Property
Leveraging branding of international operators
Ang Hui Hsien 
Last month, Alpine Return Sdn Bhd announced the appointment of The Ascott Ltd to manage Ascott Star KLCC Kuala Lumpur serviced residence
advertisement[x]

AS new developments continue sprouting up across Malaysia, particularly in hotspots like Kuala Lumpur, developers are compelled to find ways to differentiate their products.

One such method is by leveraging the reputation of international operators via collaborations on serviced residences.

Tan says it makes perfect sense for developers to tie up with a reputable operator for serviced apartments

As explained by property investor, blogger and speaker Charles Tan, being associated with a well-known hospitality brand does provide assurance and credibility to customers.

 

“Tying up with a reputable operator for serviced apartments make perfect sense because buyers would feel more comfortable if a major brand is managing the development.

“When we book a hotel today and the prices are similar, we would usually choose the one we know better, which is where the advantage of a reputable operator comes in,” he says.

In general, Tan explains properties like serviced residences are built with investors, rather than owner-occupiers, in mind.

“For those who have already owned their first property, they may be thinking about the next one, usually an upgrade or for investment.

“Developers are building more of these properties to cater to this segment which is looking for a second property, and a serviced apartment is just another choice,” he explains.

 

Mutual benefits

Among the most recent to jump onto the bandwagon is Alpine Return Sdn Bhd – a joint venture company between Symphony Life Bhd and United Malayan Land Bhd.

Last month, it announced the appointment of The Ascott Ltd to manage the 58-storey Ascott Star KLCC Kuala Lumpur serviced residence along Jalan Yap Kwan Seng.

The serviced residence operator has a presence in over 30 countries under brands like Ascott, Citadines and Somerset.

Such tie-ups are mutually beneficial – while the developer gets to leverage on the operator’s brand and reputation to sell its products, the latter also gets to “borrow” the developer’s expertise.

“The operators are not the ones financing the whole project and they may not even have the construction expertise, but they have a good brand – usually built over a long time – and management experience for such properties,” explains Tan.

It also opens up opportunities for operators to engage in cross-selling activities as previous customers are more likely to return to familiar brands when staying in different countries.

“The developers have the expertise to build within cost and get good publicity since they are tying up with a famous operator, while the operators manage them professionally. Both are profiting from this venture differently,” Tan points out.

Admittedly, serviced residences associated with reputable operators tend to be more popular and in some cases, even command higher prices.

Although these operators have an upper hand due to their experience and international exposure, Tan says it ultimately falls back on the management of the property and the developer’s ability to deliver on its promise.

“Price appreciation really depends on the management of the property instead of the international brand, even if these international operators helped during the marketing and promotions part,” he says.

 

Appeal to investors

Property investor, speaker and author Ahyat Ishak says having a ready pool of potential tenants is a major appeal to investors.

“Other than actively seeking customers from the open market, these serviced residence operators have an internal supply, which suddenly makes it seem more compelling to purchase,” he points out.

Ahyat reveals having a reputable operator has no effect on an investor’s purchasing decision

Serviced residences are also attractive to passive investors who do not want to deal with tasks like rental collection and tenants’ requests as these are all handled by the operator.

To a certain extent, having a reputable operator also helps in guaranteeing the upkeep of the property. “In Malaysia, a 20-year-old condominium is not very appealing because the local market is so used to having new developments.

“So if a reputable service provider is on board, you can be certain your serviced residence will be well-kept,” he explains.

However, Ahyat believes an association with a reputable operator has no effect on an investor’s purchasing decision.

“For me, I don’t necessarily look into that factor in the beginning stages of my decision. We have primary and secondary factors, and this type is a secondary factor.

“As an investor, I’m concerned about my entry, namely whether it’s the right time and if the product is right for the area in the sense that it would create demand among a certain segment of the population.”

If everything is in place for a good entry, he explains the next step is to consider the exit by identifying current rental rates and market interest.

Ahyat also stresses on the importance of identifying the risks and rewards that come with each investment – something which he observes Malaysians have yet to master.

“Many people just look at the rewards and take them at face value. So whose fault is it when something goes wrong?” he asks.

He points out that the decision to purchase a property ultimately lies with the buyers themselves, who are often blinded by the rewards without thinking about the risks.

“Malaysians spend more time researching on their next mobile phone purchase instead of property, and this, I find, is one of the most fundamental issues with the purchasing habits of property among the local population,” he says.

The importance of homework

LEVERAGING the brand and reputation of international operators, many developers tend to offer attractive Guaranteed Rental Return (GRR) rates on serviced residences to appeal to investors looking for high returns.

However, as with all other properties, property investor, speaker and blogger Charles Tan says this type of properties are subject to the usual investment considerations, including their location.

“Without good connectivity, it is going to be tough going, even for an international operator. It does not need to be next to public transportation, but it certainly has to be easy to drive to,” he explains.

He also advises in exercising caution when it comes to the GRR, a risk which can be mitigated by doing some research into the rental rates for the area.

“If the developer is promising RM1,800 per month but the typical rental per night within the area is around RM200 and the weekdays are usually empty, that means the operator can only get around RM1,600 per month.

“It will be tough for them to pay the RM1,800 because the operators also have their running costs,” he says.

Investors should also be alert to GRR that are promised at a way higher rate compared to other similar properties in the vicinity.

“If the price difference is little, then GRR provides stability. However, when it is priced way too high, then it may be better to look at cheaper properties with similar rental potential instead,” advises Tan.

Echoing these sentiments is property investor, speaker and author Ahyat Ishak who points out it is not about the association with an international operator but investors doing their homework.

He stresses the importance of looking into aspects like the developer’s track record in promising GRR – something he believes one should tread with caution.

He states customers must always be prepared to face incidents such as developers being unable to deliver on the GRR as initially promised.

“There is always going to be a loophole or some escape clause citing reasons like ‘unforeseen market conditions’.

“At the end of the day, it’s all about business and there is nothing you can do about it, especially when you abdicate your responsibility to be a passive investor,” he says.

And although he does not recommend new investors going into this segment because the risks are higher for them, Ahyat acknowledges that if done right, the returns can be lucrative.

“It doesn’t matter if it’s a global service operator who has won multiple international awards. At the end of the day, it’s the research that is important,” he concludes.



This article first appeared in Focus Malaysia Issue 255.