For thousands of years, wars were waged in the name of territorial expansion. As our civilisations evolve, so have the rules and regulations involving real estate. Founder and Managing Partner of Chur Associates, Chris Tan lists out future legal trends in real estate investment in Malaysia over the next 10 years.
Photography by Jan Yong
1. HOME BUYER PROTECTION OVER INVESTOR PROTECTION
The recent amendment to the Housing Development (Control & Licensing) Act 1966 (HDA) and the newly enacted Strata Management Act give more protection to buyers vis-à-vis developers. The law aims to prevent project abandonment whilst encouraging the public to own a home. The government through its affording housing programme is now a direct competitor with the state government and private developers. Investors in the next 10 years will need to learn to protect their own interests as the market becomes more skewed towards affordable housing built by the government.
2. IT’S HARDER TO BECOME A PROPERTY DEVELOPER
Since Malaysia is on its way to becoming a developed country— although we’re a little behind on achieving vision 2020—once we become a ‘developed’ nation, as the word suggests, there will be nothing much to develop thus fewer developers around. Instead, the market will be saturated with property agents and property managers. The scarcity of land especially in the urban hotspots like Penang or Greater KL makes it tough for developers to continue building because it means having to buy the older buildings, demolishing and rebuilding them. Not only is the process very costly, it also creates new sets of legal problems.
Currently, there is no such concept as en bloc sales in Malaysia therefore an old building with multiple owners (such as Wisma Central and Sungai Wang) will require 100% consent from all owners before it can be acquired and demolished. I foresee that in the next 10 years, there will be en bloc legislation that allows for older buildings to be refurbished probably at 80-90% majority decision following the Singapore and Hong Kong example.
Additionally, since the lifespan of Malaysian buildings is generally about 60 years, these buildings would need to be upgraded with fibre optic, Wi Fi and other modern amenities to keep them current. Hence, unless you are financially strong, it would be almost impossible to become a property developer. The government will likely tinker with legislation with regards to the increase of developer deposit, material costs and labour force. This will force out the small fishes which automatically contributes to the decrease of supply and corresponding increase in prices.
3. PROPERTY MANAGEMENT IS THE DRIVER FORWARD
As Malaysia gradually moves to become a developed nation, housing demand will be driven by rental rather than ownership. The government is encouraging home ownership due to the fact that property will soon become unaffordable and when that happens, interested buyers will be forced to rent instead. If you observe, most developed economies or cities are saturated with property agents and property managers because everyone buys from the secondary market so property management becomes crucial.
The current legislation in Malaysia now is in favour of tenants and there is no specific legislation that addresses the issues between landlords and tenants. However, this becomes a necessity when there is private participation in housing the nation in the future. Unlike Singapore, less than 10% of the homes here are public housing. Therefore, it is important for the government to ease the leasing process for landlords by coming up with a more balanced legal regime. So in my prediction, we will have a landlord-tenant act that protects the landlord more and encourages private participation in housing the nation through rental in the next 10 years.
Every genuine property investor must now learn to become a landlord because we are now in the last lap of becoming a developed nation – we are moving into a rent-matured economy. Genuine property investors must start adding value to their property by making it stand out from the rest. If you buy a unit from a project that has 1,000 units and all of you receive your keys at the same time, how do you make sure that your unit gets rented out or sold first?
The key is to be innovative—you either offer it cheaper or add value to your property. You can also enhance your unit or go the extra mile by gathering a few of your neighbours and making the whole floor thematic. Or, let’s say I want a ready to move-in unit and yours is the only one with a ready move-in condition, everyone else’s is still bare, I don’t mind paying some premium for that unit. That’s what I meant by ‘property management is the driver forward’. Look at your property as a commodity, the ‘buy-sell concept’ doesn’t work anymore.
4. COLLECTIVE AND CREATIVE INVESTMENT
Due to factors such as inflation, the weakening of ringgit, cost of construction materials, labour cost and so on, real estate prices in Malaysia will not be seeing a downward trend in the coming future. This is because with prices continuously rising, barriers of entry have also gone higher, which means properties that were once within an individual’s income capacity have now gone beyond their affordability.
One way to overcome this is to leverage on another person’s income; you can get married and purchase it together with your spouse; joint purchase with your siblings/other family members; or buy in a group such as an investor club, or through land banking and crowdfunding. You can no longer hunt like a tiger; you have to hunt like a lion—in a pride.
You also have to be creative and think of various other ways for you to invest. Most people associate property investment with buying and selling or buying and renting. But what about renting and then renting out or other methods of acquisition?
They are not aware that there are other lease options beyond the traditional ones. For example, if your existing tenant is interested in buying the property (valued at RM200,000), and they are currently renting at RM1,000 a month but do not have the 10% down payment, an agreement can be made whereby the rental paid in the next accumulated 24 months will be considered the down payment for the property. That way, you have a guaranteed buyer. You see that creativity? It’s important for you to know the fundamentals of the law—when you know the law, you will know how to work with it and generate choices.
5. STRATA IS THE WAY OF LIFE
In December 2012, the Ministry of Housing reported in Parliament that “1 in every 4 Peninsular Malaysian stays in a strata development”. Moving forward to 2017, there will be more people staying in strata developments simply because it is what urbanisation requires. And I can tell you with certainty that chances are the next property that you buy is a strata property. Why? Because it’s cheaper, it makes more sense, it’s more secure and it’s better managed.
The latest amendments under the Strata Management Act and the Strata Title Act as well as the setting up of the Strata Management Tribunal with 250,000 jurisdictions clearly shows that strata management is now being taken seriously. The more people living in strata property, the more disputes there will be, thus the importance of coming up with a special court to deal with strata-related cases.
The government is already telling you there is such a trend, so, you as an investor should learn how to live in a strata. Unlike the individualistic nature of home ownership in the past, strata is community living and thrives on the concept of “love your neighbour”. You have to pay service charges on time, pay sinking funds, and participate in Annual General Meetings to elect your council members. It is no different than being a shareholder of a public listed company—the idea is to upkeep the property and ensure that it is properly managed so the value will go up. Strata management is a way of life simply because no matter the type of property you buy, be it commercial, residential or industrial, you need to know about strata. So, it is not just about owning a property per se but also about making sure that everyone will benefit through participation purchase.