Real Property Gain Tax in 2013

This is an update from my blog post in 2011 about the Real Property Gain Tax (RPGT) in Malaysia for the current year 2012. You can go to the blog post here. That blog post explains about how does the Real Property Gain Tax in Malaysia works.

It was announced in Budget 2013 that the change for Real Property Gain Tax in Malaysia for 2013 is the addition of 5% to the current 10% RPGT for the sale of property which was bought 2 years from the date of the Sale & Purchase Agreement and the addition of 5% to the current 5% RPGT for the sale of property which was bought between 2 years and 5 years from the date of the Sale & Purchase Agreement. On the 6th year, there will be no Real Property Gain Tax levied on the sale.

As such, here is the rate which will be in force from 1st January 2013 :

Sale of property between 0 to 2 years of purchase : 15% RPGT

Sale of property between 2 to 5 years of purchase : 10% RPGT

Sale of property after 5 years of purchase : 0% RPGT

As I had advised in the blog post about RPGT in 2011, adjust your property investment accordingly.

Property Manager : Regulated Professionals?

In my new book, 40 More Questions You Should Ask Your Lawyer Before Buying A Residential Property in Malaysia, I tried to tackle the issue of living in strata developments in most part of the book more than anything else. The process and the dynamic of living in strata developments are a different kettle of fish than living in landed properties. It all comes down to how does the housing developer of a strata development handles the process of getting the individual strata titles. As this process is being handled, the management of the strata property is also a matter which can elevate the status of a housing developer or can be a bane to it. 

The three stages of managing a strata property starts the moment vacant possessions are passed to the purchasers. In the first year from that date, the management will fall on the housing developer. Upon the anniversary of one year from the date of the passing of the vacant possessions, the housing developer must passed the management of the strata development to the Joint Management Body consisting of all the owners, who were once purchasers of the strata development together with the housing developer. The Joint Management Body will then formed the Joint Management Committee who will be the council which will manage the strata development. When the strata properties in the strata development have been issued with individual strata titles, that is the moment the management will pass to the Management Corporation which is the owners in the strata development, managing the strata development all by themselves.

It may seem easy to manage a strata development if not for the intricacies involved in pleasing every each property ow within it. That is why property managements are needed in ensuring strata developments are properly managed. That is why the Building and Common Property (Maintenance and Management) Act 2007 which governs the conducts of Joint Management Body/Committee allows for the appointment of agents to help manage the common property and the strata development as a whole. The Strata Titles Act 1974 also recognised the need for property managers and allows it if the Management Corporation decided to do so. This Building and Common Property (Maintenance and Management) Act 2007 and the Strata Titles Act 1974 actually works hand in hand with the Valuers, Appraisers and Estate Agents Act 1981. This Act which is also known as Act 242 helps housing developers, Joint Management Bodies and Management Corporations, together with the owners of strata developments, choose the best property management agent for their strata development. Currently, Act 242 is in the midst of being amended. Let us look at the amendment to Act 242 in detail. The excerpt below is from a press release by Malaysian Institute of Professional Property Manager.

The Valuers, Appraisers and Estate Agents Act 1981 provides legislative regulatory control by the Board of Valuers, Appraisers & Estate Agents Malaysia (the Board) on a property manager, be it a person, firm or company, who is carrying out property management services for a fee. In order to improve the regularization of the professional property management practice, the Board formulated and implemented the Property Management Standards on 1 June 2010. Besides its clear and timely objective to safeguard the interest of the public from unscrupulous and illegal property managers, it is also to tighten the corporate governance legislative framework which gives the profession a code of conduct within which they are allowed to operate. The provisions regulate the professional ethics; and more importantly the fiduciary duties and obligations of property managers.

While it follows that property managers are governed by the above guidelines, the rapid progress in the property and building industry has given birth to a breed of unlicensed property managers that has been taking the profession for granted. Operating without any license, it could safely be said that a majority of this group are also operating without any background, skills or experience in the field. This in turn has created a lot of problems to home owners. On a regular basis, we would read or watch on the local news, incidents of misconduct or sheer negligence on the part of unlicensed property managers who have failed to perform their duties, and the affected home owners are left with no recourse on liability. The proposed amendment is set to rectify this problem - to further protect the public’s interest, particularly its physical and financial well being. 

Professional property management practice is a specialized profession involving specialized training, knowledge and skills on subjects which include but not limited to, building maintenance, facilities and services management, financial management, property laws and insurance management. Every professional in property management practice for a fee must hold a professional degree in Property Management or Real Estate Management and must be duly registered by the Board. Valuers, who are trained in the art and science of property management which incorporates valuation, land economics and other skills, are first and foremost qualified property managers having obtained their degree in Estate Management or Property Management. After obtaining these degrees, registrants will have to undergo two years of training and pass a Test of Professional Competence. Further, continuous professional development of ten hours per annum must be exhausted in order to remain registered which also makes them eligible for Professional Indemnity Insurance. Anyone who fulfills the above requirements is rendered fit to offer services relating to real estate which include property management, estate agency, consultancy and valuation.

The proposed amendments to Act 242, amongst others, provides the proposed opening of a Register of Property Managers under the Act, to encourage all unlicensed property managers, under certain criteria, to register with the Board ensuring proper control. Whether they are named managing agents, building managers or valuers, if they are offering the services of a property manager for a fee, they must be registered.

The question of ‘monopoly’ and that ‘the opening of the Register is inconsistent with Competition Act, 2010’ should never have been raised here. As in every professional career that requires the knowledge of a core discipline and the need to be registered for professional practice, such as architects, engineers, doctors or lawyers, it is this same spirit that is put forward by the initiative to amend Act 242. Would you also say that the law which requires all lawyers to be registered and licensed has created a monopoly in the profession among licensed lawyers? If you would not risk your life on an unlicensed lawyer (or any other professionals who are in charge to safeguard and protect the public’s well being), why would you risk your life on an unlicensed property manager?

