by Trish Riley - Editor Resort News
02nd May, 2019
Management rights: The Chinese Phenomenon
When an interest or occurrence becomes a trend and that trend becomes a phenomenon, particularly in a multi-billion dollar industry such as strata and management rights, it’s a given that stakeholders (including those at a government level) start to pay attention.
The phenomenon in question is the up-swell in numbers of management rights being purchased and managed by ‘new Australians’, and more specifically those of Asian heritage – and let me excuse myself up-front; while I make reference to Chinese throughout this report, I am well aware and respectful of the fact that this group is culturally diverse and includes members born in Australia as well as from multiple North East Asian countries.
As with this inherent diversity however, when it comes to understanding the phenomenon it seems there are more questions than answers, and that there may still be significant ground to cover before we can claim to be fully integrated.
It’s worth noting when there is so much at stake, individually, commercially and from an industry perspective, that perhaps the future of management rights lies somewhere between the top-down style of the Western and the bottom-up maturation of the East. We have much to learn from each other.
As with many aspects of this burgeoning industry, there is little empirical data to draw on in terms of statistics but based on the widely supported view that there are approximately four thousand properties supporting a management rights or onsite manager business nationally, together with the number of Australian Property Managers Association (APMA) members and the total number of Asian students that have attended specialist training over the past ten years, it is thought that Chinese-held management rights sits between 20 to 25 percent of the industry.
Of more interest however, is that about 60 percent of current transactions passing through brokerages and legal firms are being made by Chinese applicants.
“Chinese buyers are spending millions of dollars buying into management rights for apartment buildings,” says Resort Brokers agent Alex Cook, “and while their preference traditionally was buildings with permanent residents rather than those with holiday letting, we are seeing these buyers, as they gain more experience, targeting the rights to new and off-the-plan projects.
“Top of the shopping list obviously are buildings where the body corporate pays a substantial salary for caretaking.”
Speaking of the growing trend, John Mahoney, managing partner of Mahoneys says: “The figures we are seeing are not that surprising. In the past, brokers did a great job of marketing management rights in China and elsewhere, and the multi-cultural industry we have today is a reflection of that.
“Management rights is capital reliant, and while it has been difficult for most to access finance recently, funding is typically not a problem for Chinese buyers. Being able to buy into businesses like these also meets the fairly arduous Australian immigration criteria,” says John.
David Jiang Hui, who heads Resort Brokers Australia’s China Desk, says management rights present ideal opportunities for many Chinese people seeking to move to Australia under the business migration scheme. He should know. David, who left behind a highly paid executive position in Shanghai to bring his family to Australia, is also the resident manager of an inner-Brisbane complex.
He knows the requirements of the immigration process and is eager to use his extensive business development skills and understanding of management rights to help skilled migrants invest in businesses that offer greater security and income.
“For years, Australia’s increasing trade and diplomacy with China have been laying the groundwork for the demand growth we are experiencing. Given the rapid rise of the Chinese middle class and increasing numbers of international students visiting our shores, that growth is set to continue. A new generation of Chinese migrants is using the wealth generated by their nation’s emerging free market economy to buy businesses in Australia.
“But it’s not as straightforward as it appears. Some sales agents eager to attract clients have been known to ignore or fail to accurately explain the possible challenges new operators can face, such as meeting the requirements of the day-to-day business operation,” adds David.
John Mahoney agrees. “While some operators have a thorough understanding of the business and are going from strength to strength, there are others that have little or no knowledge of what they are purchasing. They ‘buy’ into the concept of a self-managed business that comes with a home, a secure income and good prospects for capital gain - and let’s not forget the lifestyle!
“What prospective managers need most is accurate, knowledgeable advice from reputable brokers who understand their culture and can effectively and honestly communicate vital information upfront. Those brokers should ideally also have experience of the business model they are recommending.
“This includes what to expect regarding the legal process. Contract law is a relatively new concept to some Chinese, and in a society that traditionally negotiates and re-negotiates the terms of an arrangement several times, the fact that management rights agreements (and the terms contained therein) are binding, can be problematic,” says John.
“All too often we see instances of a misunderstood contract or clause, such as managers forgetting to exercise their option in time and there’s little we can do about it; it’s heart-breaking but also completely avoidable.
