These two urban residential properties are popular among first-time home buyers and renters - after all, who doesn't want to live in a fully-furnished building with fantastic amenities? Although they appear to have similar characteristics, there are significant differences between condominiums and serviced apartments in terms of living environment, tax rates, and homeownership benefits.
On the surface, serviced apartments appear to be the fancier sibling of the condominium - which is partially correct. However, not all serviced residences provide the benefits that most homebuyers expect, and there are some circumstances in which a condominium outperforms a serviced unit. In this article, we'll look at both housing options in detail to help you decide which is a better fit for you:
What exactly is a condominium?
Condominiums are multi-story residential buildings built on residentially titled land; consider them an upgrade from apartments, which only offer basic amenities. The units in a condominium are owned by different people, and each owner has at least one assigned parking space and 24-hour security. It is a popular choice among families due to the sense of privacy and security it provides.
Despite individual ownership, condominiums exude a sense of community thanks to an abundance of non-exclusive common facilities. The joint management body (JMB) or Management Corporation oversees all exercise yards, terrace gardens, swimming pools, recreation rooms, gyms, playgrounds, and parking spaces in most condominiums. Some condos even include a residence club and daycare centers!
What is a Serviced Apartment or Service Residence?
Serviced apartments or serviced residences are typically marketed as more luxurious and exclusive because they were originally designed to cater to travellers and businessmen who prefer something more comfortable than a hotel - these fully furnished units with hotel-like amenities are typically located in busy commercial hubs. They are typically part of a mixed-use development with connected access to a mall and/or office units.
Serviced apartments are popular among those who want to spend their vacation or business trip in a homey setting while still enjoying all of the luxuries of a hotel. It is not surprising that many Airbnb units in Klang Valley, Penang, and Johor are serviced apartments.
However, this does not preclude you from residing here indefinitely. If you value convenience, such as easy access to a mall, restaurants, and public transportation, a serviced apartment will be ideal for you. Remember that not all serviced apartments are for sale to the general public; some are owned by a single corporation that manages the property for property investors or on behalf of the developer.
What is the difference between a condominium and a serviced apartment?
The question of whether a serviced apartment is a commercial or residential title is always present. The answer is that condos have "residential-titled" land, whereas serviced apartments have "commercial-titled" land. As a result, the laws, tax rates, and functions of the two are vastly different.
There are some exceptions to the commercial titling of serviced apartments. If the residential component of a mixed development is completely separate from the commercial component, the developer can apply to have the serviced apartment titled as residential. Residents of the serviced apartment will benefit from residential utility rates and the Housing Development Act if the application is approved. However, approval is subject to the approval of the relevant authorities.
Because serviced apartments follow commercial utility rates, your electricity, sewage, and water tariffs or bills will be much higher than the residential rates charged for condos. Condominiums fall under Tariff A - Domestic Tariff because they are private residential spaces, whereas serviced apartments are low-voltage commercial buildings and thus fall under Tariff B - Low Voltage Commercial Tariff.
The electricity tariff rate from Tenaga Nasional Berhad (TNB) is presented here to assist you in estimating the electricity cost difference between a condo and a serviced apartment.
Tariff A – Domestic Tariff (Condominium)
Minimum monthly charge = RM3.00
For the first 200 kWh per month
201 – 300 kWh per month
301 – 600 kWh per month
601 – 900 kWh per month
901 kWh or above per month
Tariff B – Low Voltage Commercial Tariff (Serviced Apartment)
Minimum monthly charge = RM 7.20
For the first 200 kWh per month
201 kWh and above per month
According to Air Selangor, the minimum water tariff for commercial buildings such as serviced apartments is RM36, whereas the domestic rate for condominiums with residential land titles is only RM6 - less than one-sixth the price of a serviced residential unit!
Is it possible to convert serviced apartment commercial utility charges to residential utility rates?
This is ultimately up to your developer. Developers of serviced apartments may be able to negotiate a lower price with utility companies on occasion. So, before purchasing a serviced unit, ask if such an arrangement is possible, as it can save you a significant amount of money on monthly utility bills.
Parcel Rent and Assessment Charges
Before we get into the rates, let's define Parcel Rent and Assessment Tax.
The Strata Management Act (SMA) 2013 and the Strata Titles Act (STA) 1985 govern parcel rent, which is a type of land tax specifically intended for strata properties. Each parcel (unit) owner would be charged parcel rent for the entire building's square footage. Previously, strata owners were charged From June 2018 onwards, quit rent was replaced with parcel rent.
Local governments collect Assessment Charges, or Cukai Taksiran, to fund the construction and maintenance of public infrastructure. Because Serviced Residences are built on commercial land, their Parcel Rent and Assessment Charges are higher than those of condominiums.
The table shows the difference in Parcel Rent charges between Condo and Service Apartment:
RM 0.26 per metre square
(Limited to a minimum of RM 25/parcel)
RM 1.27 per metre square
(Limited to a minimum of RM 55/parcel)
RM 0.19 per metre square
(Limited to a minimum of RM 20/parcel)
RM 1.21 per metre square
(Limited to a minimum of RM 50/parcel)
Meanwhile, Assessment Tax is calculated based on your property's annual rental value, which is estimated to be between 2-7%. This tax will also differ according to the size and type of property. Because serviced apartments frequently include more amenities and conveniences than condominiums, the assessment tax will be slightly higher.