It is very important to note that registered property managers who are found to be negligent are subject to disciplinary actions under the Act and may even face disbarment from practicing – which will make the licensed property managers more responsible, failing which they might be in danger of losing their license and will eventually, be out of business. They can also be expected to comply with all the laws attached to the profession, as well as their fiduciary duties, such as providing audited accounts for public viewing which is one of home owner’s basic rights. Having said that, it is to be emphasized that building owners have all the right to manage their own properties, and Joint Management Bodies (JMBs), Management Corporations (MCs) and shopping centre owners can manage their own buildings or hire a registered property manager of their choice. The Act 242 only applies to those who practise property management and offering services as a property manager for a fee.

Another misconception is that the fee involved in appointing a licensed property manager is expensive. Contrary to what was said, the minimum management fee payable to a registered property manager is in fact, RM50 per holding per month, and not per unit. This has been clearly defined in the Local Government Act for subdivided buildings as “the Common Property and any parcel thereof” – which clearly provides that the minimum fee is RM50 per common property. To say that the management fee is RM50 per unit is not only wrong, but disregarding the fact that property managers are not managing individual strata units but only the common property.

It is a fact that property managers not registered under the Act will face difficulty obtaining indemnity insurance cover. Even if they do obtain it, if something goes wrong and a claim is filed, the insurance company may deny compensation on the grounds that the property managers are not legitimate, simply because they are not registered with the Board. The importance of an indemnity cover cannot be stressed enough. The basic terms and conditions of a Management Agreement between a Joint Management Body or Management Corporation and the property manager must provide indemnity cover because the two parties will eventually be exposed to risk if the companies or people they entrust their duties to are negligent or reckless in performing their duties. Taking the coverage will also be of comfort to the individual property manager as he will not have to suffer in his personal capacity in the event that he is sued for something outside his control. In this, the benefit works for both home owners and the licensed property managers themselves.

The task of a property manager is not simply “administrative” in nature. It requires clear judgment, immediate reactions to complaints, good communication skill, trustworthiness, ethics and a lot of other skills, values and competencies which comes through education, training and experience. A good property manager is expected to manage properties under its portfolio as if it were his own, paying a great deal of attention to every management detail, not limited to just the physical asset. In no way is the proposed amendment denying the fact that there are unlicensed managing agents out there who are absolutely competent and capable of performing their duties. What the Board is submitting is that, one may continue to practise as a professional property manager as long as one is registered under the Act so that their duties in managing their strata estates can be made clearer - ensuring the quality and professionalism of services rendered to the public at large is maintained at the highest level. In short, the amendment of the Act 242 ensures corporate governance, transparency and protection of the public.

Let us hope that the proposed amendment which will be tabled at the Parliament very soon will help raise the standard of property managers and make them into a regulated professional body like the other well-known professionals such as lawyers, doctors and engineers with guidelines and professional indemnity insurance.

Strata Titles Board, the law exist but the office isn't?

Another chapter from the sequel of my second book. Still in its rough draft. Comments are welcomed or questions even

The Strata Titles Board, as the name suggested, is an office established to deal with disputes under the Strata Titles Act 1985. The Strata Titles Board can only settle disputes in strata development which is already has been issued with individual strata titles and has a functioning Management Corporation. The Strata Titles Board can hear and makes decision on any disputes which is brought to it by the owner of a strata property or the management corporation of a strata development or any person or body having interest in the strata property, which is usually the financier for the strata property or strata development. The disputes which the Strata Titles Board can hear are listed in the Strata Titles Act. Every state in Semenanjung Malaysia has its own Strata Titles Board and consists of less than twenty members with a President and more than one Deputy President. The appointed of members in the Strata Titles Board is made by the Minister of Housing and Local Governments with the recommendation of the relevant State Authority. The member of the Strata Titles Board is appointed for two years and is eligible for reappointment. The appointment can be declined, resigned from and revoked. Although the provisions in Part IXA of Strata Titles Act 1985 has been in existence since the amendment of the Strata Titles Act in 2007, no state in Semenanjung Malaysia has set up its own the Strata Titles Board yet although the need for it has increased.

What is the importance of the Strata Titles Board in the whole scheme of things when it comes to strata development? The Strata Titles Board is a good place to settle problems arising from anything that an owner, Management Corporation and any person or body which has interest in a strata property in any strata development. There are so many provisions in the Strata Titles Act in order to allow it to work faster and better than any dispute resolution process. The Strata Title Board can even hear issues which are not provided for under Part IXA of the Strata Titles Act 1985, and any matter brought in front of the Strata Titles Board even survive the death of any member of the Strata Titles Board. The member of the Strata Titles Board who resigns or retires during a hearing must finish hearing any dispute that was brought before the Strata Titles Board when he was a member. Members of Strata Titles Board are protected when doing anything done in good faith during hearings and can be paid allowances. The Strata Titles Board is given six months to settle any dispute brought before it except if otherwise decided the matter is complex. The proceedings of the Strata Titles Board are open to public and all its members are considered as public servants when serving the Strata Titles Board.

