Sales pattern of low to medium cost walk-up

apartment units in Taman Sutera, Kajang

WHICH FLOORS ARE EASIER TO SELL?

INTRODUCTION Under current Government policy there exist strict space standards for
low-cost and low/medium cost housing and minimum requirements for
the quality of finishes, services, infrastructure and amenities that are
already in place1,2. However, housing in the modern context is more
than just roof and walls for shelter, or the provision of basic services like
water and electricity. It is also a major lifetime investment.

We believe that the major factors that determine whether a low-cost

house appreciates or depreciates in value have been overlooked by
policy makers, architects and town-planners. These factors, any value
will say, are location, location, location. Thus floor levels must certainly
count as one of the most important location factors, especially for walk-
up flats without lifts.

It is common practice for developers of apartment buildings to price the

apartments according to how valuable the units are perceived to be.
The factors that contribute towards the perception of value and,
therefore pricing, would presumably be relative in size, quality of
finishes and so on. But the most important must be location – the floor
level, the direction of view, the relationship with neighbouring units,
ease of access, etc.

This common practice is abandoned when it comes to low-cost housing.

The government has fixed the ceiling price and this has become the de-
facto single price.

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 Problem A cursory study of Auction Notices over the past year has revealed that
the Reserve Prices of low-cost flats in locations like Bukit Sentosa,
Statement:
Bukit Beruntung in the north of Kuala Lumpur is around RM9,000, a
small fraction of the original selling price set by Government (fig.1). If
this situation is true in general for other locations, it pinpoints serious
defects in the current low-cost housing policy.

Figure 1
Note:This reserve price of RM9000 is not exceptionally low. There are 11
other apartments similarly priced
(Source: NST UbuyUsell, Tuesday, Aug 22 2006)

Low-cost housing has long been a financial burden to Developers who

do not want to build them but are forced to do so by Government policy.
The fixed selling price requires cross subsidy from the sales revenue
from medium and higher cost units. Yet when the subsidized low-cost
housing is built, sales are often slow. The poor do not seem to be
enthusiastic about buying them, even though the housing loans are set
by Government again at a subsidized rate.

So an absurd situation is emerging. Developers do not want to build

low-cost houses but they are forced to do so by Government policy.
The fixed selling price requires cross subsidy from the sales revenue
from medium and low cost units. Yet when the low-cost walk-up
apartments are built, sales are often slow – especially the ones on the
top floors.

In this situation it would seem that government policy is forcing

developers to subsidize houses they do not want to build and which the
targeted beneficiaries do not want to buy. No wonder – many of these
low cost houses depreciate in value, becoming not assets but a
financial burden!

2
 Research This research project aims to study the importance of the apartment
question & floor level as a location factor. An understanding of this issue based on
objectives: empirical study would be useful in helping developers formulate a
pricing strategy that will help them to sell their low-cost houses more
successfully. It will also inform people who make and implement policy
on how current regulations and practice may be (or may not be) working
towards the policy aims.

This research specifically aims to link apartment floor level to ease of

selling.

RESEARCH Arkitek M Ghazali is the architect of a development in Taman Sutera in

METHODOLOGY Kajang, Selangor, part of which comprises low-cost apartments and
low-medium and medium cost apartments (low/medium cost
apartments) which were designed to meet the regulations in force at the
time the planning application was submitted (fig. 2).

Figure 2
The first phase of the development contained, among others, 5 blocks
of low-medium and medium cost apartments (fig.3) and 6 blocks of
low-cost apartments. This portion has been completed. The low-cost
apartments are six storey buildings with units on the 1st to 5th floor (fig.
4).

Figure 3 Low/medium Figure 4 Low-cost

cost apartment apartment
3
 The ground floor is open communal space. The apartments , priced at
RM42,000 each, are accessed by staircases that lead to corridors on
each floor which face an internal void. The design of the low/medium-
cost apartments departs from common practice whereby blocks are
exclusively made up of the low-medium flats, and similarly, the medium-
cost apartments. The medium-cost apartment blocks are then placed on
their own piece of land, separate from the low-medium cost flats. The
purchasers of the RM70,000 (maximum price) units are thus
segregated from the RM100,000 (ceiling price) units. In the Taman
Sutera case, the low-medium and medium-cost units are placed
together in the same block, and in some instances, the same floor. The
more expensive units were those on the lower floors, and the cheaper
units on the upper floors (fig. 5).

