will inevitably cause more and more of the Malaysian population to live in strata residential properties.

A quick look at the statistics from the Department of Statistics Malaysia shows that in the second quarter of 2019, there were a total of 5,727,814 residential properties in Malaysia (both strata and non-strata). Out of this total, 1,709,987 are residential strata properties, representing about 30% of the total residential properties. We can further breakdown the number of strata residential properties into three types as shown below:

  1. Apartments / Condominiums – 904,948 units
  2. Flats – 331,356 units 
  3. Low-cost flats – 473,683 units

83.91% of these residential strata property or 1,434,797 out of 1,709,987 residential strata units are situated in the following four states.

  1. Selangor – 658,978 units
  2. WP Kuala Lumpur – 377,120 units
  3. Pulau Pinang – 262,877 units
  4. Johor – 135,822 units

By the end of 2020, the total number of residential properties has increased to 5,845,850 units. The breakdown for 2020 is not available (possibly due to the COVID-19 pandemic). However, it should follow that the number of strata residential properties would increase in direct proportion.    

The Ministry of Housing and Local Government (Kementerian Perumahan dan Kerajaan Tempatan [KPKT]) published some statistics on the number of cases filed and resolved at the Strata Management Tribunal (SMT) from 2016-2019, after the introduction of SMT 2015 on 1 June 2015 as shown in Table 1.

YearNo. of cases filedNo. of cases resolvedPercentage (%)
20162,6422,60498.6
20174,3903,87988.4
20184,9644,58492.3
20195,6754,45678.5*
Table 1: Number of cases filed and resolved at the Strata Management Tribunal (SMT0
*Within 150 days

The above trend shows us that there is an increase in SMT cases filed at KPKT for resolution from 2016 to 2019. (We previously wrote about Strata Condominium Disputes and How to Make a Claim at the Tribunal in Malaysia)

In the year 2019, out of the total cases filed, 93.23% were concerning non-payment of maintenance and sinking funds. This tells us that many JMB/MC have difficulty in collecting arrear maintenance and sinking funds from strata unit owners.

This poses the question, why are these owners not paying their maintenance and sinking funds? The onus is on the JMB/MC as property managers to identify the root cause(s) and address them in a timely manner.

To appreciate the crucial role of the JMB/MC in such situations, let’s take a look at a property management case study of an apartment, close to being abandoned and how it was turned around, by a newly installed JMB committee. They had managed to increase the collection of arrear maintenance charges and sinking funds, improve the management of common property and improve the value of the property.

Case Study

“Apartment M” (not its real name), has 23 blocks of 5-storey walk-up strata property with 20 units each or a total of 460 units in Malaysia. In January 2020, a newly elected JMB committee “inherited” all the problems listed in Table 2 below.

The first task undertaken by the committee was to conduct an internal audit of the JMB account for the last 5 years / 60 months within 14 days of assuming their duty.

They sought to identify the apartment’s sources of income and expenses for the last 60 months. They were quick to point out various ‘leakages’ / wastages in the financials and took measures to cut them immediately.

They also found that only 18% of the owners regularly pay their maintenance and sinking fund. The JMB committee knew that the poor upkeep of the apartment could have been one of the main reasons for the owners’ reluctance in paying their monthly maintenance charges. The owners may have felt that the maintenance charges are not commensurate to the poor and unsatisfactory maintenance services rendered.

Thus, they had to prioritize efforts and corrective actions that were visible and apparent to demonstrate that there was a significant improvement in the condition of the apartment to encourage defaulters to pay up their arrear maintenance charges from the last 5 years. These were:

  • restoring common lighting of all 23 blocks showing the changes before and after.
  • installing Solar LEDs street lights showing the changes before and after.
  • reclaiming all damaged car park bays by paving them with recycled hard bricks.

After implementing improvements listed in Table 2 one after another, collection of arrear maintenance and sinking fund began to improve from the first quarter of 2020.

If no corrective actions had been taken, the fate of “Apartment M” would have been that of an abandoned property – which is totally detrimental for occupants and for owners who had purchased it for investment.  

