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Unpaid maintenance fees in Malaysia’s strata developments have reached concerning levels, with arrears estimated in the hundreds of millions, and potentially billions, if left unaddressed. Low-cost housing schemes, in particular, are facing the brunt of the issue, with up to 50% of units struggling to keep up with payments.
This financial strain, coupled with rising maintenance costs and inconsistent fee collection rates, poses a significant threat to the long-term viability of strata properties. Property experts are warning that the industry must find a solution to maintain both financial stability and property values.
Industry Concerns
Key industry players, including the Association of Valuers, Property Managers, Estate Agents, and Property Consultants in the Private Sector Malaysia (PEPS) and the Real Estate and Housing Developers' Association (REHDA) Malaysia, are sounding the alarm over the state of unpaid maintenance fees. PEPS committee member Ishak Ismail, who is also the president of the Malaysian Institute of Property and Facility Managers (MIPFM), highlighted that maintenance fee collection rates vary significantly across different property types.
"Low-cost housing developments see a collection rate of about 40-50%, while medium-cost properties fare slightly better at 60-70%. High-end developments generally have a collection rate of 80-95%. Despite having lower fees, low-cost housing developments have the highest default rates," Ishak explained.
The lack of a centralized database tracking unpaid maintenance fees nationwide further complicates the issue. According to Ishak, the Commissioner of Buildings (COB) does not have a system to monitor arrears across all strata developments, which makes enforcement difficult.
With approximately 2.8 million strata units in Malaysia, if 40% of owners are struggling to pay their maintenance fees, the total arrears could easily amount to hundreds of millions of ringgit. Residents in low-cost housing are often forced to prioritize essential living expenses, such as food and utilities, over maintenance fees, worsening the arrears problem.
Impact of the Pandemic
The COVID-19 pandemic exacerbated the situation. Many homeowners, especially those with vacant units that were not generating rental income, deprioritized maintenance fee payments during the crisis. While the Strata Management Act 2013 (Act 757) provides legal avenues for fee collection, enforcement remains weak, and joint management bodies (JMBs) and management corporations (MCs) face significant financial strain.
"The legal process for recovering unpaid fees is often slow and costly, especially when it comes to movable assets in cases of shared ownership," Ishak noted.
Despite these challenges, some low-cost developments have been creative in managing their facilities. In Johor, for instance, a JMB has been able to sustain operations by generating income through alternative revenue streams such as leasing rooftop space for telecommunications towers, renting billboard spaces, and setting up vending machines.
Cost Drivers and Fee Adjustments
The largest components of strata management costs include utilities, maintenance services, statutory contributions, security services, and property management fees, with electricity, water, and security services making up the bulk of expenses.
According to REHDA Malaysia, developers determine the initial maintenance fees based on anticipated upkeep costs outlined in the Sales and Purchase Agreement (SPA). However, developers face significant challenges due to inflation and rising costs during the construction period.
"Most JMBs and MCs review maintenance fees annually to ensure financial viability, as actual costs often exceed initial projections," REHDA Malaysia explained. "Developers typically set competitive initial rates with the expectation that fees will need to be adjusted once actual costs become clearer."
Learning from Singapore
Ishak also pointed to Singapore's successful model for fee collection, where the collection rate is a remarkable 99%. This success is largely attributed to strict enforcement measures, which include criminal penalties for non-payment and the ability to seize and auction properties. In contrast, Malaysia’s system allows only movable assets to be seized, and the legal process for recovery is often lengthy and complicated.
"Non-payment in Singapore is a criminal offense, which has helped the country maintain a highly stable fee collection system," Ishak explained. "In Malaysia, enforcement is more lenient, leading to financial instability in many strata properties."
Solutions to the Crisis
PEPS and REHDA Malaysia are urging proactive financial planning, stricter enforcement, and the use of alternative revenue streams to tackle unpaid fees. Ishak recommended implementing strict credit control measures, such as early action against defaulters, restricting access to common facilities, and filing cases with the strata management tribunal.
"Taking action against defaulters within two months of non-payment has proven effective in maintaining a steady cash flow for property management," he said.
REHDA Malaysia also suggested that developers incorporate energy-efficient systems, durable materials, and smart maintenance planning from the design stage to reduce long-term maintenance costs. Early engagement with property managers would allow developers to forecast operational costs and optimize budgets for better financial sustainability.
Strengthening Act 757 for Better Enforcement
PEPS has called for enhancements to Act 757 to improve fee collection and property management. One key recommendation is to make the use of registered property managers mandatory for all strata developments. Currently, Act 757 allows JMBs and MCs to hire non-registered property managers, but this often leads to governance issues and weak enforcement.
"Only qualified professionals under the Board of Valuers, Appraisers, Estate Agents and Property Managers Malaysia (BOVAEP) should be engaged to ensure proper enforcement and financial accountability," Ishak said.
REHDA Malaysia agreed, noting that Act 757 has helped improve accountability by requiring annual audits of strata accounts. While compliance can be challenging, it ensures long-term property value protection and enhances buyer confidence.
A Call for Collaboration
The path forward for Malaysia’s strata properties lies in collaboration between developers, property managers, regulators, and residents. A balance must be struck between affordability and financial sustainability to ensure the long-term viability of strata developments.
To ensure the stability of strata management, stakeholders must work together to strengthen enforcement, explore alternative revenue streams, and implement structured financial planning. By doing so, they can safeguard the future of Malaysia's strata properties and preserve their value for years to come.
