The lucrative car park business
Sonia Ramachandran 
MALAYSIA has one of the highest percentages of car ownership in the world with over 90% of households owning a car, mainly due to the inadequacy of public transportation.

The high car ownership invariably means increasing demand for car parks, especially in busy business districts and high-rise residential developments.

Along with being a necessity coupled with the steadily rising parking rates, car park bays is fast becoming a lucrative investment, say property experts.

Yields and increased value

Raine & Horne International Zaki and Partners Sdn Bhd partner James Tan Keen Meng firmly believes that car parks are a lucrative business because of the huge number of cars on the road.

“Car parks are a lucrative business because of the number of cars on the road.” – Tan

Tan says the yields for car park bays depends a lot on location and the occupancy rate of the commercial building within which they are located.

“The yields can range around anything from 3% to 7% depending on a whole host of factors but primarily demand,” he tells FocusM.

PKNS Real Estate Sdn Bhd CEO Fakru Radzi Ab Ghani also believes in the prospects of the car park business.

“The projected gross yield for car park space investments is between 8% to 10%.” – Fakru

The Selangor state economic development corporation’s (PKNS) subsidiary has just acquired a car park space comprising 1,675 basement and 79 surface car park bays at Pusat Perdagangan Dana 1 in Ara Damansara at end-July. He says the projected gross yield is between 8% and 10%.

“We believe there is a hidden opportunity to grow our investments in car park assets, not just for the potential return on investment but also the opportunity for its capital appreciation in the long run.

“In addition, there is a trend of growing demand for car parks that are strategically located, especially within the commercial or business district,” he says. This acquisition is PKNS’ first car park investment.

Fakru adds another reason for this being a good investment is the demand-supply factor with many commercial developments not being able to cater for enough car park bays due to limited space and the strong growth of registered vehicles yearly.

He notes property investors are seeking investment alternatives to boost returns in their property portfolio and that park bays, which have been seen as non-traditional property, would give more options for investors to invest in.

Real estate consultancy firm Exastrata Solutions Sdn Bhd chief real estate consultant Adzman Shah Mohd Ariffin says the rate of return would depend on whether the building attracts high traffic.

“Malls with strong attraction, prime located office buildings and transport-oriented developments can generate good consistent revenue.

“The rate of return differs from location to location depending on the revenue it generates and the investment cost based on the number of car parking bays available to rent out,” he says.

He adds that the value of car park bays can be as high as RM70,000 each in the city. “The value of the commercial building or unit can be further enhanced by the price of the car parking bays attached to it,” he says.

Adzman concurs with Tan and Fakru that car park bays are a necessity and in some cases, could be a profitable business.

He points out while it may not be so lucrative for individuals who own one or two car park bays in an apartment block to rent it out, this is not so for malls or office building owners where car park operations offer a lucrative business since rates can be charged on an hourly basis.

Price difference

Adzman says commercial buildings with little or no car parking space are generally less attractive compared to one with such facilities.

Raine & Horne’s Tan says the difference in price between a commercial building without car parking bays and one with bays depends on the size of the building.

“Quite a number of strata offices have been sold without car parking bays like Phileo Damansara, Damansara Intan, Bangsar South, etc.

“The average price per car park bay ranges from RM15,000 to RM68,000. Most of the buyers are commercial entities,” he says.

Tan cites the following as some examples:

In February, 865 car park bays in The Ascent, Paradigm were sold at RM26 mil or RM30,000 per bay.

In July 2015, 72 car park bays in Pavilion Kuala Lumpur were sold at RM4,896,000 or RM68,000 per bay.

“This evidence shows that there is indeed some activity in the car park market. Car park operators in well-tenanted commercial buildings do make good returns.

“Most of the new office developments do not have car parks as accessory parcels but a separate strata title. Car parks in well-tenanted commercial buildings are good investments,” Tan adds.