Problems identified in 2019Solutions implemented in 2020
31 Dec 2019 JMB account was deficit by about RM45KSurplus of over RM100K within 12 months
Common electricity to 23 blocks terminated, past TNB bill about RM100/month per blockCommon electricity to 23 blocks restored with LED light, TNB bill reduced to RM20/month per block
JMB water bill was about RM 2,000/monthJMB water bill was reduced to RM 1,500/month. Still in progress to further reduce the monthly bill.
All street lights were not functioningSolar LEDs street lights were installed at strategic locations of all blocks
Occupancy less than 20%Occupancy increases to 40% by Dec 2020
Inefficient rubbish disposal system and overprice cleaning contract about RM7.5K/monthNew rubbish disposal system and direct labour cleaner at about RM2K/month
Over 30% car park bays damaged by tree rootsPaving recycled hard bricks to restore all 30% of damage car park bays
Over 20 root stumps damage car parking bays, water pipes, drains and floorsRemoved all root stumps and repair car parking bays, water pipes, drains and floors
No motorbike parking bays. Motorbikes are parked at the ground floor walkway of every block, posing a danger to occupants should there be a fireNew covered designated motorbikes parking structure built with over 40 motorbikes parking bays. (see image below)
Low rental rate caused by poor maintenance and securityImprovement in rental value and rental demand
Only 18% of owners pay maintenanceAbout 40% owners pay maintenance by Dec 2020
Low owner occupancy rateIncrease in number of purchasers buying for own stay
Unable to attract quality tenant, many incidents of water theft and vandalismImplement water cage in all blocks to manage and reduce water theft. Reduce incidences of vandalism.
Low resale value of unitsImprove resale value and demand for the apartment from improved maintenance
Table 2: Problems identified in 2019 and solutions implemented in 2020 for “Apartment M”

Before 2020, only JMB committee were allowed to post comments on “Apartment M Owners WhatsApp Group”. No comments or feedback were allowed from strata unit owners. Therefore, it was only an announcement platform. The new JMB was of the opinion that this one-way communication counters the effort of the new JMB in collecting outstanding arrear maintenance charges from delinquent owners.

The new committee decided to make the “Apartment M Owners WhatsApp Group” open to all strata owners to post comments and suggestions. The improved communication increased owners’ participation and at the same time helped to recover some arrear maintenance charges.

By the end of 2020, the collection increased from 18% to 40%, as a result of the visible improvements implemented by the JMB and initiation of two-way communication between the JMB and owners. As for recalcitrant defaulters, the JMB intends to file a claim at the Strata Management Tribunal, and is hopeful that the collection of arrear maintenance charges will improve further.

This case study shows us how much of an impact a committed JMB committee can have on improving and restoring a soon-to-be abandoned property. We hope that the success story of “Apartment M” will give hope to other JMB/MCs out there – that you too can change the fate of your strata property.

Now, it is impossible to talk about JMB’s effectiveness without also mentioning the importance of owner participation in Annual General Meetings (AGM). In many properties, attendance of parcel/unit owners is as low as 5% to 10%. This is another reason why property management in many strata properties fail or are badly managedthe indifference of owners.

Having a higher rate of owner participation will ensure decisions made by the JMB are in the best interest of owners. This includes selecting a cohesive team of JMB/MC members with integrity, operational, technical, and creative problem-solving skills.

However, what happens if the JMB/MC failed in their responsibility?

Under Strata Management Act 2013, the strata property owners are also entitled to bring a claim against the JMB/MC concerning their performance or failure to perform. When all efforts to get JMB to perform fails, residents can file a case with the Strata Management Tribunal for arbitration to settle any disputes. (We previously wrote about Strata Condominium Disputes and How to Make a Claim at the Tribunal in Malaysia)

There isn’t a “one size fits all” solution. Cooperation is the first step in the right direction. 

