Pitfalls plague strata-titled malls
The Straits Times
Cheryl Ong
29 December 2014

The blue seven-storey building sticks out like a sore thumb - algae-covered walls, peeling paint and sleazy pubs occupying its floors.

The Ming Arcade, on the corner of Cuscaden Road in the Orchard Road shopping district, is a poster child for the woes besetting many strata- titled commercial blocks.

The 32-year-old mall, which sits on 1,127 sq m of prime development land, has been put up for collective sale at least three times but without success.

The owners of the 88-unit complex, which is next to the Forum Shopping Mall, are keen to sell their units to a single buyer and move on but there have been no takers.

Having too many decision-makers has been the weakest link as the owners' efforts to sell were thwarted when Hotel Properties, which holds 52 per cent of the building, reversed its backing for a collective sale.

A common problem at strata-titled malls, which number around 55, is the difficulty of getting large groups of people to agree on issues varying from a price for a collective sale to the upkeep of the property. Such malls are usually owned by many people, or subsidiary proprietors as they are called, unlike those run by professional operators like CapitaMalls Asia.

More strata units have been built in recent years, prompting experts to warn about the pitfalls of operating in and owning shops at these developments.

As Mr Chan Kok Hong, managing director at Savills Property Management, put it: "It's every unit owner for himself."

Origins
Back in the 1960s when Singapore took steps to develop its shopping scene as the population and middle class grew, the concept of shopping malls popped into the head of developers, said Mr Chan.

High Street, North Bridge Road and Orchard Road were the only main shopping streets then, so local developers adopted the idea of malls from the United States and Australia.

People's Park Complex was the first strata-titled mall, developed by Mr Ho Kok Cheong, who was embroiled in a massive corporate fraud case in 2005 and died a bankrupt a year later.

"It was the flavour of the day then; developers were not that financially strong to be able to build the whole mall and retain full ownership," said Mr Chan.

"Ho Kok Cheong laid his hands on the site but was not really very rich.

"So he got many people to buy units to finance it and he made the money from there."

It was more a case of profits rather than creating a successful retail offering.

"It's a good business decision. When a developer builds a strata mall, he's not thinking about the future of the mall; he wants an instant profit," added Mr Chan.

Lack of teeth
These malls have a management council made up of subsidiary proprietors to represent owners.

It has powers to manage the strata-titled development, as the Building and Construction Authority's Building Maintenance and Strata Management Act stipulates.

A professional managing agent is usually engaged to advise the management council on the running and maintenance of the strata development.

Mr Teo Poh Siang, managing director of property consultancy and managing agent Wisely 98, noted that a management council is required by law only to oversee that the "common property" at these malls, such as corridors, lifts and escalators, are in working condition.

"Its purpose is to collect and oversee funds to do what is necessary to just maintain the common property," said Mr Teo.

Falling into disrepair
While this means that the building's lifts, lights and escalators are likely to be working, the management council might not be motivated or have the resources to keep the mall in pristine condition.

Strata-titled malls, which happen to include many of Singapore's oldest properties, often fall into disrepair and pale in comparison with flashy new-style malls managed by professionals.

Management councils, said Mr Teo, do not have the objective of making a profit, unlike institutions such as real estate investment trusts (Reits).

With a duty to deliver quarterly results and dividends to its unitholders, it is in the interest of Reit managers to ensure that malls are not run-down.

The multiple owners at strata malls also do not always see eye to eye on the lengths they are willing to go to maintain the property, said Mr Chan.

"There will be those who say 'just do the minimum'."


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