AN accountant was surprised when he read the news that the Housing and Local Government Ministry was planning to introduce legislation to protect buyers of serviced apartments.

He is even more surprised that present laws under the ministry do not govern serviced apartments, as they are considered to be commercial and not residential property.

He had thought all along that the Sale and Purchase Agreement (SPA) he had signed in a hurry was more or less the same as that of other residential properties. If a If a professional like this accountant is ignorant on matters pertaining to serviced apartments, one can imagine how many less informed people may have bought these apartments without realising that there are issues they have to face should things go wrong.

For starters, buyers should read and understand the SPA carefully as it is not the standard SPA under the Housing Development Act (HDA), but one that is prepared by the developer concerned.

As serviced apartments do not come within the ambit of the Housing and Local Government Ministry and the protection of the HDA, the only course of action for the buyers is the courts. They cannot bring the matter to the Housing Tribunal.

They should also know that the assessment rate is based on the higher commercial rates and that the developer need not provide a parking bay for each apartment.

Under the HDA late payment penalties are the standard 10% (although with the current low interest rates, many people feel that this should be lowered). The penalty can be as high as between 8% and 12% for serviced apartments, although most will adhere to the normal 10%.

It should also be noted that in many serviced apartment SPAs, purchasers have to make payments "within 14 days from the vendor's (in this case the developer) written notice of commencement" of work rather than upon completion of various stages of construction as in the usual schedule of payment under the HDA An irresponsible developer can abandon the project halfway after receiving payment.

The case of the uncompleted Rhythm Avenue serviced apartments in US1, Selangor, has revived concerns that developers may circumvent the HDA by building homes on commercial land.

This is not to say that all serviced apartments are riskier than the normal apartments, condominiums or other residential properties that fall under the purview of the HDA.

There are many old serviced apartments like the SuCasa and Micasa in Kuala Lumpur that are well managed. The same goes for professionally operated high-end serviced apartments like The Ascott, Crown Regency, Westin Kuala Lumpur, Berjaya Times Square
Service Suites and Lanson Place that are part of or affiliated to renowned international hotel/serviced apartment chains.

What is of concern is the mush-rooming of many serviced apartment projects particularly in the Klang Valley, over the past few years as well as those that had been abandoned during the last recession.

Many of them are sold quite cheaply. Unknown developers who do not have any track records are developing many of these projects. Big companies have also jumped onto the band-wagon by building more such units that may lead to a glut of serviced apartments in the country.

Hence, it is timely that Housing and Local Government Minister Datuk Seri Ong Ka Ting is looking at legislating serviced apartments to protect buyers.

He had reminded local and state authorities to be careful when approving such projects to ensure that the developers had the necessary capital and good track record.

Anyway, some protection is better than none. The question is why only serviced apartments and not shop offices and other commercial property that also do not come under the HAD? Should the proposed legislation be tougher as it involves commercial property that is generally more expensive than residential property?

This is not merely an issue concerning serviced apartments but one that also affects industrial and commercial properties that are not under the HDA

So why do developers go for serviced apartments?

The main reason as Masteron Sdn.Bhd general manager Alex Tan puts it is "it cuts down on red tape, saves time and costs."

The glut of commercial properties has also forced developers to change their strategy. Instead of building , more shop offices or other commercial units in areas where there is an oversupply of such properties or where demand is weak, selling serviced apartments seems a better option.

Tan said developers could start, selling their serviced apartments upon getting their building plans approved and they did not need to obtain a sales and advertising permit. They also do not have to provide RM200,000 deposit for a housing developer's licence.

"This may be a small amount for an established developer but for a new player who is out to try his luck in the market, RM200,000 is a lot of money," he said, adding that normally it took three to four months more for a developer undertaking a project under the HDA before he could launch his project.

"It takes at least two to three months for a building plan to be, approved and at least a month to get the sales and advertising permit. However, for a serviced apartment developer he can cut short the waiting time," Tan said.

He feels that legislating serviced apartment would not prevent projects from being abandoned. "You can have the HDA but all it takes is for someone to find a loophole."