We wish all JMB/MC every success in managing their respective strata property on behalf of all strata unit owners. Should any JMB/MC need further advice you may contact us at 03-7785 1888. Like and follow us on our social media platforms for more content.

Sr. KC Law

Sr. KC Law is a Registered Valuer, Estate Agent, and Property Manager with The Board of Valuers, Appraisers, Estate Agents, and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management, and Business Valuation. He is a Member of The International Association of Certified Valuation Specialists of Canada, a Member of the Royal Institution of Surveyors Malaysia, a Member of the Malaysia Institute of Estate Agents, a Member of the Business Valuers Association of Malaysia, and a Member of the Malaysian Institute of Property and Facility Managers.

Buying Property and Stamp Duty Planning

Written by: Sr. KC Law

RPGT and Stamp duty planning

In our earlier article Selling Property and Real Property Gains Tax (RPGT) Planning, we discussed the prudent approach property owners can adopt to manage RPGT effectively when they decide to sell their property.

What consideration is there for a property buyer to take note of when buying a property?

Every purchaser has to pay Stamp Duty when buying any property, except specific property categories exempted by the government.

The Stamp Duty payable by purchasers depends on the property value and calculated based on the rate below:

stamp duty calculation

Example

When a purchaser buys a property at RM1.5M, what is the Stamp Duty the purchaser needs to pay?

The Stamp Duty based on the above rate is:

1st RM100K @1% = RM1K

Above RM100K to RM500K @2%= RM8K

Above RM500K to RM1M@ 3%= RM15K

Above RM1M to RM1.5M @4%= RM20K

Stamp Duty payable is =RM1K+RM8K+RM15K+RM20K=RM44K.

What is the basis of the Stamp Duty calculation apart from the schedule rate?

The stamp duty payable by a purchaser of a property is based on the market value of the property at the date of transaction.

Case 1

Buyer A buys a property at market value of RM1.5M.

Jabatan Penilaian dan Perkhidmatan Harta (JPPH) authority values its market value to be RM1.5M.

Stamp duty payable is RM44K.

NO action needed because it is valued at market price.

However, what can Buyer A do if JPPH authority computes the market value of the property as RM2M when the fair market value is RM1.5M thus increasing stamp duty chargeable to RM64K, which is RM20K more?

Buyer A can make an appeal to have the property revalued by the authority, submitting with the appeal a full Property Valuation Report prepared by a private Registered Valuation company justifying with solid evidences why RM1.5M is the correct and accurate fair market value.

Case 2

Buyer B buys a property below market value at RM1M from a desperate seller.

The fair market value is RM1.5M

How much stamp duty does the purchaser have to pay?

RM24K or RM44K?

The answer is RM44K. Why RM44K?

Stamp duty chargeable/computation is based on market value.

Case 3

Buyer C buys a property above market value at RM2M from his neighbour for his son who plans to get married next year.

The fair market value is RM1.5M

How much stamp duty does Buyer C have to pay?

RM44K or RM64k?

The answer is RM64K. Why?

Stamp duty computation is based on the higher of the two that is Sales and Purchase Agreement (SPA) value.

Remember this: You pay stamp duty when you buy property at market value or SPA price.

Should you need further advice or clarification. Please contact us at 03-7785 1888 or email us at action.v1039@gmail.com

About the Author

KC LAWSr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyors Malaysia, Member of Malaysia Institute of Estate Agents and Member of Business Valuers Association of Malaysia.

Selling Property and Real Property Gains Tax (RPGT) Planning

Written by: Sr. KC Law

RPGT and Stamp duty planning

When we sell any of our property from the year 2019 and beyond, we will need to pay “Real Property Gain Tax (RPGT)”. When we buy property, we pay “Stamp Duty” at the market value of the property, to grasp the importance of stamp duty planning,  read our article: Buying Property and Stamp Duty Planning. In this article, we highlight the prudent actions needed for effective RPGT planning.

It is crucial to know the facts and make informed decisions; being ignorant of the laws and regulations is extremely costly and time-consuming to rectify.