Matters that can be settled by Strata Titles Board which are listed in the Strata Titles Act 1985 are spelt out from Section 67H until Section 67O of the Strata Titles Act 1985. A Strata Titles Board can revoke any amendment of additional by-laws which are made by the Management Corporation. This is if it is found that the owners feels that the additional by-law which is added, revoked or amended interferes with the enjoyment of strata properties or common property within the strata development. The Strata Titles Board can order the Management Corporation to pay compensation to the owners adversely affected by the additional by-law. Additional by-law which is found to be made outside the power of the Management Corporation can be found invalid by the Strata Titles Board. If the Management Corporation in collecting the service charges under Section 45 of the Strata Titles Act 1985 - Management Fund, charged an unreasonable interest rate, the Board may order the no interest rate is paid or order a different interest rate to be paid. The Strata Titles Board can make an order regarding any disputes on costs of repairs for any rectification or repair of defect of any strata property or common property either on the Management Corporation or the owners, depending on which party is liable to it. The Strata Titles Board can ask the Management Corporation which has refused unreasonably to consent to any proposal by owner to alter the common property within the strata development.

The Strata Titles Board is also allowed to hear applications with regards to general meetings of the Management Corporation. The Strata Titles Board is empowered to invalidate or refuse to invalidate any resolution or election in any meeting of the Management Corporation which is done without complying with the provisions of the Strata Titles Act 1985. If a meeting of the Management Corporation is called and resolutions are made while an owner is improperly denied to vote or was not given proper notice of the agenda of the meeting, if an application is made, the Strata Titles Board can nullify the resolution. When making decisions about insurance, the Strata Titles Board can ask the Management Corporation to vary the amount the buildings in the strata development is insured if it is found that the amount of contribution under Section 43(1) of the Strata Titles Act 1985 is not reasonable. The Strata Titles Board can order the Management Corporation to make or pursue an insurance claim if there is any damage to the buildings in the strata development, if the Management Corporation unreasonably to do so. The Strata Titles Board can order the Managing Corporation or the managing agent or any member of its council to supply any information or document unreasonably withheld to any owner. 

In discharging its duties, the Strata Titles Board acts very much like a tribunal or court. It has certain powers which allow it to issue order as to cost. The Strata Titles Board can order the cost to be paid either the applicant or the Management Corporation or any person whom an order has been made against. The Strata Titles Board even has the power for costs to be paid by any party who has made a frivolous application. Another power endowed on the Strata Titles Board is to order any party relevant to the strata development to do or refrain from doing a specified act in relation to the unit or common property within the strata development. A lawyer can appear on behalf of the interested party either the applicant or the Management Corporation in front of the Strata Titles Board. A member of the council can appear on behalf of the Management Corporation. The Strata Titles Board also has the power to summoned witnesses to give evidence and produce documents. Penalty can be imposed on the party who does not follow the order by the Strata Titles Board. Any order by the Strata Titles Board can be appealed to the High Court on point of law. With the powers and provisions in the Strata Titles Act, it can be seen that the Strata Titles Board has a very wide power and can settle a lot of the disputes in relation to strata properties which are already issued with individual strata titles. It is high time that the government seriously consider the setting up of Strata Titles Board in all the states in Semenanjung Malaysia in order to have a place for owners and management of strata properties to have a platform to settle their disputes.

Service Charge in a Strata Development : How far can the management go to collect?

How far can a management of a strata development go to collect the service charges and for that matter any charges that are allowed to be levied on the owner? We have heard stories about refusal to allow entry to the strata development compound, shutting off of water supply and even to the extent of changing locks of the property? Are all these allowed to be done in Malaysia by management of strata development for the sake of collecting these charges? Here is an excerpt from my coming book '40 More Questions You Should Ask Your Lawyer Before Buying A Residential Property in Malaysia'. It is still a rough draft and unedited, so comments especially if you find any mistake is welcome :

The service charges and the sinking fund which are allowed under the property laws to be collected by the management of a strata development are also liabilities are imposed on and must be observed by the purchasers of strata properties. These liabilities on purchasers which will then become owners are all stated in Schedule H of the Housing Development (Control and Licensing) Regulations 1989 under clause 18 with regard to the payment of service charges. Under clause 18(1), the purchaser shall be liable for and shall pay the service charges for the maintenance, management of the common property and for the services provided by the housing developer prior to the establishment of a joint management body under the Building and Common Property (Maintenance and Management) Act 2007. Under clause 18(2) the service charge payable shall be paid within fourteen days when the purchaser received from the housing developer a written notice requesting for payment to be made. If the service charge is not paid by the purchaser at the expiration of the fourteen days, interest on the service charge shall commence immediately thereafter and be payable by the purchaser. The interest is to be calculated from day to day at the rate of not more than ten percent per annum. In these clauses, it can be seen that until a joint management body is formed for that particular strata development, a purchaser of a strata property will be liable to pay the housing developer the service charge and an interest of up to 10% interest can be imposed for non-payments.

When a joint management body is formed within one year of vacant possession for the strata development, the owners in the strata properties are liable to pay service charges to the joint management body under Section 23 of the Building and Common Property (Maintenance and Management) Act 2007 and it includes the interest at a rate of not more than 10% within fourteen days from the service of a written notice requesting the payment of the service charge. The written notice must also include a statement of charges which contain a detail of what the charges are for. When the management corporation takes over the management upon issuance of individual strata property, under Section 45(3)(c) of the Strata Titles Act 1985, the management corporation is allowed to determine interest to be charged on any late contribution by any owner of the strata property not more than 10% per annum. In lieu of these provisions, it can be seen that any late payment of service charge to either the housing developer or the joint management body or the management corporation, an interest of not more than ten percent can be levied to the original amount. However, when the service charges come under the purview of the joint management body and the management corporation, as the case may be, there are avenues for these two institutions to recover any debt owe to them.

There are three options which can overlap each other when the management of strata property decided to do more than just send notice to the owners and demand for payment of any arrears. If the owners of the strata property still don’t pay their service charges or sinking funds upon demand, there are general recovery provisions for the managements of strata development to take. For the joint management body, under Section 32 of the Building and Common Property (Maintenance and Management) Act 2007, after 28 days, upon sending two notices demanding the payment of any arrears of any charges, the joint management body can start to institute proceedings in court to recover the service charges. Under Section 33 of the same Act, if the owner of the strata property fails to pay the charges for more than six months, the Commissioner of Buildings, upon request of the housing developer or the joint management body, can issue a fourteen-day written notice on the owner or owners to pay the arrears.

