Apr 28, 2017 Last Updated 8:39 AM, Sep 4, 2016

Opinions

Are SOHOs and serviced apartments under commercial or residential titles? Can residential properties be used for commercial purposes? Christopher Chan finds out.

SOHOs and serviced apartments built on commercial title – what are they actually?

Under the National Land Code 1965 (Act 56), land is categorised into one of the following uses: “Agriculture”, “Building”, or “Industrial”. Under the “Building” category, there is an express condition in the title (known as “Syarat Nyata” in Bahasa Malaysia) that states whether the land is to be used for residential or commercial use.

SOHOs and serviced apartments – Commercial or residential titles?

As an example, you can see the title below of a land in the District of Gombak with a “Building” category for residential use. This is also a Malay Reserve Land.

Let’s have a look at the express conditions in the master title for Scott Garden’s SOHOs in Old Klang Road and Marc Residence (Serviced Apartments) in KLCC.

Master title with ‘Syarat Nyata’ for Marc Residence (Serviced Apartments) in KLCC.

Master title with ‘Syarat Nyata’ for Marc Residence (Serviced Apartments) in KLCC.

The express condition in the master title for Scott Garden’s SOHOs states that “Tanah ini hendaklah digunakan untuk bangunan perdagangan bagi tujuan kedai pejabat dan pangsapuri servis sahaja“. For Marc Residence, it is stated as “Tanah ini hendaklah digunakan untuk bangunan perdagangan bertingkat bagi tujuan pangsapuri servis sahaja“.

The individual strata titles for units of both of these developments have yet to be issued and that is why we are looking at the master titles at the moment.

Therefore, we refer to these developments as being on a commercial title as it is stated as “untuk bangunan perdagangan”. Therefore, on the same reasoning, the quit rent, assessment and utilities are usually charged based on commercial rate by the authorities.

For a stratified development, the master title (encompassing one piece of large title for the whole development to be developed by the developer) is deemed as the “Parent title” while the individual strata title (issued to the individual purchasers) can be deemed as the “children title”. Just like a human being where we inherit the DNA structure from our parents, the conditions in the master title would naturally be the same conditions as stated in the individual strata titles.

Master title with ‘Syarat Nyata’ for Scott Garden’s SOHOS in Old Klang Road.

Master title with ‘Syarat Nyata’ for Scott Garden’s SOHOS in Old Klang Road.

 

The Housing Development (Control and Licensing Act) Act 1966 (Act 118) and Regulations was amended in 2007 to widen the definition of “housing accommodation” to include SOHOs and other similar developments. The new definition is as follows: “Housing Accommodation” is defined under Part 1 sub-section 3 of Act 118 on “Interpretation” to include any building, tenement or messuage which is wholly or principally constructed, adapted or intended for human inhabitation or partly for human inhabitation and partly for business premises and such type of accommodation as may be prescribed by the Minister from time to time to be a housing accommodation pursuant to section 3A.

Under the above definition, SOHOs and the likes, would fall under the definition of a housing accommodation and therefore they are subject to Act 118.

Can residential properties be used for commercial purposes?
It is interesting to note that the Petaling Jaya City Council (MBPJ) has, for some time now, allowed residential homes to be turned into commercial use as provided for in the Petaling Jaya Local Plans 1 & 2.

I paid a visit to MBPJ on June 30 to seek clarification on this matter. Interestingly, my findings are as follows:

> The MBPJ allows certain residential areas to be turned into “limited commercial use” as provided for in their local plans. This is allowed for certain areas in Petaling Jaya such as Jalan SS2/24 (partial), Jalan Universiti (partial), Jalan Utara (partial), Jalan Kemajuan, Jalan Gasing and Jalan Penchala (partial), among others.

> Limited commercial use means that the council allows for certain types of commercial activities such as art galleries, showrooms (excluding cars), agencies (including tourism, advertising and real estate agencies) and Care Homes for the elderly, among others. One may obtain a booklet from the council titled, “Garis Panduan Bagi Membuat Perubahan Matan Perdagangan Dan Perniagaan Di Majlis Bandaraya Petaling Jaya” dated July 14, 2007 for more details on this.

