Rise in purpose-built workers’ accommodation

Knight Frank Malaysia capital markets executive director Allan Sim (pic) says the concept of PBWA in Malaysia is a niche, non-traditional and relatively new asset class.

SINCE the onset of the Covid-19 pandemic, certain segments like workers’ accommodation, have been thrust into the limelight.

As Malaysia transitions into the endemic phase, some see the concept of purpose-built workers’ accommodation (PBWA) as a growing opportunity, especially within the local property sector.

Knight Frank Research says the numerous Covid-19 workplace clusters have magnified the inadequate living conditions of workers, particularly in labour-intensive economic sectors such as manufacturing and construction.

“In the past, living conditions of workers have always been a neglected area in the constant pursuit of economic growth. When professionally managed dormitories are unexplored propositions, industrialists turned to terraced homes, apartments, shop houses and makeshift accommodations to house their workers in a haphazard manner.

“Coupled with the lack of awareness and accountability, most of these types of housing were crowded and had poor sanitation, leading to many social issues that have burdened the community for years,” it says in a paper on the changing landscape of workers’ accommodation.

Knight Frank Research notes that the increasing number of workplace clusters eventually fuelled the government’s reactive efforts to enact the amended Act 446 of the Workers’ Minimum Standards of Housing and Amenities Act 1990, to include stricter provisions to ensure a minimum standard for workers’ accommodation.

“Incentivised to comply with the new regulations, earlier resistance is gradually dissipating as industrialists, instilled with new perspectives of having proper workers’ housing as value propositions, are committed to ensuring the sustainability of their business operations.

“The demand for quality and well-planned workers’ accommodation is expected to rise as stakeholders strive to comply with Act 446.”

Knight Frank Research says this has resulted in industrialists building, purchasing and renting purpose-built or converted dormitories to provide compliant workers’ housing.

“As an investment strategy, developers and investors are embarking on partnerships with industrialists to construct workers’ accommodations, reaping long-term recurring rental income.

“Meanwhile, interests from institutional investors are anticipated to grow steadily, as the supply of quality dormitories increases and as this sub-market reaches maturity in the mid- to longer-term.”

A growing business segment

Knight Frank Malaysia capital markets executive director Allan Sim says the concept of PBWA in Malaysia is a niche, non-traditional and relatively new asset class.

“The majority of such existing establishments are concentrated in high economic growth regions such as Selangor, Johor and Penang.”

While the country’s existing PBWAs are predominantly owner-operated to meet growing short to longer-term demand for compliant workers’ housing, Sim says more industry players such as operators, investors and developers are jumping on the bandwagon of the PBWA market.

“More recently, in the case of Westlite-PKNS Petaling Jaya, a master lease model was adopted whereby the owner entered into a master lease agreement with a single professional operator to run the dormitory,” he says.

Citing data collection of rental revenues for PBWAs across major states across Malaysia, Sim says the analysed rentals of selected PBWA on a per bed per month basis could range from RM155 to RM300.

He says the wide variance in rentals of PBWAs may be attributed to factors such as service packages, the location of the PBWAs and adherence to local/international standards.

Knight Frank Malaysia deputy managing director Keith Ooi says asking and achievable rentals for PBWAs are expected to increase in the immediate term.

“This is given that existing demand, fuelled by regulatory compliance, is outstripping existing and incoming supply.”

Maturing market

He adds that the investment yield for this asset class is expected to moderate over time as the market matures.

“This phenomenon was also observed in the industrial asset class where the initial double-digit yields recorded during the late 1990s and early 2000s have moderated to range from 6% to 6.5% currently.

“Industrial properties are now favoured as investment-grade assets amongst institutional investors and real estate investment trusts.”

Centurion Corp Ltd executive director and chief operating officer Kelvin Teo says the pandemic has resulted in government agencies and employers recognising that PBWAs are far more efficient and effective in managing the movements and wellbeing of migrant workers, as compared to the same large numbers of workers being housed in multiple separate apartments spread across different housing estates and locations.

“Built-in security features such as biometric-secure entry and CCTV networks allow close monitoring of the worker residents for their safety.

Amenities galore

“Amenities provided within the PBWA estate, such as minimarts, barbers and canteens, recreation areas, supported by on-site management staff, wi-fi access and active social calendars all help provide for the physical, social and mental wellbeing of worker-residents, even if there are movement restrictions within the dormitory.”

Managing 16 assets under the established brand name “Westlite,” Centurion Corp is the largest provider of PBWAs in Singapore and Malaysia.

In spite of the Covid-19 impediments last year, Teo says Centurion Corp expanded into Selangor from Johor and Penang.

“Over 2020 and 2021, including asset enhancement initiatives and acquisitions, we will have grown our operational capacity in Malaysia by 36% to over 41,000 beds by the end of 2021.

“We will continue to explore opportunities to cater to increasing market demand with enlarged capacity, and are open to greenfield or brownfield, acquisition, joint ventures or management lease options,” he says.

AME Elite Consortium Bhd executive director Simon Lee, meanwhile, says the pandemic has caused significant challenges for companies that need to ensure safe and secure workers’ accommodation, due to the heightened risks of transmissions in enclosed spaces.

“The examples of Covid-19 outbreaks resulting in lockdowns of entire accommodation buildings, have often come with significant disruptions to operations as well as financial losses.

“We certainly see potential growth in this area (PBWAs), as Covid-19 has cast the spotlight on the need for proper housing for workers.”

AME Elite Consortium specialises in the development and construction of industrial parks and large-scale manufacturing plants.

Not without challenges

Despite offering good growth opportunities, Lee highlights that the PBWA segment is not without its challenges.

“Undoubtedly, there will be some challenges that workers’ accommodations may face.

“Among the key challenges are incurring higher operating costs in line with more stringent standard operating procedure compliance, while needing to maintain market competitiveness.

“This includes provision of additional facilities and services, such as quarantine facilities and specialised vehicles for transferring sick tenants.”

Sim concurs that those seeking opportunities within the PBWA segment will have their work cut out for them.

“The top three challenges businesses face in providing workers’ accommodation are perceived higher costs, the limited supply of these facilities nearby and the resistance of nearby residents.”

Additionally, Knight Frank Malaysia Penang Branch executive director Mark Saw says workers’ accommodation is only allowed to be developed on commercial and industrial (light and medium) land within a state.

“Finding suitable locations for dormitories is challenging, as areas surrounding established industrial parks are mostly privately held.

“Growing demand for such accommodations has, however, led to higher asking prices for privately held land in areas like Valdor and Permatang Tinggi, even though these lands may be still under agriculture zoning.

“The conversion process will delay the construction of dormitories in compliance with Act 446.”

Saw explains that the objections from local residents stem from the fear of negative social factors such as health, security and safety, as well as traffic congestion.

“For instance, Juru residents were successful in their objections to a proposed dormitory.

“However, the one at Batu Maung was built and is now operating despite objections from the locals.”

Knight Frank Malaysia Johor branch director Debbie Choy says upfront planning and experience in managing the facilities are vital when developing workers’ accommodations.

“Otherwise, it will be more difficult to accommodate additional infrastructure and space when construction is underway.

“Over and above the management of space and facilities, foreign workers come from diverse backgrounds in terms of language or dialects and cultural understanding.

“And thus, there may be fear and objections from locals to have such facilities built in their neighbourhood.”

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