The Commissioner of Buildings, upon the request of the housing developer or the joint management body, can issue a warrant of attachment authorising attachment on any movable property within the strata property or anywhere within the local authority area. The warrant is to be executed by an officer within the Commissioner of Buildings’ office. The officer is allowed to use forcible entry into the unit, take an inventory, effect the attachment and sold the movable property in a public auction, unless the arrears and collection charges are paid within seven days of the attachment exercise. A collection charge can be added to the amount recovered by the Commissioner of Buildings and the amount recovered shall be deposited into the Building Maintenance Fund with the balance returned to the owner. Other than civil proceedings by the housing developer or the joint management body, which is to be endorsed by the Commissioner of Buildings, the failure or refusal to pay maintenance and management charges are also an offence which if convicted can result in the owner being fined with not more than Ringgit Malaysia Five Thousand and further fine of Ringgit Malaysia Fifty for each day the offence continues.

In Section 52, Section 53, Section 53A, Section 54 and Section 55A of the Strata Titles Act 1985, management corporation, the management entity which takes over the management of a particular strata development upon issuance of individual strata titles to owners, are given nearly the same provisions in law as those given to the joint management body under the Building and Common Property (Maintenance and Management) Act 2007. Section 52 basically lays out the foundation for the owners to give guarantee that each proprietor is liable to pay the portion of their charges according to the share of his unit in the strata development and the management corporation can recover the said sum through the court of law. Section 53 states the term for written notice for owners to pay shall be fourteen days and if remain unpaid another written notice of fourteen days shall be issued before a summons is filed in court.

Section 53A is nearly the exact copy of the Section 33 of the Building and Common Property (Maintenance and Management) Act 2007 which allows the recovery of the debt by the owner through attachment of movable property. However, the authority which can issue the warrant of attachment is the Land Administrator upon a sworn application of any member of the management corporation. The person allowed to execute the warrants can be a member of the management corporation or employed by the management corporation or through the assistance of the Commissioner of Buildings’ office. The whole process of executing the warrants of attachment is outlined in Section 53A including if the house is tenanted and the tenant’s movable property is attached. Section 54 is on the issue of service of documents and Section 55A is on the failure to contribute being an offence which can be fined with Ringgit Malaysia Five Thousand with each continuing day an additional Ringgit Malaysia Fifty daily is imposed.

A comprehensive mechanism has been spelt out in both the Building and Common Property (Maintenance and Management) Act 2007 and Strata Titles Act 1985 when it comes to the liability of proprietors, owners and even in some case, tenants of strata property in paying all the charges imposed on them in a strata property. Before there was the Building and Common Property (Maintenance and Management) Act 2007, one of the serious issue brought up by housing developers managing strata development is the failure and the refusal of owners to pay their dues. There were cases where the housing developers resorting to cutting off the water to the specific unit which refused to pay their maintenance charges. With the provisions under law and the recovery cost being allowed to be added, either for the joint management body or management corporation, such practice shall not be a point of contention anymore. 

What is meant by 'Service Charge' in a strata development?

Service charge is the main point of contention between the owner and the management in a strata development as it does not exist in landed property when one owns a property. It is an additional burden to strata development property owner as it has to be paid monthly. Under clause 18 of Schedule H of the Housing Development (Control and Licensing) Regulations 1989, the payment for maintaining the common facilities or common property provided by the housing developer is known as  ‘service charge’. Payment of service charge is paid to the housing developer before the joint management body for the property is established. The portion of the service charge to be paid by the purchaser is determined by a licensed land surveyor, appointed by the housing developer, who assigns the amount payable each month by the owner according to the allocated share units within the strata development. It means that the purchaser of a strata development pays according to the space that the purchaser owns within the strata development. The more space that the purchaser owns, the more service charge that the purchaser has to pay. An owner of a penthouse or a duplex pays more than a standard unit. In order for the purchaser to take vacant possession of the property that was bought, a four-month service charge has to be paid in advance and then the purchaser pays the service charge monthly in advance.

A Building Maintenance Account is established and maintained by the housing developer where all the collected service charge are deposited. The housing developer will then hand over the account to the Joint Management Body when it is formed and the account will finally be managed by the management corporation upon issuance of individual strata titles. Under the Fifth Schedule of the Sale & Purchase Agreement of Schedule H of the Housing Development (Control and Licensing) Regulations 1989, a sample of service charge statement is set out outlining the itemised billing and payment that the purchaser has to make every month. The Fifth Schedule is known as ‘Form of Service Charge Statement’ and has the descriptions, estimated monthly expenses and estimated annual expenses for the service charges. The listed descriptions for the service charge include the electricity supply, electrical system maintenance, firefighting system maintenance, lift or escalator system maintenance, security maintenance system, water supply, swimming pool maintenance and a few other common properties which need maintenance and upkeep. The list also includes management fee, management office expenses, staff expenses and bank charges for the management of the strata property. The list is not exhaustive as other services can be added on.

