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Malaysian Real Estate Sector

Question:

Discuss about the Professional Practice in Real Estate.

Malaysia has expanded it’s real estate sector to provide houses, offices and commercial properties. Malaysian real estate sector is continue to grow after slow downturn in 2014 and 2015. The surveyors are professionally trained persons. They supervise land properties with the aim of obtaining appropriate returns. They can be investors and developers. The surveyors include physical inspection of property. A surveyor carries out market research analysis, property information service and feasibility studies. Malaysia focuses on transforming real estate. The Malaysian economy is growing sustainably even during global slowdown. A conflict of interest arises due to involvement in multiple interests. It creates risk for judgement and corrupts decision making. So, it is necessary to manage conflict of interest for surveyors.

The valuation and property services in Malaysia are governed by the Ministry of Finance. It has one quarter, fourteen state offices and thirty eight district offices. The property valuation organisation is service oriented organisation in Malaysia and it can be under government department or private enterprise. It includes consultation tasks.  Such organisations provide expert opinion to clients on the matters related to real estate. The services provided by experts are property evaluation, analysing project viability, preparing market study, real-estate brokerage and property supervision (Baharum, Hwa & Salleh, 2016). The real estate organisations play an important role in real estate industry development. It involves various degree of complexity and challenges in the progress of nation.

The real estate organisation is an intensive organisation and contains extensive knowledge. The challenges and opportunities available in the industry becomes motivation for the surveyors to obtain knowledge from employees. The surveyors need to update and manage knowledge as clients are demanding now days (Rogers, 2017).

The slow growth in loan requirements has dropped number of property transactions in Malaysia. The surveyors are required to avoid conflict of interest and identify interests and manage situations. Some conflicts are easy to identify and resolve while others require careful thought. It is the responsibility of surveyors to identify and deal with the conflicts properly (Zainuddin & Nordin, 2016). The identification and management of conflicts of interests in an effective manner are challenging but important ingredient of professionalism.

The conflict of interests can be checked and dealt by robust systems at place.  RICS Regulation Annual review for the year 2013- 14 recorded that the registered valuers commonly fail at audit due to the lack of robust or a system. This can be utilized for the purpose of checking conflict of interest and where such system exists, there is failure in recording the results of checks (Azmi, Nawawi,  Ab Latif & Ling, 2015).

Valuation and Property Services in Malaysia

Most common conflicts arise when more than one client is acted for the same transaction. Individuals can easily avoid such situations however it becomes difficult for larger businesses with multiple offices. In case of identification of conflict, robust rules are required to be put in place regarding transparency, declarations and resolutions. Difference of opinions may arise regarding the question of continuation of a particular situation.  The avoidance of such situations are becomes must however there are reasons when the client request for proceeding. Therefore, the existence of conflict must be declared to the relevant parties and their written assignment must be secured for proceeding further (Ochieng, Abdulai, Obeng-Odoom & Malien?, 2017). Misunderstandings can result in vulnerability to action in cases where there is no written evidence.

The principle of transparency is considered as a good option. In the real estate industry of Malaysia focus is given on transparency. The openness with the parties to a transaction reduces the chances of conflict. For example, in cases where a client is introduced to an investment property at an agreed purchase fee required to be paid when the transaction is successfully completed. Here the purchase fee will only be received if the transaction proceeds and not in other cases which can result in conflict of interest (Jiram, Bujang, Zarin & Latib, 2016). Mitigating factors are considered as protective of the interest of the client.

In situations where the client is provided with more than one service on the same transaction, there arises some tension for the individual provider of those services if success related fee is involved in one of those services. The fee can be adjusted by allowing independent provision of the additional services by other firms. For many years, multiple provision of services has been in the market and diversion of fees to an opponent can be found by many firms as unacceptable.

A good practical guidance is provided by the RICS Malaysia Commercial Real Estate Agency Standards on the effective handling of conflicts. The guidance states that both the terms of acquisitions and sales instructions should be in writing which also includes the odd purchase transaction that arises from introductions. It is to ensure that the client is made aware regarding all the possible conflicts that may arise along with the provision of opportunity for discussing them (Adnan, Daud, Alias & Razali, 2017). After this, a written agreement should be prepared on the approach adopted.