One company which saw the potential of car parks and made it its core business is SCP Parking Sdn Bhd. Some years ago, it bought 6,600 bays in Phileo Damansara I and II, Megan Phileo and Phileo Promenade for about RM15,000 per bay, or RM99 mil.

Today, SCP is one of the biggest owners of car parks with more than 11,500 bays worth in excess of RM450 mil.

Accessory parcels

Can a developer of a commercial or residential building sell individual car park bays to a purchaser?

No, says Homebuyers’ Claim Tribunal president Datuk Pretam Singh Darshan Singh. “You cannot sell a car park bay by itself in a commercial or residential building because the car park is an accessory to the parcel under the Strata Titles Act 1985.

“Under the Act, there cannot be any dealings on its own for an accessory to the parcel. You cannot even attach the car park from one parcel to another but you can give your right to use the car park bays to another person while you continue to be the owner,” he says.

However, Pretam says a purchaser may buy a parcel consisting of car park bays in a commercial building. “A parcel would mean a whole floor of car park bays. This is not an accessory to a parcel. This is a parcel by itself consisting of car park bays,” says Pretam.

Exastrata’s Adzman Shah concurs, saying car park bays which are sold as accessory parcels in a strata development cannot be sold separately for now.

“An owner who owns en bloc car parking will need to apply to the court if he wishes to dispose bays individually and even in such cases also, the owner will still need to accessorise the individual bay(s) to a main parcel,” he says.

He adds that car parking bays either come as accessory parcels or as common property and that there are no titles issued for individual bays thus far. “Developers can offer extra bays with parcels normally at launching but it will come at a price,” he says.

Raine & Horne’s Tan says there have been court cases where developers were sued by apartment/condominium owners for selling car parking bays separately to a friendly party for income generation, with the court ruling in favour of the residents.

“Most highrise residential developments only provide one car park bay per unit so the developers can sell extra bays to the purchaser.

“The question is whether the developers have sufficient car park bays to sell? The car park bay must also be accessorised to the parcel upon the CCC [Certificate of Completion and Compliance] with the registered owner’s name in the strata title,” says Tan.

He adds the tightening up of the rules by the government is “good” as it was “very loose” in the past.

“Now developers cannot sell stratified highrise residential units without car parks and then keep the car parks and manage it.

“Some time back, the Subang Olives condominium project was sold without car parking bays and purchasers paid car parking charges as their maintenance fees. However, this soon came to a halt as it was not workable. The new legislation addresses this,” says Tan.

Compulsory for strata titles

National House Buyers Association (HBA) honorary secretary-general Chang Kim Loong agrees this is a good move for stratified residential properties as everyone then buys the properties along with the car park bays.

“The parcel cannot be sold without the accessory parcel. Both cannot be sold separately,” he says.

Chang, who is also a Subang Jaya Municipal Council (MPSJ) councillor, says it is compulsory that all strata titles for housing, when issued for the parcels, will include the accessory parcels (the car park bays) distinctly identified in the strata title.

“These include SoHos [small office/home office] and serviced apartments as they fall under the ambit and jurisdiction of housing,” he says.

Pretam explains that a 2007 amendment to the law made serviced apartments also subject to the Housing Development (Control and Licensing) Act 1966 (HDA).

“Now pure serviced apartments can be under the HDA but if they are run as a hotel with no perpetual habitation, then it is not subject to HDA.

He also says for a serviced apartment under the HDA, the developer cannot sell the car park space en bloc.

“If you are a serviced apartment above a mall, the mall part of it is not part of the HDA and the car parks will be attached to the mall,” he says.

Subang Jaya example

Pretam explains that not all SoHos fall under the HDA, adding that the physical characteristics of the SoHo would have to be looked at to determine if it is residential.

Can stratified highrise units be sold without car park bays?

“That will depend on the planning approval,” says Pretam.

HBA’s Chang adds in Subang Jaya, it is compulsory that all stratified housing properties must have two car park bays available for owners “to avoid them discriminately parking along the sides of roads and causing congestion”.