Under Section 16 and 17 of the Building and Common Property (Maintenance and Management) Act 2007, when the housing developer transfers the management of the strata property to the joint management body, the housing developer also has to transfer the Building Maintenance Account to the joint management body. The Building Management Account is to be opened before vacant possession is delivered. The housing developer has to deposit all the service charges received from the purchasers and to pay the service charges for the unsold parcels too. The housing developer will need to make sure that the Building Maintenance Account is maintained, audited by professional auditor, file a certified statement of accounts with the Commissioner of Buildings and  permit the Commissioner of Buildings' office to have access to the Building Maintenance Account. A housing developer who fails to do as such can be liable to pay between RM10,000-00 and RM100,000-00 with fine not exceeding RM1,000-00 for each day the offence continues if convicted. When the Building Maintenance Account is transferred by the housing developer within one month of the establishment of the joint management body, the account will be under control of the joint management body called ‘the Building Maintenance Fund’. Even if the housing developer is unfortunate enough to go into composition or arrangement with its creditors or goes into liquidation, the money in the Building Maintenance Account will not form part of the property of the housing developer and be under receivership. The money in the Building Maintenance Account will still have to be transferred to the joint management body by the administrator of the liquidation process. The Building Maintenance Fund will always be under the control of the joint management body. The monies in the Building Maintenance Fund shall include maintenance charges for the building, any money from the sale, disposal, lease or hire of any property, mortgages, charges or debentures which is done by the joint management body, moneys and property payable to the joint management body due to the joint management body’s functions and powers; and any money lawfully received by the joint management body be it interest, donation and trust. 

When the strata development is issued with individual titles, accessory parcels and common property, according to the Strata Tiles Act 1985,  the management of the strata development will pass to the the management corporation. Management corporation is born through the first annual meeting called by the housing developer. Part of the duties and powers of the management corporation are to take over from the joint management body, and then manage, maintain, audit and send report to the Commissioner of Buildings, the management fund. Under Section 45 of the Strata Titles Act 1985, the management fund is where all service charges are paid into when strata titles are issued to a strata development and management corporation manages the common property.  Service charges in the management fund are allowed to be used for nearly the same usage whether it is under the housing developer, joint management body or the management corporation. Management corporation is given additional usage of service charges under Section 45(2) of the Strata Titles Act 1985 in which management corporation is allowed to invest the money in the management fund with approval at general meetings. Service charges can also be raised through the annual general meetings accordingly through votes. 

In my next post, I'll try to tackle the issue of liability to pay the service charge, how far the management can do to collect it and what's the liability of the management to give good service.

Can accessory parcel or common property in strata development be sold?

One of the question to be found in the sequel to 40 Questions You Should Ask Your Lawyer Before Buying A Residential Property in Malaysia. This new book will concentrate more on strata development. 40 more questions and now finishing up the final 10 questions. This is also the reason why I have not post up an entry here for quite some time. 

Here is a rough draft of the answer to the question 'Can accessory parcel or common property in strata development be sold?'. Most developers in Malaysia have done it one time or another but is it legal? 

Accessory parcel and common property are two different subject matters in a strata development although both can be seen to overlap each other. Accessory parcel is an extension of a parcel owned by the purchaser in a strata development which can be a building attached to the parcel or just a space labeled to show its connection with the parcel. In short, an accessory parcel is privately owned and comes together with a parcel when it was bought by the purchaser of a parcel within a strata development. As for common property or facility, it is shared by everyone with a strata development although some of these common properties are within the sphere of a parcel. Common properties are managed by the management of a strata development and they can be immovable or movable objects. Certain accessory parcels may look like the part of common properties and vice versa. The best example for this is none other than the parking lot. When a property is bought and sold in a strata development which has many parcels attaching themselves to each other with overlapping functions such as a floor to a parcel which can be a roof to another parcel, a parking lot which can be an accessory parcel to one particular parcel can exist next to another parking lot which is a common property. That is why it is important in the initial development plan of a strata development for the housing developer to survey, label and get approval for every inch of the strata development. That is why the plan for accessory parcel, especially if it is not attached to the sold parcel and the plan for common facilities are given the option to be attached in the First Schedule of the Sale & Purchase Agreement of a strata development. In order to answer to question whether the accessory parcel or common property can be sold or not, we need to differentiate the beneficiaries of each subject matter.

Accessory parcel is built within a strata development to be sold to a particular purchaser. In the preamble of the Schedule H of the Housing Development (Control and Licensing) Regulations 1989, it is stated that ‘….the Vendor (the housing developer) and the Purchaser has agreed to purchase the parcel with vacant possession….with accessory parcel with vacant possession distinguished as accessory parcel No: ………….. of Building Land Parcel No:……………… (which is delineated and shaded BLUE in the Accessory Parcel Plan annexed in the First Schedule)’. The additional wording which appears in a bracket ‘(hereinafter referred to as “the said Parcel”)’ means that an accessory parcel is part of a parcel within a strata development. As it owes its existence to a particular parcel, in a nutshell, an accessory parcel can be transacted as long as it belongs to that particular parcel.

In Section 34(2) of the Strata Title Act 1985, under the ‘Rights of proprietor in his parcel…’, it is also specifically stated that ‘No rights in an accessory parcel shall be dealt with or disposed of independently of the parcel to which such accessory parcel has been made appurtenant’. It means that each accessory parcel must co-exist with the parcel that it is attached to. As such, the only transaction which is available to the owner of the accessory parcel who is also the owner of the parcel is to rent out any particular accessory parcel under his control. If the accessory parcel is a parking lot, that parking lot can only be rented out on a monthly basis and not sold individually as it cannot be separated from the parcel. As all accessory parcels must be labeled to indicate which parcel it is attached to, it is impossible to be sold.

Common property or common facility is built by a housing developer for a strata development to be shared among the purchasers. Common property is generally whatever not within a parcel. If the accessory parcel is privately owned once it is sold to the purchaser, common property is publicly shared among the purchasers and is actually owned collectively by all the purchasers within the strata development. If the decision about any accessory parcel is to be made by the owner of the parcel, any decision about any common property is made by the collective effort of the purchasers through the management of the strata development. Management of strata development differs depending on the time the strata development is at. From the time of vacant possession to within one year of the date of vacant possession, the management will be under the control of housing developer. After that one year the common property will be managed by the joint management body until strata title is out which will then pass the management to the management corporation.

