Who will rein in the boom in serviced apartments?

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In Penang, a developer is building 418 serviced apartments on a plot where only 100 condominium units would be approved.

PETALING JAYA: In spite of many issues surrounding the development of serviced apartments, there is a boom in such property projects, with state and local authorities seemingly just rubber-stamping their approval.

The number of serviced apartments has grown tremendously in the Klang Valley and Johor. But it is not just a Klang Valley and Johor problem: the number is also growing in states like Pahang, Negeri Sembilan, Penang and Melaka.

At the end of 2020, there was an existing stock of 282,992 units in the country, with Kuala Lumpur, Selangor and Johor contributing 87.43% to the total, compared to 87.90% over the total 253,056 at the end of 2019.

There is also an incoming supply of more than 130,000 units and planned supply of more than 168,000 units.

So a huge number will be added to the market in the coming years.

Banks, state and local authorities, and the federal government need to put a finger on this growth.

Surprisingly Pahang houses a growing number of such projects. It is a given that Penang and Melaka and even Negeri Sembilan also face the same explosive growth in serviced apartment units.

There is a trade-off between location and size when it comes to this type of commercial development.

A developer has made a foray into Penang with a serviced apartment project on a parcel of just 1.1-acre in Macalister Road.

The project is priced at an average of RM1,200 per sq ft. Yes, it does look rather steep on a per square foot basis.

Unit sizes begin at 340 sq ft, or about the size of a hotel room, to give that perception of affordability with price starting at RM492,000.

The developer has 418 units to sell.

Had the project been a condominium on residential land, it is likely that only 100 units would be permitted based on a density-ratio basis, versus 418 units of serviced apartments on a plot-ratio basis.

The number of units for sale, therefore, has gone up by more than 400% by choosing to build serviced apartments.

This explains the flood of serviced apartment projects and why developers like this type of development so much.

Professor Ting Kien Hwa, a UiTM lecturer in estate management, said buyers are trading off size with the location. Macalister Road is a strategic location and buyers would be likely to register their units on Airbnb.

The supply of serviced apartments is also rising in Negeri Sembilan, Pahang and Melaka.

One may say, with the mass roll-out of vaccination, travel will likely rebound with gusto post-pandemic.

Ting said prior to the Covid-19 pandemic, such projects especially those in the city or near public rail transport were particularly popular.

However, last year, owners who parked their units with agents were howling for lack of tourists.

But the night will become dawn and the sun will shine over the tourism sector once again.

But is that a good enough reason to go on rubber-stamping more such projects? Most of these projects are generally the size of a hotel room or slightly larger and have high maintenance costs compared to condominium projects built on residential land.

A group of condominium buyers in Sg Besi, Kuala Lumpur are up in arms regarding the change in the master plan of their 10-acre development.

The master plan dated November 2013, shows Phase 1 and 3 to have a total of 800 units. The blocks range between 23 and 25 storeys.

Phase 4, according to the plan, would comprise 10 units of three-storey shop lots. However, the developer is seeking Dewan Bandaraya Kuala Lumpur (DBKL) approval to convert their previous plan of 10 units of shoplots into 300 serviced apartment units.

From three-storey shops to a 30-storey block, on the same 2 acres. That is a lot for the initial condominium buyers to swallow.

On May 8, the developer told them they had been working on this plan since 2018.

A source who attended the meeting was shocked and angry. “They have been planning this since 2018 and only now, in 2021, they tell us. And they may not have done so, if not for our constant demand for answers after we heard this through the grapevine,” he said.

The developer also told them that they had “every right to change the plan as long as DBKL approves it,” the condominium owner said.

An employee from the company said they are “waiting for DBKL to approve their plan.”

Which boils down to this one question, should state and local authorities just rubber-stamp projects for development without considering the consequences of building thousands of bachelor pads?

In the heart of the city of Kuala Lumpur, another serviced apartment project, unveiled in November 2015, was targeted for completion by the second half of 2020.

Yes, Covid-19 came and like other projects, property construction was affected.

Located on about 4 acres, the commercial mixed integrated project consists of two blocks of 57 and 62 floors, and a hotel block of 68 floors.

Besides about 1,000 serviced apartment units, there will also be hotel units with about 260 and 300 hotel suites.

Last year, the main contractor was replaced and a new one appointed. On April 21, in legal papers sighted by FMT, the previous contractor took legal action for non-payment of an outstanding sum of RM166.22 million. The developer said the main contractor’s claim is “premised” on a “financing agreement and not on a construction contract.”

The project has a gross development value of more than RM5 billion.

Besides late delivery, change in main contractor and payment dispute, developers have in the past decade or so jumped onto the property development bandwagon to make a quick buck. Now with a soft property market, some have moved to glove-making.

Will projects be abandoned?

State and local authorities hold a powerful role in the development of their respective states and they need to take this mandate and authority in a responsible manner.

Because by no means will the growth of these bachelor pads be limited to just the Klang Valley and Johor.