CAM fee matters

Common Area Management fee (CAM fee) is a much discussed topic among developers, investors, owners, renters, agents and management providers, all of whom have a standpoint on it.

Collected from the total sellable/leasable area within a property, a CAM fee is the main source of fund used to operate and manage the property. This covers such things as common area utility costs, security, cleaning, landscaping, management staff, pest control, and engineering maintenance etc.

CAM fees can vary upon many factors such as asset types, classes and sizes.

Office buildings generally require a higher CAM fee (often referred to as a service charge or is part of the service charge) than residential developments. This is because operating expenses are substantially higher in office buildings due to the sheer size of the buildings and the fact they have many more complex systems such as chilled water systems, large carparks and relatively bigger mechanical and electrical equipment.

For residential condominiums, CAM fees vary across the different segments. In Bangkok, present fees range between THB 35 and THB 45 per square metre in the mid to low end segments, THB 50 and THB 65 per square metre in upper mid bracket, THB 65 up and THB 80 per square metre for the high end segment, and THB 80 through to THB 160 per square metre in the luxury and ultra luxury segments.

Obviously higher class condominiums require a higher CAM fee as most of them provide greater levels of services, and the upkeep and maintenance of the building requires more attention and better trained personnel to look after the building and meet the co-owner's expectations that are generally higher.

In resort areas like Phuket, CAM fees for condominium developments can be higher. Due to relatively smaller sizes in general, most condominium buildings in Phuket have less area to collect income from while providing the same or similar levels of facilities. Moreover, the cost of staffing is inflated due to competition for skilled manpower is high as the island is a tourist hot spot. In Pattaya, as the buildings are generally bigger than those in Phuket, a reasonable rate of CAM fee for a mid-level grade condominium would be in the region of THB 60 per square metre.

Obviously, CAM fees in larger residential buildings are typically lower --  the bigger the net sellable area is the better chance a building will have economies of scales.

Some tricky situations for developers of condominiums is when a building is developed and positioned to be within the luxury or high end segment but the net area is quite small. Common areas still need to be maintained to a high standard and meet the owner's high expectations.

Challenge

Some developers may set a low CAM fee because they intend to use the low fee as a potential selling point to attract buyers of units in the project. Co-owner committees may underestimate the running cost of the property, or want to cut operating costs. Unfortunately, this wrong approach could put the property at risk in the longer term, and will eventually reflect negatively on the building and its overall asset value.

Solution

To ensure an appropriate CAM fee at the outset, many developers engage a qualified property management consultant who will help develop the correct operating structures and plan the budgets ahead of their sales campaign. This enables them to explain to their customers so that they can understand that there has been a level of thought based behind the CAM fee and what services are available within the property. Likewise, co-owner committees can benefit from talking to their service provider or a good consultant to see if their current CAM fees are sufficient or reasonable and also discuss strategies for funding the operations of the property for the foreseeable future.

Qualified property management consultants can be identified by their past and present experience and reference within the market that is relevant to the property. Consultants that have an impressive track record in luxury asset management may not necessarily be able to handle a mid to low end development well, and vice versa.

Author: Dexter Norville is a director at property consulting firm JLL. For more insight, readers can contact him by email:Dexter.Norville@ap.jll.com or visit www.jll.co.th