At each interval, the powers given to the management are properly spelt out. When in relation to common property, the housing developer has the decision to decide what initially can be built and labeled as common property or common facilities. Under Clause 17 of Schedule H of Housing Development (Control and Licensing) Regulations 1989, the housing developer ‘…shall, at its own cost and expense, construct or cause to be constructed the common facilities serving the housing development…’. Common facilities plan can also be attached in the First Schedule of the same agreement. Among the duties and powers given to the Joint Management Body under Section 8 of the Building and Common Property (Maintenance and Management) Act 2007 are to ‘…maintain the common property and keep it in a good state of good and serviceable repair;’ -Section 8(1)(a) and ‘to purchase, hire or otherwise acquire movable or immovable property for use by the purchasers in connection with the enjoyment of the common property;’ – Section 8(2)(d). The same provisions as replicated in Section 43 of the Strata Titles Act 1985 as duties and powers of the Management Corporation. 

In all the clauses and sections of the agreement, regulations and acts, common property can only be managed, maintained, controlled, enjoyed and added with movable property. There is nowhere in any of these provisions that a common property can be sold. However, if a shop or a retail space is labeled, marked and reserved as a common property, it can be rented out or even leased as it can be enjoyed by every of the owner(s) of the parcels within the strata development. In the Third Schedule, Strata Titles Act 1985, as By-Laws for the Regulations of Subdivided Buildings, under clause 3, the Management Corporation is allowed to ‘…by agreement with a particular proprietor grant him exclusive use and enjoyment of part of the common property or special privileges in respect of the common property or part of it’ That will also mean that a common property such as a car park, under the control of the management of the strata development, can be rented out or leased out to the owner of parcels within the housing development. For any shop(s) or additional parking lot(s) or any other space(s) to be sold by the housing developer which are other than the residential property within the housing development, such spaces have to be parcels and declared as such. As long as these spaces are labeled as common property, it cannot be transacted as such.  

Updates : Book and Work

The last post for this blog is in early March. 

It has been a very busy two months leading up to this moment. We were appointed to two of the biggest property companies in Malaysia which sell high-end freehold properties. We offered our service and when they appoint us into a select group of solicitors to handle documentations for the sale of their properties, our infrastructure took a beating that even the partners (especially me) who always had time for other endeavors find it hard to go out.

Then, one of our long-time valuable staff who we thought will one day be the heiress to this medium-sized legal firm decided to concentrate on her study and tendered her resignation. I personally was heartbroken as I had suggested and we, as a collective, decided nearly two years ago to send her to a local university's law school. We paid for her law school's fee and ask her to stay on board after she finished her study. She had worked with us nearly 5 years then. We had watched her grow and learned various trade secrets which she then shared around. We found her to be the best candidate.

We gave her the space and time to take leaves without question. During her exam weeks, she did not have to come to the office at all. We were willing to sacrifice the time and in some way, some money too, in order to ensure the legal firm's next generation is well in place. As it was a project I had suggested, I consider it a failure on us to retain her. Her excuses of being under pressure due to her study and the feeling that she was more of a burden to her colleagues due to her absence, did nothing to lessen the pain of a failed succession plan project. I guess we need to go back to the drawing board.

However, nothing can stop me from making this lifelong project of building a successful business. To a certain extent, the business is already successful though the growing pain is still very much evidence. Reading a New Yorker's article about Uniqlo about Uniqlo having more staff than enough to man each of its store in order to ensure every customer's need is tended to at any given moment , we decided to fill up the void with more staff. We anticipated our good work may just bring us more business. It would also be good for us to ensure our clients are treated the instance the need anything too.

As for my book, I have abandoned writing it for some time until something gave me a second wind to go back writing it. In April, I was invited by Penang Regional Development Authority (PERDA) to give a one-day talk. I recruited my partner and senior associate to accompany me and we had a great time disseminating knowledge and answering questions, some which I never thought of hearing, which made me decided there is still a need for a sequel to my book. I am now halfway in writing the book and is giving myself the whole of 2012 to finish it.

I am also is reading the book 1Q84, by Haruki Murakami, one of my favorite Japanese author, which has a character who is a writer and Murakami's idea of why one writes can be seen to be manifested in that particular character. 

As long as I am motivated to write, I will...

Office : Do we still need one?

One of our main grouse every day is the commuting that we have to make to reach our office. As we have now reached the year 2012, I am wondering about the need for the existence of office. If we dissect the television series The Office, in a situation where people comes to their office which sells paper, the series never look like that the office ever need to exist. The people keep on coming and going. The people is always out to sell the paper. The account department can exist anywhere as long as the record of transactions are kept.

What do we use office for? We use it to type out our work. We need computers for that. We have mobile devices for that. Laptops and tablets. Computers can be linked securely virtually with each other, right? Google and IBM have tools for that if I am not mistaken? Storage space? Isn't cloud computing the thing everyone should jump on at the moment? How about meeting? Can't work be distributed among the staff with use of emails and meetings be about "Where are we now?" than the need to sit down and ask everyone how their work is going. Even my own legal firm rarely got visitors as we always meet client at wherever is convenient for them.

I think we are too traditional whenever we think of the existence of office as a need. We have the biggest businesses in the world like Google and Apple which use office as playgrounds. We have people feeding businesses in the world like Starbucks and McDonald's as they congregate there to hold meetings. When I was writing my books, I tend to go out and write them at whatever cafes I can find. My house has an office which my wife uses more than me as I use sofas and lounge chair to do any work done.

