Sustainable financial management is essential to ensure the longevity of properties
To ensure the longevity of a property, there must be sustainable financial management for long-term maintenance, according to architect, building inspector and certified trainer Anthony Lee.
He added that the sustainability of a property should not be an afterthought and that it must be financially viable. Therefore, it would be important to ensure that a property has enough inhabitants and that everyone pays maintenance costs and towards the sinking fund.
“This [a future-proofed property] is planned, designed and executed beyond aesthetics and functionality by responsible developers and team… Don’t let functionality and aesthetics fool you as they will let you down if the property does not raise enough funds” , he reiterated in his session entitled “Future -Proof of your investment” at The Edge Malaysia RealTalk Forum 2022, on the theme “Investing in times of volatility: how, what, where?”, which was held on July 16.
“The end game here is that the ownership, management and maintenance of strata can be future-proof, so that when you [the residents] eventually take over, you know everything is in place. The deciding factor is that without the capacity for planned management, maintenance and financial viability, any property, regardless of its location and price, will surely end up becoming a costly investment mistake. You want to avoid this kind of property.
Responding to a question from the floor about what would be a sufficient number of residents in a development, Lee cited the land development he was currently staying in. Although it is an individual land development, it is managed as a layered land development where the residents pay monthly maintenance fees, Lee said.
“I live in a land development, not a stratified development, but we come together to pay maintenance costs. We are 700 and I pay about RM300 per month. Anything below 700 will be painful for residents,” he explained.
“No property will be financially viable if there aren’t enough people paying. If you want exclusivity, you have to pay more… the cost of security is full time, other than things like landscaping , drain cleaning, fences, CCTV, etc. In [a] land development, you may not have any plumbing issues, but you will have the same other issues as other stratified high rise developments. You need to know how many people are there [in the development]How many [the residents] pay [for the monthly maintenance fee] and if it can cover the cost.
Lee noted that building mixed-use developments is a “moving” trend and that means layered developments are here to stay. Therefore, it is important to perpetuate its ownership.
“In marketing brochures, there might be [various benefits] of a property, such as exclusivity, sanctuary, swimming pools, etc., but where is 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 in a property. But is it practical, maintainable or even financially viable? ” He asked.
“We’re not talking about buildings that are GBI (Green Building Index) certified or environmentally sustainable, but whether you’ll have enough money for maintenance costs or to pay the sinking fund. This is where it is important to understand the situation and not to do things blindly.
During the lecture, Lee compared a stratified residential project with a mixed-use development to show the complexity of the latter. The residential stratified project has 180 units and nine elevators, while the mixed-use development has 1,540 units and 25 elevators.
The first, he said, is an exclusive development due to the ratio of the number of units to elevators. These are 1,144 installations excluding pipes, air conditioners, toilet bowls, etc. By comparison, the latter has 2,047 installs.
“The issue is knowing who sustains development and sustainability is important in this situation. Planned preventative maintenance is important, and it’s technical know-how-when. Architect Center has found that many properties have this wait-and-see attitude , which is waiting for things to break down and then fixing them. This has often happened during the pandemic where different things have broken down and there were no spares. Preparation is something that we advocate,” Lee said.
Preparation means saving money for future property repairs and maintenance. However, he observed that maintenance fee issues make up most of the condominium management court cases.
The problem is compounded when there are unsold properties, which become a burden on developers as they have to pay maintenance costs.
“When you invest in a property, you have to look to the future, like operating expenses and capital expenses (which is the sinking fund). A property may look nice in the first two years, but if you don’t have the money, it will [fail]“, said Lee.
“An illustration here is that every 10 years you will have to repaint the building, otherwise it will start to deteriorate. At the same time, you have to start waterproofing. Then there is also inflation where prices go up. pipes and pumps should also be changed every 15 years and so on.This is what we mean by life cycle and it involves maintenance costs and sinking funds.If you don’t put the money aside, what will happen is that you won’t be able to replace these things and over time your buildings will be harder to save and they will become a security issue.
It has also seen poorly designed developments, such as a complicated piping system that makes maintenance difficult. These properties are not designed and built with maintainability in mind.
Based on Lee’s experience, he felt that a property would incur higher maintenance costs if it took longer to finally complete the maintenance work, due to the amount of repairs involved.
“There is also another issue regarding the future, which is that of chargers for electric and hybrid cars. These cars are becoming more common, but how many such chargers do most condos have? Eventually this will become a problem. We made consultations and we realized that many condominiums, even the most upscale ones, cannot [sustain] the wiring of these chargers,” he said.
Lee added that buyers and investors could refer to the eight future criteria defined in The Edge Malaysia Best Managed and Sustainable Property Awards which address property maintenance issues. He noted that the sustainability of a property is “beyond location and price”.
The eight criteria for the future are maintenance (mechanical and electrical systems, cleanliness, indoor air quality); administration, procedures and transparency of accounts; procedures for recovering service charges, defaulting debtors; financial viability, membership budget, cost reduction initiatives; security (technology, CCTV, proactive measures); community and communications to encourage harmonious living; development value (growth and rental yields compared) as well as crisis management and preparedness.
The Edge Malaysia The Best Managed & Sustainable Property Awards were established in 2017 to benchmark Malaysian property management practices against the best in the world. Since then, he has not only raised the bar for the industry, but also started the urgent conversation among real estate players to ensure that Malaysian real estate is designed, built and maintained in a sustainable way.