Block Ground First Second Third Fourth

A RM 77922.14 RM 80046.25 RM 77564.00 RM 69225.00 RM 64697.50
B RM 72307.50 RM 77221.25 RM 75834.75 RM 71040.00 RM 61852.00
C RM 75412.31 RM 78372.50 RM 76051.88 RM 70876.63 RM 61501.25
D RM 74167.50 RM 78933.75 RM 78138.75 RM 70417.63 RM 64134.24
E RM 74876.25 RM 78505.00 RM 76747.50 RM 68820.00 RM 62642.5
Average RM 74,937.14 RM78,615.75 RM 76,867.38 RM 70,075.85 RM 62,965.50
Figure 5
The other departure from conventional practice is the pricing strategy.
The units were picked as if it were a normal commercial project. For
example, units on the lower floors were priced higher on a per square
foot basis compared with those on the higher floors. Corner units were
priced higher relative to the intermediate ones. Units that looked out
onto neighboring units were priced lower than those that had better
views. Whilst the low-medium and medium-cost flats were sold as
“Mawar” apartments, the low-cost apartments were marketed through
the relevant State Agency as, well - “Low-Cost Flats”.

RESULT Thus there were units on the ground to fifth floor for the low/medium
cost units, and units from the first to fifth floor for the low-cost units.
Which floors did the customers buy first?.

There were also two pricing strategies to compare: the commercial

pricing approach against the mandatory single pricing. How did the
consumer respond to these two alternative approaches?

Collection data : We obtained from the developer the details of the sales of the
apartments to work out the basis of the developer’s pricing decisions,
and compare this with the response of the purchasers, in terms of how
long it took the developers to sell the specific units.

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 Design pricing : The detail design of the low-medium and medium-cost units is shown
below (fig. 6). The units range from 771sf to 850sf. The bigger and
more expensive units are generally on the lower floors and at the
corner of the building, except on the ground floor where less expensive
units are placed at the block entrances.

Figure 6
The sales section of the Developer’s office provided records listing
details of all Sales and Purchase Agreements (SPA’s) entered into
between the Developer and purchasers. We transcribed the dates of
the SPA’s against the respective blocks, floors and units.

Sales procedure : The units were generally launched for sale block by block. The
developers would take bookings from the prospective purchasers who
were required to come back within a fixed period to sign the SPA and
make the first 10% payment. For this research, the date of the signing
of the SPA is taken as the date of sale.

For the purpose of comparing “ease of selling” the dates of the signing
of the SPA for each unit of every block is compared with the date of the
SPA for the first unit sold for that block. We took the difference between
the two days to become the proxy for “the number of days taken to sell’
the unit.

The data was sorted out by block and by floor. For every floor of each
block, the average day it took to sell each unit was calculated.

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Anomalies : The data was then sieved for anomalies. The first anomaly came in the
form of “resale units”. In this case, the initial purchasers decided to
resell the units to a third party. In this case, there was a second SPA
and the first SPA was aborted. However, we had access only to the date
of the second SPA. It was easy to spot these cases because the dates
of the SPA were very much later then the rest of the SPA’s. Hence, we
were able to ignore these specific cases when calculating the average
time taken to sell the units.

The second anomaly is the situation where there are still unsold units,
and this occurs mainly for the low-cost units on the 4th and 5th floors.
So that a single figure for “average days to sell” could be arrived at, we
adopted the assumption that all these units would be sold on the 31st
December of this year (i.e. 2006).

Results : The data for each low/medium cost block used to arrive at the average
number of days it took to sell the units for every floor. The relevant
tables and graphs of these are shown below (table 1, fig. 7).

AVERAGE DAY TO SELL LOW/MEDIUM COST APARTMENT

LOW/MEDIUM COST
BLOCK
200
Floor Average days to sell
NO. OF DAYS

150
Ground 36
100 Average day to sell

First 57
50
Second 117
0
ground First Second Third Fourth
Third 167
FLOOR
Fourth 190

Table 1 Figure 7
The data for each low cost block used to arrive at the average number
of days it took to sell the units for every floor. The relevant tables and
graphs of these are shown below (table 2, fig. 8).