The only institution which I consider really needs an office or buildings are banks. Offices or buildings for banks or financial institutions are more than just offices. They are assets as they can't actually holds money as assets as the thing they trade in money. Then, there is still the issue whether we need real fiat money to transact which is another issue altogether. Maybe storage is an issue like my legal firm which has to deal with such matters. The only thing that makes me wonder is if everyone is not going to office anymore and have offices in their houses, why do property developers still keep on building offices?

All this issue about the need for an office is boils down to the fact of a new social media start-up of mine. Which has an office but does not really being used. So, I am going to add a few items to make into a playground or more of a hangout place. As it is a penthouse which has a nice view,  I want it to be a barbeque place with pool table inside and beanie bags all around.

Isn't work is for you to make money and survive the world? Then, why has it become a thing we live for? I long for the day we make a living out just so that we can feed ourselves and not die of starvation.

Dawn (Pakistan) article on Property Investment in Malaysia

Was commissioned by our Counsel General in Karachi, Pakistan, En. Abu Bakar Mamat to write an article about investing in the property market in Malaysia. It was to come out in Dawn, a Pakistani newspaper. It came out last Sunday. Here is a snapshot of the article in Dawn (sent over through Twitter by En. Abu Bakar Mamat).

Although Dawn have an online portal : Dawn.com, I couldn't find a link to show the full article. For the sake of posterity and in case you are curious, I reproduced the article below :

Malaysia is a great property investment destination. As a well-known Islamic country with great infrastructure, accessible through various points of entry and with a predictable climate, all the cost and returns from any investment you make can be easily calculated from the offset.

Anyone above the age of 21 can invest in property in Malaysia including foreigners. The only restrictions for foreigners are the price of property that they buy must be above RM500,000-00 (USD$166,000-00). Another form of restriction is the type of property that they can buy must not be the native or bumiputra properties and areas in certain areas due to the restrictions found on the tittles of the land as imposed by state governments. A property tax of 10% is levied on the profit you make if you sell a property within 2 years of purchase but it will be lowered to 5% for profit made between 2 to 5 years. After the 5th year, no tax is levied for residential property.

The usual popular properties easily bought by foreigners are freehold properties in the middle of towns like Malaysia's capital, Kuala Lumpur or the beautiful island state of Penang. Apartments or condominiums there can easily reach the price of RM1 Million (USD$330,000-00) with a possible returns of 8% per year. The lands there are easily bought and transacted by foreigners as the land offices in these towns have vast experience in deals involving foreigners.

Property loans for foreigners can be obtained up to 80% of the property price but it depends on the collateral that you can offer such as fixed deposit cash emplaced at the banks. It will be easier if you join the Malaysia My Second Home (MM2H) program so that you can enjoy multiple entries visa and various other convenience.

It will take between 6 months to one year for a property transaction involving for foreigners depending on the type of property that you buy. The usual transaction involves the booking by paying a 2% deposit, another 8% upon the signing of the sale agreement and then the balance of 90% will depend on how much property loan you have obtained. Any purchase of property by a foreigner in Malaysia will require consent from the land office and this usually takes up to 3 months. 

Upon arrival in Malaysia if you are on a property hunt either for investment or holiday homes, consult your local real estate agent or lawyer.

Sang Kancil and the crocodiles

There was this Sang Kancil who liked to wander around the forest. Although a bit cunning, he always abided by the laws of the forest set upon all animals since time immemorial. He kept to himself as what he wanted was to be able to eat and drink in order for him to survive.

One day, as he was wandering around the forest, feeling hungry, he came across a river full of crocodiles. On the other side of the river was an orchard full with ripe fruits, ready to be eaten. He knew that the river was full of crocodiles which would just eat him if he was to fall into it.

After doing some thinking and understanding the nature of crocodiles, he called upon one of them. Being the leader of the crocodiles in the river, Buaya came over and talked to Sang Kancil. Sang Kancil told him that he was asked by the great Lord of the Jungle to count the population of crocodiles in the river.

Buaya went to get all his brethren and they lined up across the river. They let Sang Kancil climb on top of them one by one in order for Sang Kancil to do his counting. While he did that, he sang “Satu dua tiga lekuk, jantan betina aku ketuk”. He did this until he crossed to the other side.

As smart as Sang Kancil was, as he came down on the other side of the river, he immediately told all the crocodiles in the river that he had just pulled a prank on them as there was never such instruction from the Lord of the Jungle.

Now, change the scenario. The river is the country that we are living in and lovingly call Malaysia. Change Sang Kancil into the rakyat who are only trying to make a living from the bounty of the land. Then imagine the leaders of this land as the crocodiles who control the river. Everyone must go through them to get to the fruits of their labour.

Imagine how we have to think every minute of the day to get some benefits from the river. We have to outsmart the guys who are supposed to be the guardians of what are rightfully ours. These leaders do let us have a taste of these benefits in so many forms but never the whole of the benefits so that you will understand who actually rules over you.

These benefits come in so many forms. Affordable housing, scholarships and sometimes when we are lucky, cash, such as was offered under BR1M. When it is given, we take it and we spend it. Then we come to the river again and bow our heads before we can drink from it or outsmart the crocodiles again to be able to eat the fruits....

I wonder how we have come to this....

Originally published in Malaysian Insider at this link : Sang Kancil and the crocodiles

Household debt clean-up : A personal journey

Personal financial stability is not something easy to resolved. If you were ever in an economy classroom, either during high school or as part of your college or university degree, no matter how much you understand the concept of 'want' and 'need', believe me, you will never get to feel the 'forcefield' pulling you to spend on the unnecessary thing in life, until you have 'disposable income'.

Whoever invented modern credit is evil. Financial institutions, be it banks or cooperative or finance companies, is always on the prowl for you to take whatever they can give you in the form of credit cards and personal loans before you have even step out into the real world and become part of the 'workforce'.