SOHOs and serviced apartments – Commercial or residential titles?

It is interesting to note that quite a number of these properties have not been formally converted to commercial use as such. They have merely been given an approval by the council to be used for the above mentioned purposes, subject to an annual payment of RM2,000 to the council. One would need to continue to renew this on a yearly basis. The title of these properties remains residential as stated in the express condition.

Beginning next year, MBPJ will cease to allow the yearly annual payment of RM2,000. This means that the owners should then proceed to convert their land from residential into commercial use.

The owner would have to apply under section 124 – “Variation of Conditions, Restrictions & Categories” of the National Land Code 1965 for approval. For this, one would need to apply at the Petaling Land and District Office.

>> Christopher Chan is a registered estate agent and an associate director with Hartamas Real Estate (Malaysia) Sdn Bhd.

AS I was catching up on my reading, an article in the papers entitled “Government can’t deliver affordable homes on its own” caught my attention.

It reported that Syarikat Perumahan Negara Bhd, which has been entrusted to deliver 200,000 affordable homes nationwide this year, has said it cannot achieve the target on its own and would have to collaborate with other parties.

The remark took me down memory lane, to the time when I was a fresh architectural graduate in the early 1960s. I joined Kuala Lumpur City Hall (DBKL) right after my studies and was assigned to build low-cost housing.

During that time, there were no policies on low-cost housing. However, DBKL managed to build low-cost houses without subsidies and sold them without a loss, as Government land was contributed for free. The housing industry was a free enterprise, therefore, there existed a few thousand small and medium-sized developers who were able to prosper by building and selling houses even below RM15,000 each, mainly because their overheads were very low. Many built less than 10 units at a time.

They did not spend money on advertising as they could not afford it; they merely put up a simple signboard on the site to attract customers, including yours truly. That was how efficient and cost-effective we were as an industry.

 

 

No doubt, the situation has changed over the years. With the rising cost of land and construction, in spite of all the competition, house prices kept rising.

Up until the early 1980s, there was no mandatory requirement for developers to build low-cost housing. Then, in 1982, some state governments started to impose a 30% low-cost housing quota on private developers in their housing projects.

All low-cost units had to be sold at the ceiling price of RM25,000 until a revision in 1998, which introduced a four-tier pricing scheme ranging from RM25,000 to RM42,000, depending on the housing type and location. Many small and medium-sized developers found such a ruling a big impediment to their business.

Many were unable to cope and had to wind up their businesses. This ironically reduced the number of developers who could produce cost-effective housing.

In order to meet this policy, private developers had to cross-subsidise low-cost units via the sale of other units at a higher price. Imagine a situation where banks are required to offer 30% of their loans interest-free, or lawyers to serve 30% of their clients without a fee. Obviously, this is not sustainable in the long term.

Recently, even more stringent rules were introduced with the new policy irrespective of the size of the development, announced by the state authority of Negri Sembilan. The state now requires developers to build 50% affordable homes in their new housing projects.

This new policy will mean higher prices for other homebuyers, and ironically will once again force some smaller developers who can build affordable homes with lower overhead costs to exit the property market. With all these limitations instead of incentives, I foresee many challenges for the private sector, especially small and medium-sized developers in assisting to close the gap for affordable housing.

So, what can be done to address the issue?

As mentioned in my previous articles, high land cost is a major factor for rising house prices. With ample land resources, only the Government can free up land in appropriate locations, convert agriculture land for housing purposes, or purchase land for affordable housing.

For example, large tracts of rubber plantation land in Shah Alam and Bangi were acquired by the state Government at very low prices of around RM10,000 per acre to create these new townships in the early 1970s.

In addition to availability of land resources, only the Government can expedite approval processes and find scale efficiencies for its housing projects, which will eventually lower overall development costs.

As we understand from other countries, only the Government holds the key to making the affordable housing goal a success. In Singapore, prior to the formation of the Housing and Development Board (HDB) in 1960, less than 9% of Singaporeans stayed in Government housing. Nearly half the population lived in dilapidated housing or squatter communities, and a growing population worsened the condition.