Challenges of Malaysian Real Estate Organisation

In 2017, the economic growth of Malaysian economy is expected to be lower. In this scenario a formal CPD training must be undertaken by all the practicing chartered surveyors along with the recording of their activities with the help of RICS website. It is easier for firms to conduct training sessions that will assist in testing the abilities of the individual surveyors regarding the handling the situations o conflict (Hamzah, Yahya, Sarip & Mohd Adnan, 2016).

The well- functioning of the property market for many years has led to the establishment of the market practices. The key objectives behind regulation include providing reassurance and confidence to the end customer that highest quality service is being provided which is uninfluenced by any bad practices. Every step taken by the surveyor must include the principle of openness. There is no risk and fear to the surveyor when they bring openness and agreement seeking in their actions (Jiram, Bujang, Zarin & Latib, 2016).      

The drop number of property transactions in Malaysia has increased cost of living and economic uncertainties. So before carrying out real estate work as a surveyor or someone connected has interest in selling and buying property must follow instructions as per act.

To buyers: If a person is interested in selling property directly or indirectly than he should disclose conflict of interest to buyers in writing who has financial interest. The seller should inform buyer for the benefit he will get financially from transaction.

To seller: If a person is engaged or interested in selling property directly or indirectly to buyer than the seller should follow the following instructions:

The seller should work independently to sell property. The surveyor is recommended to no longer act for seller.

If a surveyor is one person agency than it is recommended that seller goes to another agency.

Personal connections

The real estate agency act has specified rules to protect interest of buyers and sellers in the case of conflict of interest. It defines someone connected as:

Any person in surveyor’s employment

A partner under partnership agreement

Any entity that has common interest

Knowledge management

The real estate organisations in Malaysia involves a lot of consultation tasks and giving expert opinions on the matters related to property. Knowledge  management is important to protect interest of clients. Knowledge is collection of data and information which can be achieved through interpretation and context process. It can further be divided into tacit and unambiguous knowledge. The knowledge management is a framework acquired from employees of organisation to communicate surveyors. Communication is the process to share information. It can provide better knowledge to surveyors regarding trends in real estate. For the valuation practice knowledge is the key element for valuers. Having good knowledge of environment can help surveyors to gain competitive advantage (Lim, How, Liew, Chye & Sarah, 2016).

Conflict of Interest in Malaysian Real Estate Sector

The  knowledge management is a multiple approach which covers essential elements of sector. A good knowledge management increases the competitive advantage. It enables fast decision making. The traditional approach of doing things can help in understanding need of industry (Sanni &Hashim, 2016). A basic knowledge management model includes three categories known as cognitive domain layer, functional layer and resources layer. These layers represent the function of industry. Other than implementation model there are measures which can be taken to influence knowledge management performance. It determines the critical factors for the success of industry (Baffour Awuah & Gyamfi-Yeboah, 2017).

The investors and developers should focus on risks where markets are strong. The Malaysian Real Estate Market Outlook retrieves information from CBRE 2017.

Boon:

The real estate investment is one of the safest form of investment.

The genuine demand leads the market.

The market is expected to cool down with prices becoming negotiable.

The areas with good transportation connectivity such as MRT, highways and HSR continue to be hotspots.

The demand for affordable houses is likely to become intense.

Bane:

More experienced home buyers

Challenging years can be for developers.

There can be ongoing concern due to low crude oil prices and geo political issues.

Conclusion

From the above report it can be concluded that conflict arises among investors because of difference in interest. But this situation can be easily avoided and situation can be managed. Some interests are easy to categorise and resolve while others require careful thought. The surveyors are responsible to identify and deal with the conflicts. The identification and management of conflicts of interests in an effective manner is challenging but it can be made possible by thinking carefully and sharpening skills. Disclosure of information by industry has helped surveyors to avoid conflict. The knowledge management implementation model has also helped surveyors to overcome conflict of interest.

References

Adnan, Y.M., Daud, M.N., Alias, A. and Razali, M.N., (2017). Importance of soft skills for graduates in the real estate programmes in Malaysia. Journal of Surveying, Construction and Property, [Online]. Available at: https://mjs.um.edu.my/index.php/JSCP/article/download/5806/3568 [Accessed on: 7 March 2018].

