Do You Know How Much It Really Costs To Live In A Serviced Apartment?

Do You Know How Much It Really Costs To Live In A Serviced Apartment?

Just a few years ago, the local property market saw a boom in serviced residences and many billed these projects as a popular property type after double-storey terrace houses and apartments or condominiums.

What ensued were stories of disgruntled homebuyers who discovered that after moving in, they had to pay higher utility charges and maintenance fees. Why? Because the units were built on commercial-titled land, therefore owners were expected to pay commercial rates.

Of course, the question is how did these owners get caught unawares? But the bigger picture here involves enthusiastic homebuyers who might chance upon the opportunity to land their first home by purchasing a serviced residence in the name of affordability and convenience.

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However, is that purchase justified?

All in a name?

In its truest sense, serviced apartments are fully furnished abodes rented for short- or long-term stay and come with hotel-like facilities such as housekeeping and room service, as well as a fitness centre, a laundry room and a rec room.

Examples that come to mind are The Ascott across the Petronas Twin Towers and Lanson Place in Bukit Ceylon. These serviced apartments are upscale commercial units and are usually geared towards tourists, business travellers or even expats.

But there’s another type of residential units marketed as “serviced apartments” and these are offered sans the hotel-like amenities.

The Ascott, a four-star serviced residences complete with hotel amenities.

These residences usually mirror what you’ll find in a condominium – such as 24-hour security, a swimming pool and a gym – but will also consist of adjoining retail outlets.

They are offered in various configurations, from SoHos to studio units to three-bedroom apartments, and they also go by the name of mixed-development units. Price-wise, they can start anywhere from RM250,000 to upwards of RM500,000.

In this context, the term “serviced apartment” is a misnomer and regardless of the configuration of the units – whether a three-room apartment or a studio – what it really means is simply: stratified freehold/leasehold residential units built on commercial land.

And, by this, we also include purely residential projects with no commercial aspect whatsoever but built on commercial land such as CitiZen in Jalan Kelang Lama.

Minding the utility gap

Since these properties are on commercial land, owners will have to pay higher quit rent and assessment charges as well as electricity and water. They also might have to fork out higher monthly maintenance fees.

A serviced apartment or SoHo is categorised as low voltage commercial premises and according to Tenaga Nasional Berhad (TNB), the minimum monthly charge is RM7.20. A private dwelling on the other hand is capped at a minimum of RM3.

According to Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), the minimum water tariff for commercial usage is RM35 per month, while the minimum for domestic usage is RM6. That’s a RM29 difference!

As for assessment rates, local authorities in different areas have different rates on property assessment. For example, the Majlis Bandaraya Shah Alam or Shah Alam City Council imposes a 4% and 3.5% assessment rate on landed and stratified residential properties respectively but charges 5% on serviced apartments.

Majlis Bandaran Petaling Jaya (MBPJ) imposes a 6% assessment fee on stratified residential properties but charges a 6.6% fee for serviced apartments and 8.8% for SoHos.

A year’s consumption
Two-room residential condoTwo-room serviced apartment
^Electricity:RM60.63 x 12 months = RM727.56RM112.96 x 12 months = RM1,355.52
^^Water:RM36.85 x 12 months = RM442.20RM83.85 x 12 months = RM1,006.20
*Assessment tax:RM1,368RM1,504.80
Overall total:RM2,537.76RM3,866.52
^This is based on the national household consumption average of 251 kWh per month, which roughly amounts to RM60.63 for residential and RM112.96 for low voltage commercial.
^^ Estimates provided by Syabas for a 31-day billing cycle.
*Figures provided by MBPJ for properties in Damansara Perdana at 6% for residential condominium and 6.6% for serviced apartment. Assessment tax rates differ from one location to another.

 

Based on the table, if you are an owner of a serviced apartment, you can expect to pay an estimated RM1,328.76 more every year than someone who owns a private dwelling on non-commercial land. That’s more than 50% more every year!

Note: This does not factor in maintenance and sinking fees which are said to be higher than units on residential land. Also, some serviced apartment projects charge a monthly parking fee.

Can you appeal for lower tariffs?