However, how else can you afford the basic thing in life if not for credit? It is a Catch-22 situation as most of the basic needs like food, a place to live and transportation cost money. Coupled that with the self-appointed financial guru who propagates the need to own your own place and transport (though this now seems to have been losing steam), you will feel left out if you don't own a house or a car by a certain age. Then to make matter worse, you live in a world where everywhere you turn, you are bombarded by advertisement promoting so many things like a brand handphone, a computer, a tablet, the need to travel to see new places and more expensive version of your need.

That was what happened to me.

In my years of living, I have bought more than one house, sell a few, kept a few; bought a few cars, sold a few, had two cars at one time, one car at another time, owned cheap cars, owned expensive cars; bought more than one personal computer for my house, left it dusty before buying a newer version; owned a tablet; a few smart phones. All this thanks to the supposedly disposable income I have which I increased to more than 10-fold thanks to the easy approval of credit cards and personal loans. Some are obtained through 100% loans which allow me to buy cars and houses (it doesn't exist for awhile in Malaysia but it is making a comeback through various affordable housing scheme)

When 2012 arrived, I am more than a few hundred thousand Ringgit Malaysia in debt. One thing I have always made sure is to never have any arrears in any of my installments. My business helped me to make sure of this but it is not a perfect personal financial stability that I aspire to have. So, I started to get my personal finance in order.

I listed out my debts which include a car, a house, an Amanah Saham Bumiputra (ASB) loan, a personal loan and a few credit cards which when tabulated comes up to more than RM100,000-00 disposable income but are mostly maxed out. Some of the credit cards are there as I have taken a balance-transfer credit card to lower down the interest charged on my other credit card debt. I was surprised that more than half of my drawing from my businesses goes to paying the credit card debt. And yes, the first thing to a cure from an addiction is to admit that you have a problem. Then, look for a solution.

Another myth in this modern age is to make sure you have savings for your old days. Yes, that is not bad advice. However, how about living your old age without debt and having a stream of cash supplementing you? That is equally important right? Without delay, I listed my assets and see whether I can match my liabilities.

My assets seem to be part of the problem too. A house still under a mortgage. An ASB certificate which is not mine. A few unit trusts. The car is never an asset as it is always a liability. After calculating all this, I find that it is easier for me to cancel a few loans such as the ASB loan and the few credit card, especially those which have high interest charged to it every month. Then I decided to sell my car which was already 6 years old this coming May and bought a cheaper car. I then did one of the most surprising decision ever, even to me. I put the current house I am living in on the market. At a very steep price. Canceling the loans allow me to be liquid as dividends are paid for the ASB for 2011, unit trusts are sold with cash as payment and the car was sold at a good price.

The journey is not over yet. I have only cleared 30% of the debt I have. I still have to see whether I can get the price I want for my house. What I do after will require another entry. As I cleared a few of the credit card debt, banks which always on the look-out for someone who has more than he can spend is already calling more offering me new loans. Then, my feet, knowing me, starts to itch to travel somewhere far. 

Let us see how much of the 'want' I can resist so I can totally clear up the debt.

Social media ROI : A personal experience

As a lawyer and an author, I use social media extensively to promote my service and my only book. As lawyers in Malaysia are not allowed to advertise their service conventionally through mass media like in the newspaper or the local television, social media is a blessing. 

I always read on so many publication, articles by social media practitioners and experts, about the return on investment (ROI) when you invest in social media. There are so many ways for you to invest in social media. You can do it yourself. You can have a staff within your company to update your social media pages. You can contract it out for a company which claims to know how social media work. You can even spend millions of Ringgit to try to get new clients through social media.

Yes, social media's ROI is about how much time you spend on a FREE platform in order for you to get some form of returns. Amazingly, people who use social media seems to always keep on protesting when any form of change happens to this free media. A few years back, you can only get to be well-known if you work hard and pay. Social media still requires you to work hard but rarely do they ask you to pay, except for the data usage bills either through your handphone network or fixed line connection.

Here are my social media connection. As a person, I am on Facebook, Twitter, LinkedIn, Tumblr and Google+. My book and my legal firm have pages in Facebook and Google+. I also have two blogs. One is where I write about legal issues and property, which I use nowadays as a place to draft writings which I then submit to magazine, newspaper and even will form part of my next book. The other is my personal story about life, marriage, holidays, travel and such. 

If you ask me, I believe there is no boundary between the either blogs as I never believe what you did at work or in business will not affect your personal life or vice versa. So, type my names   : Khairul Anuar Shaharudin or my internet name : kruel74, in Google or whatever your favourite search engine, you can find me in either one of the listed social media (or maybe a website or two). Oh, I utterly believe in social media that all my businesses (I have a few) do not have websites.

Now that you know where you can find me on social media, let me tell you how much I gain from social media. In a nutshell, I gain more than 50% increase in 2011 in comparison to 2010, from the investment I made through social media. I got businesses from people who know me as a blogger, I got business from people who know me by chatting with me on Twitter, people ask me through Facebook about property issues and then ask me to take care of their legal matters and the blogs contribute by getting editors and producers to feature me either by asking me to write or being guest in radio show.

Last year alone, I was writing for the local daily, the Sun newspaper as I was 'found' in a Facebook group which consist mainly of young people who invest in property, Property Talk and Lifestyle, by a member who is a sub-editor; and that entry resulted in me being on BFM Radio talking about the article which was first an entry in this very blog, after the producer of the 'Property Show' found me through a connection in LinkedIn, Niki Cheong, who is a columnist in the Star, another local daily, who is now in England pursuing his study. Can you see how social media plays as an investment which in turn may (or may not) resulted in you getting rare opportunity.

However, as much as you invest in social media, if you only writes and sit behind the screen and hope to be discovered, you are wasting your time. All the social media cannot help you achieve any returns if you don't meet people, talk to them and let them know who you are and what you can do.