Azmi, A.S.M., Nawawi, A.H., Ab Latif, S.N.F. and Ling, N.L.F.J., 2015. Knowledge Management Obstacles in Real Estate (Valuation) Organisations: Towards quality property services. Procedia-Social and Behavioral Sciences, [Online]. Available at: https://ac.els-cdn.com/S1877042815048673/1-s2.0-S1877042815048673-main.pdf?_tid=d08322e6-13c0-482f-b6c0-4676f1bebdf1&acdnat=1520409606_4ebcdfe361146089957b4715024f83d7 [Accessed on: 7 March 2018].

 Baffour Awuah, K.G. and Gyamfi-Yeboah, F., 2017. The role of task complexity in valuation errors analysis in a developing real estate market. Journal of Property Research, [Online]. Available at: https://www.tandfonline.com/doi/abs/10.1080/09599916.2017.1315444 [Accessed on: 7 March 2018].

Baharum, Z.A., Hwa, T.K. and Salleh, S.M., 2016. Competency Framework for the Property Management Industry. Environment-Behaviour Proceedings Journal, [Online]. Available at: https://ebpj.e-iph.co.uk/index.php/EBProceedings/article/view/114/pdf [Accessed on: 7 March 2018].

 Hamzah, H., Yahya, Z., Sarip, A.G. and Mohd Adnan, Y., 2016. Impact of entrepreneurship education programme (EEP) on entrepreneurial intention of real estate graduates. Pacific Rim Property Research Journal, [Online]. Available at: https://umexpert.um.edu.my/file/publication/00008110_136064.pdf [Accessed on: 7 March 2018].

Jiram, W.A., Bujang, A.A., Zarin, H.A. and Latib, A.A., 2016. Assessing the Adequacy of Assimilation of Real Estate Graduate's Generic Competency. International Journal of Information and Education Technology, [Online]. Available at: https://www.researchgate.net/publication/276379788_Assessing_the_Adequacy_of_Assimilation_of_Real_Estate_Graduates_Generic_Competency [Accessed on: 7 March 2018].

Jiram, W.A., Bujang, A.A., Zarin, H.A. and Latib, A.A., 2016. Measuring the Sufficiency of the Infusion of Generic Skills of Real Estate Graduates by Training. International Journal of Information and Education Technology, [Online]. Available at: https://www.ijiet.org/vol6/666-K00012.pdf [Accessed on: 7 March 2018].

Lim, H.K., How, H.Y., Liew, S.Y., Chye, K.Y. and Sarah, A.P., 2016. The Investment Return of Real Estate Industry to Investors: A Study based in Malaysia, [Online]. Available at: https://eprints.utar.edu.my/2365/1/FN-2016-1301981.pdf  [Accessed on: 7 March 2018].

Ochieng, D.E., Abdulai, R., Obeng-Odoom, F. and Malien?, V., 2017. Real estate, construction and economic development in emerging market economies. [Online]. Available at: https://www.researchgate.net/profile/Dr_Edward_Ochieng/publication/283715902_Real_Estate_Construction_and_Economic_Development_in_Emerging_Market_Economies/links/57f7b19308ae886b89835d59/Real-Estate-Construction-and-Economic-Development-in-Emerging-Market-Economies.pdf [Accessed on: 7 March 2018].

Rogers, D., 2017. Becoming a super-rich foreign real estate investor: Globalising real estate data, publications and events. [Online]. Available at: https://link.springer.com/chapter/10.1057/978-1-137-54834-4_5 [Accessed on: 7 March 2018].  

Sanni, A.O. and Hashim, M., 2016. A review of public private partnership procurement practice in Malaysia. International Journal of Technological Learning, Innovation and Development, [Online]. Available at: https://www.inderscienceonline.com/doi/abs/10.1504/IJTLID.2016.075178 [Accessed on: 7 March 2018]. 

 Zainuddin, Z. and Nordin, N., 2016. Addressing governance issue in Islamic real estate investment (I-REITs): a case study for OIC country Malaysia. International Journal of Islamic Business (IJIB), [Online]. Available at: https://www.ijib.uum.edu.my/data07/IJIB%2011(2016)%2060-75.pdf [Accessed on: 7 March 2018]. 

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