According to Syabas, high-rises such as condominiums and apartments that are non-low-cost fall under Tariff Code 17 while low-cost flats are under Tariff Code 18.

Generally, a residential property on commercial land incurs higher utility charges.

Service apartments are classified under the commercial category and they fall under Tariff Code 11. Water is supplied through a bulk meter and residents would need to pay a minimum monthly water bill of RM36.

Syabas has a migration programme where those living in Tariff Codes 17 and 18 are eligible to participate with residents enjoying domestic water tariff rates – those paid by owners of landed residential properties.

Unfortunately, service apartments are not eligible to participate in the migration programme.

As for electricity tariffs, there is no general consensus. However, there are cases, including that of the writer, where an appeal to the nearest TNB branch was successful and the tariffs were changed from commercial to residential.

One reason for this is that serviced apartments and SoHos now fall under the Housing Development Act, meaning these premises have been recognised for residential usage.

Serviced apartments and GST

The Royal Malaysian Customs (RMC) guidelines on land and property development state that a SoHo is treated as a commercial property as it is developed on commercial land and as such subjected to the goods and services tax (GST).

A SoHo can only be treated as residential property and exempted from GST If these conditions are met:

  • Development Order is issued for mixed development purposes, i.e. for “commercial” and “residential”, by the relevant local authority.
  • Approved layout plan and approved layout building is for dwelling purposes.
  • The Housing Development Licence and the Sale and Advertisement Permit are issued under the Housing Development Act (Control and Licensing) 1966 by the Ministry of Urban, Wellbeing, Housing and Local Government; or under the Housing Development (Control and Licensing) Ordinance 2013 by the Ministry of Housing Sarawak; or under the Housing Development (Control and Licensing) Enactment 1978 by the Ministry of Local Government and Housing Sabah.
  • The property developer and the buyer enter into a Sale and Purchase Agreement for a property governed under the Housing Development Act.

Meanwhile, serviced apartments sold both in the primary and secondary markets for residential purpose are exempted from GST, according to the RMC.

The maintenance fee on serviced apartments and SoHos are also subject to GST and there are no discounts of exemptions unless a unit fulfils the conditions by the customs department and is treated as residential property. Only then is the maintenance fee on the unit no longer subject to GST.

Source: The Edge Property

So, is a serviced apartment worth it?

It all boils down to your lifestyle and your goals in purchasing a property. While there may be loopholes in the way a service apartment or SoHo is marketed, not all of these properties are subpar.

For instance, Saujana Residency in Subang Jaya boasts a well-designed layout for its units and offers a wide range of amenities. It is also strategically located – it is behind Subang Parade, and adjacent to the Subang Jaya KTM station and the SS15 LRT station.

A stone’s throw away is Subang SoHo, which consists of duplex and studio units. These are great bachelor pads and also for young entrepreneurs wanting the luxury of working from home and yet commute easily to major parts of the city.

So, if you are looking to rent out your unit, such properties are desired simply because of their close proximity to the city and food and lifestyle spots as well as major public transportation hubs.

The duplex design of the Subang Soho unit makes it the ideal bachelor pad.

But it is undeniable that a residential property provides peace of mind. Owners definitely save on utility charges and they also need not worry about paying higher quit rent and assessment charges.

If they rent out their units, tenants would also pay a lower amount on their electricity, water and sewerage bills.

Also, for first-time homebuyers, their chances of getting a 90% loan are much higher, which makes it easier for a newbie to get a foothold on the property ladder.

One disadvantage, however, is that residential property in and around the city is expensive and we can expect that to remain for some time.

Even if you consider residential units near the MRT rail lines, it’s worth asking whether travel time and cost and other out-of-pocket expenses would be worth the trip every day to and from the office or to anywhere you want to go.

The allure of serviced apartments and SoHos is that these units are usually strategically located in business areas and that makes a world of difference when you think about commuting and accessibility.

Whatever your pick is, the rule of thumb is to always thoroughly research your property before embarking on a purchase. It also makes sense to consider the long-term financial commitment you will be making, on top of the home loan monthly repayment.

Even the grouses of serviced-apartment owners could have been avoided if they knew what they were getting into in the first place and all those are laid bare beyond the sales speak and in the fine print.

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