However, don't be put off by the higher prices for serviced apartments; you usually get a better range of amenities and conveniences than their condominium counterparts. Furthermore, some developers attempt to obtain lower Parcel Rent and Assessment Tax for serviced apartments if they can secure a zoning law loophole to reclassify them. For more information, see Malaysian Quit Rent, Parcel Rent, and Assessment Charges.
What is the difference in tax rates between a condo and a serviced apartment?
There are no other tax differences between serviced apartments and condominiums aside from the Parcel Rent and Assessment Tax.
What are the differences in maintenance fees between condos and serviced apartments?
Serviced units have higher maintenance fees than condos because they are based on commercial rates rather than residential rates.
Most condos are private residential spaces with a security system in place to monitor who comes and goes.
Outsiders could enter the compounds of serviced apartments with unrestricted access because most are attached to shopping malls or retail shops. Most serviced residences, however, have separate entry points for residential and common use, giving residents some privacy.
Residents of serviced apartments have no control over the businesses that set up shop in the development compound or the people who come and go. Condo residents, on the other hand, have more say in the matter because these strata properties are only for residential use.
When you live in a serviced apartment, you have easy access to good restaurants as well as amenities such as laundromats, convenience stores, and movie theaters. Condos, on the other hand, may not always provide such conveniences.
If you prefer peace and quiet while still wanting to live in a serviced apartment, look for one that is not attached to any shopping malls. These are difficult to come by, but not impossible.
A condominium is built on the basis of population per unit of land size or density. Meanwhile, the construction of Serviced Apartments is based on plot ratio, which is the total built-up area per land size. In comparison to condominiums, this allows developers to increase the maximum allowable units in a given space.
For example, if you are permitted to build a condominium with 180 people per acre and estimate that three people can live in a 725 square foot unit, you can only build 60 units.
If, on the other hand, you are constructing a serviced apartment, you must adhere to the plot ratio. Assume a developer is permitted to construct a serviced apartment on a 1:4 plot ratio. As a result, if you have 1 acre of land (43,560 sq ft), you can build up to 174,240 sq ft of floor area, which means you can build approximately 240 units of 725 square feet each on the same size of land.
As a result, condominiums often have lower population density than serviced apartments, giving residents more space and comfort.
Is there a distinction between condos and serviced apartments in terms of housing regulations?
The Housing Development Act (HDA) of 1966 applies to both serviced apartments and condominiums. Although serviced apartments are built on commercial land, they qualify because they are partially or entirely used for residential purposes. Both types of property have standard Sale and Purchase Agreements (SPAs) and are subject to the HDA's jurisdiction.
The majority of the confusion regarding homebuyer rights for owners of serviced apartments and condominiums stems from the misconception that SoFo, SOVOs, and SOHOs are serviced apartments. Please keep in mind that serviced apartments are not included in any of the above.
Developers may occasionally sell these units as serviced apartments. As a result, make sure to read the fine print in the marketing brochures because SoFo, SOVO, or Flexi Designed Suites are primarily designed for office/business use and not for residential purposes. Developers of SoFos and SoVos are not required to follow HDA rules and regulations and may set all terms in the SPA as they see fit.
The Small Office Home Office (SoHo) is an exception because it can function as both a home and an office. Because SoHos are'residential-purposed,' they are classified as housing accommodation and thus fall under the purview of the Housing Development Act.
Rental rates differ between condos and serviced apartments.
Because of the numerous subtle differences between condominiums and serviced apartments, there is always the question of whether there is a difference in rental rates between the two.
In Malaysia, there is no discernible difference in rental rates between condominiums and serviced apartments. Rather, rental rates are determined by the number of facilities and amenities provided in the development, as well as other factors such as location and exclusivity.
Due to the amenities, serviced apartments with extra services such as room service, receptionist, and bellboy will command a higher rental price, whereas serviced apartments without the extra frills will command a much lower rental price.
Meanwhile, a condominium in the heart of Kuala Lumpur would command a much higher rental price than one on the city's outskirts.
Is it worthwhile to buy a serviced apartment in Malaysia?
It all comes down to your preferred lifestyle, hobbies, and what is important to you - is prime location a deal breaker? Is it critical to have easy access to retail and commercial conveniences?
If you answered yes to the preceding questions, then serviced apartments are for you.
Is it worthwhile to buy a condo in Malaysia?
You won't go wrong adding a condominium to your portfolio of properties, whether you're looking to buy for your own use or as an investment. The only difference is that if you are buying it as an investment, you will need to consider factors such as your target tenants because the location and amenities of the condominium will ultimately influence your decision.
If you are looking for a condominium for your own stay, there are several factors to consider, such as your preferred lifestyle and location. For example, if you enjoy city life, you should buy a condominium unit closer to the city center. However, if you prefer a more peaceful lifestyle, you should look for a home outside of the city.
You can choose a condo if you want something more convenient or a living space for your family.
Next, check out the 12-step guide to buying a new home in Malaysia!