Apartment Owners in a Limbo

Pitfalls await unwary apartment owners now that they are starting to manage their own common properties, writes LEE SIEW LIAN of NST online - columns dated 2008/05/04

APARTMENT owners are trapped in the middle of a roiling dispute over who should control the lucrative business of property management.

With an estimated RM600 million in annual fees at stake, the long-standing battle has left owners in a bind over who to appoint to help run and maintain their communal properties once they take over from developers.

While the two groups of property players slug it out, state governments are dithering over who to appoint as building commissioners, the officials who should be best placed to decide on the issue.

This leaves the country's 1.2 million apartment owners with little guidance over what to do and few safety nets to catch them if they make a mistake.
Because regulation of this industry is inadequate and dotted with loopholes, apartment owners are now exposed to major risks, including financial disaster.

"It's a daunting and confusing task," says Veronica Gan, president of the Bangsar Heights Residents Association, which will soon form their own management corporation.

"What we need are some guidelines on the best practices to adopt or how to negotiate. The only material we have is from the House Buyers Association, but it's not really enough."

"There are many pitfalls during this transition period," says Chang Kim Loong, honorary secretary-general of the national HBA, "But no one's looking out for the consumers."

Thousands of joint management bodies (JMBs) were supposed to have been set up this year, giving owners of flats, apartments and condominiums a say, together with developers, in how subdivided properties are run.

JMBs are interim bodies for the years before strata titles are issued and owners' management corporations (MCs) set up to take over from developers.

One of their biggest responsibilities will be to appoint someone to manage their common property, from the grounds and lifts to corridor lighting and swimming pools.

Almost overnight, a huge and lucrative industry has opened up.

"If unit owners paid an average of RM50 in monthly maintenance charges, it would mean RM50 million a month, RM600 million a year," says Kumar Tharmalingam, secretary-general of the International Real Estate Federation (Fiabci), in Asia Pacific.

The Board of Valuers, a statutory regulator, says owners should appoint only property managers that it has registered. But a lobby group, the VAEA Joint Action Group, insists that there is no such restriction.

The VAEA refers to the Valuers, Appraisers and Estate Agents Act 1981, the statute that governs the board.

The Joint Action Group has players from different industries as members, ranging from the Real Estate and Housing Developers Association (Rehda) to apartment management corporations and the Associated Chinese Chamber of Commerce and Industry (ACCCIM). Fiabci Malaysia, which Tharmalingam used to head, is also part of the group.

The group reads the law differently and asserts that by definition under two other Acts, the owner bodies and corporations escape the effects of the Valuers Act.

They claim the two Acts -- the Strata Titles Act 1985 and the Building and Common Property (Maintenance and Management) Act 2007 -- allow owners' committees to appoint what they call managing agents.

"Anyone with the right experience and ability can be a managing agent. JMBs and MCs can appoint any one they see fit to manage their properties," says Datuk Teo Chiang Kok, See Hoy Chan director.

Their problem with the Valuers Act is that it effectively allows only registered valuers to become property managers. They say this makes the property management industry a monopoly for just a few hundred registered valuers.

"But it is the free market that should decide," Teo says.

Board of Valuers president Datuk Abdullah Thalith Md Thani says anyone involved in managing and maintaining property should be properly regulated and well-qualified.

"I want to open up registration to anyone who is interested. It's a misunderstanding."

He says he had proposed to amend the Valuers Act, but intense resistance from developers and other property players forced him to drop the matter. Thalith is president by virtue of his post of director-general of the Valuation Department under the Ministry of Finance.

Thalith agrees with most industry players that the Act's provisions for regulating property managers are inadequate, and enforcement patchy.

But he worries that those who appoint the so-called managing agents could be courting financial disaster arising from mistakes, negligence and dishonesty. Those registered under the Act would be required to obtain professional indemnity insurance, he points out.

The HBA, a voluntary organisation which represents home owners, agrees owners are exposed even if these unregistered managing agents had adequate indemnity insurance.

Chang, who is honorary secretary, argues that the insurer could repudiate liability and refuse to pay up since the managing agent is not a legitimate property manager registered with the Board of Valuers.

Indeed, the same could happen to owner bodies themselves, the JMBs and MCs, he says.

"The relevant statutory provisions do include prosecutions and the right to sue, but this is hardly any protection at all to owners. There are too few preventive measures." The HBA favours tighter regulation and compulsory licensing of property managers. "Lives and properties are entrusted to their care, control and management," Chang says.

He also urges the board to grant amnesty to competent but unregistered property managers, to encourage them to register.

"It's similar to the drive that was extended to unlicensed real estate agents some years ago."

Fiabci's Tharmalingam agrees, saying the board has, by inaction, allowed unlicensed property managers to flourish for 20 years: "They now have the right to exist."

A valuer by profession, he goes even further to say the JMBs and MCs should also be registered. Registering these owner bodies would offer a safety net to individual unit owners, he explains: "Those who serve in the (executive) committees have a responsibility for the (financial) performance of the JMBs and MCs. If the board is prepared to regulate property managers, then it should take responsibility for the JMBs and MCs too."

The problem is the laws governing stratified properties have been drafted and amended piecemeal, leaving loopholes that expose apartment owners, Tharmalingam claims.

"It's a solvable problem, but cooler heads must prevail."