Example 1

Mr Lim inherited a 3-storey shophouse in Kuala Lumpur from his late father via a valid Will. (Read more: Getting a Property Valuation On Your Inheritance, When and Why?)

He may plan to sell it immediately or 5 years after getting the “Grant of Probate” from the High Court.

Basic equations:

  1. Acquisition Date = Date of demise
  2. Holding period in year(s):

Disposal Date – Acquisition Date

  1. Chargeable Gain:

Disposal Price – Acquisition Price – Allowable Expenses

Read more: Real Property Gains Tax (RPGT) in Malaysia

From the above, the inherited 3-storey shophouse Acquisition Price or Market Value on the date of demise is unknown since there is no property valuation done.

Mr Lim is street smart and prudent, so he plans to determine the unknown Market Value at Date of demise by himself (Do It Yourself = DIY) to save cost.

Here are probably some DIY methods he might have considered:-

Method 1. Get an indicative price for similar property 3-storey shophouses in similar location advertised in the local newspaper(s) for the property by property agents. Cut out the advertisement and use it as Acquisition Price.

Method 2. Get the advertised prices for a similar property advertised in online property advertising portals. Print it out and use it as Acquisition Price.

Method 3. Call up several active real estate agents/negotiators in the area of the inherited property. Record down their verbal average indicative prices as Acquisition Price.

The above DIY methods seem to be very simple and cost-effective to determine the Acquisition price (Market Value) at Date of demise (inherited date).

The question is – Is this Acquisition Price (Market Value) at Date of demise derived from above methods valid or can it be used as Market Value of the property for submission to Inland Revenue Board (IRB) for RPGT tax purposes when Mr Lim sells his 3-storey shophouse immediately or in the future?

The answer is, unfortunately NO.

Why can’t these pieces of evidence be adopted?

The market value from the above methods is just hearsay indicative asking prices and cannot be used for RPGT tax calculation nor submission.

It is an offence punishable by imprisonment and/or fine should anyone who is not a Registered Valuer with the Board of Valuers, Appraisals, Estate Agents and Property Managers of Malaysia were to sign a valuation report stating the market value of any property for any specific date in Malaysia.

Now, let’s look at the correct and legal ways available to property owners/beneficiaries like Mr Lim who wish to get their property market value on the inherited date or date of demise or transfer date.

Situation 1- Owners/Beneficiaries who plan to sell/dispose of the property immediately after getting the “Grant of Probate”.

  1. Engage a Registered Valuer to conduct a property valuation and draw up a valuation report of market value at the date of demise.
  2. The date of demise is taken as the date of acquisition or date of valuation.
  3. The Holding Period is Date of Disposal – Date of Acquisition.

Situation 2 – Owners/Beneficiaries who plan to keep the inherited property after getting the “Grant of Probate” or sell after 5 years.

  1. After getting Grant of Probate, transfer/ register the beneficiaries name(s) into the title by Memorandum of Transfer (MOT) or Deed of Assignment for a non-title property.
  2. Engage a Registered Valuer to conduct a property valuation and draw up a valuation report on the date of registration of the title or assignment date on the Deed of Assignment for a non-title property.
  3. The inherited property will now have a market value at acquisition date which is the date of registration on the title or date of Deed of Assignment.

In the above example, our objective is to get market value for the property/inherited property at acquisition date under 2 situations that is valid and can be used in the future for RPGT tax planning purposes.

The above RPGT planning is a prudent and recommended way for all property owners who plan to sell their property for 2019 and after.

Real Property Gain Tax Malaysia

Example 2

What happens if owners of property who sold their property but felt that the RPGT calculated by the authority does not reflect the market value?

They can make an appeal with a detailed property valuation report from a Registered Valuer on the affected property within the specified appeal date.

However, this is a reactive approach which may in some cases not work in the favour of the owners.

The understanding of the above will help property owners/beneficiaries overcome the challenges in managing RPGT proactively when selling their property.