AVERAGE DAYS TO SELL LOW COST FLAT

LOW COST BLOCK
1400
Floor Average day to sell 1200
NO. OF DAYS

1000
First 130
800
Average day to sell
Second 198 600
400
Third 261 200
0
Fourth 702 First Second Third Fourth Fifth
FLOOR
Fifth 1251

Table 2 Figure 8
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 The overall average days to sell for the low/medium cost blocks was
calculated, and similarly, the low-cost blocks. This is shown below (fig.
9).
COMPARISON BETWEEN 6 STOREYS LOW COST
FLAT AND 5 STOREYS LOW-MEDIUM & MEDIUM
COST APARTMENT
1400
1200

NO. OF DAYS
1000
800
low/medium cost
600
400 low cost
200
0

fth
th
ird
t

nd
rs
un

ur

Fi
co

Th
Fi
ro

Fo
Se
G

FLOOR LEVEL

Figure 9
The ease of selling the low/medium cost apartments compared to the
low-cost can be clearly seen

Discussion : Low/ medium cost apartment are easier to sell than low-cost flat.

• Consider low/medium cost apartment were sold at RM80 - 90psf,

compared to RM65psf for the low cost flat
• The process of selection purchasers by the government is a
contributing factor to delay in selling.
• Low cost units were designed on the basis to meet regulatory
standard and to minimize cost, which ultimately is not popular.

People prefer to live on lower floors rather than higher floors.

• The rising curve is very evident depicting unpopularity of identically

designed and priced unit on every floor.
• Even when the architect had placed smaller and less expensive units
on the upper floors, the preference for the lower floors is still evident.

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 The ground floor, when it is available, is the easiest to sell.

Many developers believe that the first floor units would be the most
popular, and would price the units accordingly.
Some authorities in Malaysia still do not allow units on the ground floor
in spite of very strong arguments to allow it:
• To cater for old folk and the disabled
• To reduce construction cost
• Communal space is provided for in a separate building

The fact that there is a mixture of product price categories in one

building (and by extension, purchaser income categories) does not
seem to inhibit buyers. On the other hand the housing which comprised
only low-income category was unpopular.
Can we surmise that the people here don’t seem to mind living in
mixed-income communities but definitely dislike living in a low-income
community?
CONCLUSION Pricing
Policy Developers should be allowed more leeway in setting prices. Perhaps
recommendation: the RM42,000 price be viewed as a “maximum average price”. In this
way the top floor units can be sold at a lower price, and the shortfall is
made up by selling the lower floor units at a higher price.

Design
Practically all low-cost units on the 4th and 5th floors remain unsold.
This is sad state of affairs for the Developer. Unfortunately, this is a
common feature of low-cost flats in Selangor. It is widely accepted that
Developers have to subsidize the low-cost flats. Even when the
Developer is able to sell all the units, the price of land and the cost of
the main infrastructure outside the site is not taken into account, it can
be argued that he just breaks even. Therefore, a 40% shortfall in sales
immediately translates to a loss of 40%, that loss expressed as a
percentage of the development cost.

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 The architect should be allowed to design units on the ground floor. The
ground floor units could be specially designed to cater for old folk and
the disabled. Communal space is provided for in a separate building.
Architects should be allowed to design affordable housing schemes that
contain a wider mixed-income community. A block of falts could have
RM80,000 units on the ground floor, RM60,000 units on the middle
floors and RM60,000 units on the upper floors.

Recommendation There are still 540 low-medium and low-medium cost apartments and
to the developer: 600 Low-cost flats to be built in Phase 2. The results obtained from this
research work might be helpful to improve the design and marketing of
the coming development.

Pricing
It could be argued that the units should be priced such that all floors are
equally popular, such that perhaps the upper floors should be cheaper
and the lower floors slightly more expensive: the price differences would
neutralize the preference for the lower floors.

On the other hand, it is better for the Developer to give priority to

completely selling the units on the lower floors first before the higher
floors. This is because the natural construction sequence requires the
lower floors that needs to get built first. We believe that the pricing of
the low/medium units in the first phase was fortuitously correct. The
units on the lower floors were quickly sold out prior to the units on the
upper floors, but the sales for these units did not come too much later.

Design
In our opinion, it may be possible to make the upper floors sellable by
installing lifts. The cost of providing one lift to each block, including the
associated structural works, is estimated to be about RM210,000. This
cost is able to be covered by the addition of 8 units on the ground floor;
the additional revenue from the sale of these units should be able to
cover the cost of the lift and the cost of constructing the units. Of course
the approval and cooperation of Majlis Perbandaran Kajang would be
required.

REFERENCES 1. Standard Perumahan Kebangsaan Bagi Perumahan Kos Rendah

Satu dan Dua Tingkat, CIDB Malaysia 1998
2. Standard Perumahan Kebangsaan Bagi Perumahan Kos Rendah
Rumah Pangsa, CIDB Malaysia 1998