Trending of Serviced Apartments

Attractive condominium homes that are on high demand nowadays. 

According to Oriental Realty’s report posted in Star Property entitled 'Condo Homes on the Rise in KL', it is stated that 43% of the total residential units developed are condominium homes. This may be due to the scarcity of the land and resources to build large unit houses such as bungalow and semi-detached house. Thus, the developers try to maximize their profit by building condominium. Investors will also search for potential condominium units so that they can earn through renting out their units or selling them to another buyer. On top of that, people nowadays tend to lead a hectic lifestyle. Maintenance of homes tend to be easier with condominium. Besides, staying in a condominium tends to be more attractive as condominiums usually provide more facilities such as gym center and swimming pool. According to the report, the highest percentage gain by house type in the Batu district is serviced apartment, which has proven high demand for it compared to low cost flat and others in that district. Thus it is necessary to evaluate the effect of such high percentage gain in that particular market.

There is no doubt that a home or shelter is a necessity. However, condominium units tend to be expensive. The law of demand states that when other things remain the same, such as the level of income, the higher the price of a good, the smaller is the quantity demanded. Condominium, especially serviced apartments tend to be expensive when newly built. It is also not a good investment object as in the long run, a condominium is not an ideal place to raise family with children due to the space constrain and the lack of privacy. Moreover, as time goes by, more condominium will be built. People will normally opt for a newer and better looking unit rather than choosing older serviced apartments. In short, more substitutes will exist in market causing the increase of opportunity cost in the older serviced apartments. This will lead to a decrease in price for the owners’ unit and investor will no longer profit that much during sales of their apartments. They may even suffered loss from the sales itself. Therefore, as quantity available increases, the marginal benefit of each additional unit falls and the highest price that someone is willing and able to pay also falls along the demand curve. This principle can also be seen to be reflected in the serviced apartments in the Batu district itself.

Next, the law of supply states that when other things remain the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied. For the developers, it is never worth building houses when the houses built do not at least cover the marginal cost of developing it. Therefore, Batu district has an increase in serviced apartments as they have to increase production in order to cover the marginal cost of developing condominiums. Serviced condominiums are normally bought over by people with good financial background. Thus, there will eventually be surplus of serviced apartments as the longer the serviced apartment is built, the more substitutes it has and the price of serviced apartment will be reduced.

The price elasticity of demand is a unit free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. Serviced apartment has an elastic demand as it has many substitutes such as bungalow, semi-detached house, and newly built condominiums. This is because the greater the proportion of income spent on a good, the more elastic is the demand for it. Service apartments are more expensive and less investment worthy compared to houses thus there is no argument against the statement that serviced apartment has an elastic demand. Moreover, one particular serviced apartment has many substitutes – the newly built apartments. For shelter, people may prefer to invest RM1 million for example in a smaller house than a serviced apartment.   

Thirdly, with an increasing units of serviced apartments, more foreigners and people from other districts and states will began coming in to the Batu district in Kuala Lumpur for job hunting as there are more residential units available for singles and couples. This will lead to an increase in quantity demanded for vehicles as it is impossible to go anywhere without a vehicle or public transportation. With more population in that district, there will also be an increase in quantity demand and supply for necessities such as oil for automobiles, food and so on. This will also cause investors into believing that it is worthy to invest in serviced apartments because more people are coming to that area for studies and work hence increasing demand for rental units. Quantity supply for the apartments will then eventually increases. Lastly, the increasing demand in serviced apartments will also lead to more labor forces needed in order to supply more apartments. The price of materials needed to build condominiums will also increase such as cements, bricks, sand, glass, steel and so on, leading to an increase of quantity supplied for the materials.

Facilities provided in a luxury condominium. Just like a resort isn't it? 

As a conclusion, the increasing units of serviced apartments in the Batu district may causes many increase in quantity demand in many areas. However, resource will need to be allocate efficiently and effectively as it is limited, with the land being scarce as well. Thus, it is interesting to see that the increase of residential units alone can results in many changes in the microeconomic aspect.