“In the past, the developer owned the car parks and tenanted it out or leased it out to car park managements.

“In the deed of mutual covenant, the developer distinctly states that the ownership of the car park bays is distinctly theirs. Now, they can no longer do that,” he says.

However, Chang says the compulsory aspect of car parks being accessory parcels to units does not apply for low-cost developments, where car park bays are still on a first-come-first-serve basis.

Car parks a good investment Down Under
CAR parking bays are also a good investment in Australia, especially in highly populated areas such as inner city suburbs.

“A Potts Point parking space [in Sydney] sold in 2012 for A$40,000 (RM135,637) and now some are selling for over A$60,000,” says Australia’s Savills Cordeau Marshall director Craig Marshall.

He adds that spaces in commercial car parks are also being sold, where a company looks after all the spaces to rent. He says the return for such investments is around 7% and does have future capital gain.

Marshall adds that new developments have the car space on the same title and cannot be sold separately. “Old stratas used to have a separate lot number and ownership for the car space.

“You are then able to sell separately and even to someone outside the owners of the units. There is a separate levy for the car space from the unit,” he says.

Marshall adds that developers can build and sell units without car spaces and that this is allowed in highly populated areas where there is good public transport.

“Councils like this as it takes cars off the streets and is good for the environment,” he says. 

Increasing your property value with an extra car park
GANESH Ramanathan, team leader of Square Feet Real Estate and real estate negotiator coach, feels that residential car park bays are good investments. And he has walked the talk by investing in extra car park bays.

He bought an additional two tandem car parking bays (four back-to-back bays) for RM58,000 as his unit came with one tandem car park and he needed another one.

“I needed to get another car park bay because I have three cars so I only needed to spend RM29,000 but I spent another RM29,000 purely to get the RM400 a month from renting out the extra two lots.

“I use that money to subsidise my monthly maintenance fees,” he says. Ganesh adds the extra car park bays will also be an added value to the property in the event he decides to sell it in the future.

“When I sell my property, it will have six car park bays as accessories to the parcel and in five years’ time, maybe the RM59,000 will double up to about RM100,000.
“I think we will be able to increase rentals by probably 10% yearly,” he says.

Real estate consultancy firm Exastrata Solutions Sdn Bhd chief real estate consultant Adzman Shah Mohd Ariffin agrees with Ganesh that cark park bays will push the prices of property higher.

“Residential units with no car parking bays will fetch lower prices since the price of the car parking bay pushes the price of the property higher,” he says.

The added car park bays, says Ganesh, will also give him a major advantage to compete with other available units for sale.

He adds that having separate titles for car parking bays in residential stratified developments, instead of being an accessory to a parcel, will give purchasers an even greater advantage as they will be able to “realise the profit immediately”.
Raine & Horne International Zaki and Partners Sdn Bhd partner James Tan Keen Meng agrees it is a good investment if a purchaser buys an extra car park bay in a well-tenanted stratified residential high-rise and intends to live there long term.

“If you buy an extra car park for about RM30,000 and rent it out at about RM120 a month, you are getting a return of about 4%, which is not too bad.

“But with the mushrooming of high-rise residential units currently, you might have occupancy rates of 50% to 60% or even lower, so you might not be able to get the car park bay rented out.

“When you sell the unit, would the potential buyer want the extra car park bay?” asks Tan, who feels a separate title for car park bays are not necessary as there is still a need for more car park space.

“The projected gross yield for car park space investments is between 8% to 10%.” – Fakru

PKNS Real Estate Sdn Bhd (PREC) CEO Fakru Radzi Ab Ghani also feels having a separate title for car park bays will be a good move.

“This will create a new market that will give opportunities to both sellers and purchasers comprising individuals, retail investors or institutions to participate in buying and selling car park assets for their own use or investment purposes,” he says. 

This article first appeared in Focus Malaysia Issue 245.