Should you need further advice or clarification. Please contact us at 03-7785 1888 or email us at action.v1039@gmail.com

About the Author

KC LAWSr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyors Malaysia, Member of Malaysia Institute of Estate Agents and Member of Business Valuers Association of Malaysia.

What Is My Property Value And How Much Should I Sell My Property?

Written by: Sr. KC Law, Principal & Valuer at Action Real Estate & Valuers

Value vs Price

There are 2 aspects in selling that are almost akin to 2 pieces of puzzle that must complement one another-  Property Value & Property Price.

Have you ever wondered at what price should you sell your property for? Pricing it too low, you will lose money; Pricing it too high, you will not be able to get a buyer.

There are generally 2 categories of owners pricing their property for sale:

  1. Price it at above market price ( > property value)

  2. Price it at market price or slightly below market price (= or < property value)

Which will receive more response from the market and work favorably towards the owners’ objective of selling his property?

Let’s evaluate and break down the possibilities of each option based on personal past experiences and market observation.

  1. Price it at above market price (> property value)

    a) Most knowledgeable buyers may bypass the property advertisement and look elsewhere. Hence we lose potential buyers who are ready to buy but are put off by an overpriced property advertised.

    b) If we intentionally price it way above market price and say allow for price negotiation we may put across a message to the buyer that we are not sincere in selling the property.

    It will only defeat the purpose of selling because serious buyers will not be interested to waste time negotiating a deal knowing it is above market price.

    It may take 6 months, 1 year or longer for the price to drop to current market price level and genuine buyers will not have the patience to wait.

    Most of the time serious buyers will move to other property with a more realistic or acceptable price.

    c) It also takes too long to sell a property if it is overpriced in the current slow market.

    It is also not uncommon to see properties which have been in the market for over a year and may have been marketed by many real estate agents.

    The price will go down progressively from the time the property is first put up in the market for sale.

    Instead of wasting valuable time testing the market with above market price and reducing it overtime, why not set the price right from the start instead of letting genuine buyers walk pass you.

    Then there are also owners who hope for ignorant buyers who will buy their property at above market price, which rarely happens.

    Even if there are such buyers, we may not be able to get passed the bank to value it at the escalated selling price.

    If the buyer is not able to get the loan to purchase the property then how is the transaction going to proceed? The transaction will probably be aborted if the buyer needs bank financing.

    d) Marketing a property too long a period of time is not only wasting a lot of time, it also creates an image to the prospective buyer that there must be something bad/wrong with that property, that is why for so long it’s still in the market and remains UNSOLD.

  2. Price it at market price/slightly below market price ( = / < property value)

    a) We will be able to attract genuine buyers to the properties.

    b) There might be more than 1 interested buyer  for the property.

    c) Potentially selling slightly above market price if there are more than 1 offer.

    d) If owners can differentiate creatively their property from other similar properties that are currently in the market with words like “best price, best value, best view and quiet surrounding etc.”, the property will have the best exposure and best credibility to the market.

    e) Another reason why we should price property for sale competitively is so that it can even compete with an auction property in the same location.

    Auction properties are usually listed 20% or more below market even for properties in good location and in great demand. Because the price is so attractive, it attracts a lot of bidders as many as 20 to 30 bidders. At the end of the day, the successful bidder usually ends up buying above market value, higher than secondary sale value in the same location.

    f) Nowadays, prices of most properties are transparent to the public and most buyers are aware of approximately how much each type of property is worth by checking with property websites such as iProperty, Propertyguru etc. They can also check actual transacted prices in the Brickz website. Therefore, it is only wise to price the property correctly and competitively from the start before putting it up in the market for sale or to let.

P/S: The above advice is applicable in most cases. In certain circumstances, if the property has unique features and advantages from its extensive renovation compared to other similar properties around the area, it can be marketed with a higher premium.

Email us at action.e2520@gmail.com to get an indication of your property value!

Action Real Estate copyrights reserved. Do not reproduce or copy the content of this post without first obtaining our consent. 

About the Author

KC LAW

Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyor Malaysia and Member of Malaysia Institute of Estate Agents.