Recognising the impending crisis about 50 years ago, HDB started its mission to house the nation with considerable powers in land acquisition, resettlement, redevelopment and design. The organisation has also been led by an experienced professional and competent team.

Today, with its comprehensive approach, HDB has developed more than a million homes for its people. As many as 80% of Singaporeans live in public housing built by HDB, and 90% of them own the HDB houses that they live in.

The Singapore Government alone has shouldered 100% of that responsibility to ensure Singaporeans have access to affordable housing. The results over the years speak for themselves and are an oft-cited example of a successful model globally.

In our nation, there is still a lot of room to improve the supply of both affordable and low-cost housing for the rakyat. Our Government has the opportunity to fix the housing issue once and for all when it fully maximises its land resources, engages a professional and competent team to lead the cause, and maintains a strong political will to achieve the goal.

Datuk Alan Tong has over 50 years of experience in property development. He was the World President of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email This email address is being protected from spambots. You need JavaScript enabled to view it..

 

This article is contributed by Cloudhax

 

 

Most home buyers, particularly first owners, would battle between the decisions of purchasing a new or second-hand property. New residential units are NEW and it’s an advantage no other reasons could account for. But is being NEW the most significant factor in owing your first home?

Location

You know you have to take various factors into consideration before deciding on the purchase of a house. Let’s speak of location for the first. Everyone wants the best location but strategic areas and prestigious addresses have mostly been occupied by existing developments. You can still find new projects within prime locations such as KL or PJ but you’d shake head once you behold the prices. New properties that you can afford are probably located in the suburb or require more travelling. Comparatively, new developments are priced higher too so for the same amount you pay, second-hand houses may have better locations.

Money and home condition

The thing about buying sub-sale properties is that you need to be loaded with funds. You need at least a 10% of down-payment, followed by an amount to feed the legal fees and other necessary charges. New developments, however, are usually packaged in full-fledged benefits. Often times buyers are given the luxury of discounts or added advantages of furnishings, freebies and many more. And you’d see how you also need additional capital for sub-sale renovations, some of which may go very high if the house is already rundown. New units, on the other hand, may save you a lot on renovation. That being said, there are also some risks in second-hand houses as you wouldn’t know the wear and tear, especially if they’re hidden or covered. You can put your worries at ease though if you’re buying a new house as everything is brand new and some houses come with warranty for defects.

Investment Value

Which has a better potential for price appreciation? New or second-hand? Well, the doubt definitely goes to new properties. You see, some new developments are built in remote areas or places yet to be developed. It’s pretty hard to gauge if it would appreciate in value, disregard how developers shout about its potential. Existing houses may have the upper hand here as you can already see its price history, percentage of yield and can roughly predict the rise (or decline) in prices. You know the amenities, accessibility and other surrounding properties that would contribute to the convenience and value.

Neighbours & Occupancy Rate

Would you want to be the first to move into a new development? It’s pretty risky, to be frank. Even if it is gated and guarded, you’d sense that it’s not wise to do so. The thing about new developments is that occupancy rate is hard to foresee. You wouldn’t know if people are buying purely for investment or self-stay. There is no good or bad to low occupancy rate but most would prefer at least half the units are occupied. And unlike existing houses, you would have no inkling on your future neighbours. Highly depending on luck, you might be neighbouring a nasty, calculative family or meet a down-to-earth amiable couple. But if you are viewing a second-hand house for consideration, you get a hint of how your future neighbours are and have the opportunity to retract from buying if you think they’re too difficult to get along.

So, new or sub-sale?

As you can see, factors are clearly laid down for you to consider. If you have the time to wait, flexible with location, place less priority on investment value and wish to dwell in a nest that’s new, go for new developments. But if you have more funds in hand, want a preferred location, don’t mind a former occupant, a second-hand property should suffice as your ideal choice. Just don’t forget to weigh all factors before making the wisest decision, best for you and your plan (to invest or stay).

 

Disclaimer: The opinions expressed in this article reflect the views of the author(s) / contributors(s) and do not (necessarily) reflect the views or as a recommendation by Property LIfestyle Malaysia

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