“Most managers (including Caucasians) getting into management rights are generally unaware of how labour intensive it can be or the level of responsibility a manager has, and it is the fundamental things such as taking care of the garden or level of cleanliness that create the biggest issues. When a manager is underperforming in those areas, the body corporate may look for other issues such as statutory matters, and even if a former manager may not have been entirely compliant, issue can be taken with the new managers. Without sufficient information, training or support, the situation can quickly get out of hand.
“There are brokers in the industry who believe that this kind of cautioning would make management rights harder to sell,” adds John, “but having seen managers lose everything they have worked hard for, because they didn’t fully understand the business, is unacceptable.
“The Chinese have a propensity for education and an inherent business acumen, not to mention large investments at stake, so if there is full disclosure at the onset, an understanding of the process and the expectations, and ongoing training available, I believe we will have more successful outcomes.”
Lynda Kypriadakis, founder of Diverse FMX and the Australian Building Management Accreditation (ABMA), agrees wholeheartedly.
“I have worked with a lot of Chinese buyers that are thriving as complex managers, and they are grateful, not just for the fact that they were introduced to management rights, but also for the opportunity to build a business and life in Australia.
“The difficulty with management rights is that you don’t need specific qualifications or experience to get into it, but once onsite you are then held responsible for the overall health and safety of residents, the growth of a business and multiple investments and a plethora of compliance regulations. There are over 100 Acts, regulations, Australian standards and Codes of Practice imposing duties and responsibilities on managers and committees, and it’s important that those involved; those who will be held liable, know and understand what they are,” says Lynda.
“In my experience, Chinese operators are business savvy and they tend to work exceptionally hard and understand the need for professionalism and providing value. Problems surface however, around things like gardens, cleanliness and record keeping when the parties involved have a different understanding of what is required or even why it may be considered important.
“In Australia we love our gardens. They tend to represent the status and standing of the building itself, and we love to ‘show them off’; but for those with different cultural norms, this may seem like a quirky concept.
“In the past, a manager’s inferred duties and work schedules were generic in nature and intentionally vague. Now however, in order to avoid misunderstandings and disputes, there is a need for clear and concise terminology, thorough handover procedures and additional training,” says Lynda.
Wanting a clearer picture of how these peculiarities are understood and accepted at a grass-roots level, I spoke to Michelle Lim, a lawyer at Mahoneys who has extensive dealings with managers when problems come up.
“Obviously language creates its own barrier,” says Michelle. “A number of new managers don’t speak English fluently and they may need their children or other family members to assist. In an industry where relationship building is critical, the ability to communicate effectively is very important.
“In terms of the gardens, we are often dealing with people that have never experienced having a garden to care for. They grew up in high-rise apartments in overcrowded cities, and if there was a garden in the vicinity it was taken care of by council workers. It’s a significantly different scenario from how the average Australian grew up.
“Our recommendation to managers is that, in addition to attending specialised training, they are encouraged to sit down and prepare detailed check lists of their daily, weekly, monthly and annual duties and responsibilities, and then stick to them. Do your job, and do it well. Empowerment comes from knowing and understanding the role from the outset, and one can’t fall prey to bullying if you know your rights regarding standards of compliance.
“Last but not least, new managers need to remember that there are specialists in the industry for a reason,’ says Michelle. “The shared information within the tight knit Chinese community may not always be accurate; what happens to one may not necessarily be applicable or relevant to others – every property comes with its own unique set of circumstances.”
Understanding the power and influence of the Chinese community, Carl Wu, director of the Australian Property Management Alliance (APMA) and owner of two management right operations and a renovation business says: “The growth, in terms of the number of Chinese operators in this industry, was the primary reason for establishing APMA. We recognised the need to learn from each other and to raise the level of professionalism across the board.
“We also identified that as an industry group of almost 1200 members (Australian and Chinese), we should be able to take advantage of the economies of scale and leverage better pricing for common services such as insurance, software and others.
“Ultimately, APMA want to work with all other industry bodies to ensure that their collective voice is heard by industry and government when it comes to future law reform. It’s important that the sector is not further divided and that we have a mutual agenda that is fair for all.”
Typical of the migrant operator, Carl was a qualified engineer when he arrived in Australia 28 years ago. Battling to find work in a poor economy when the interest rate was 18 percent, so he became a kitchen hand and then a factory hand before opening his own business making kitchen cabinets. In time, this operation was moved to China where he turned his hand to manufacturing and importing furniture for companies such as Harvey Norman.
In 2000, Carl stopped manufacturing and opened a company doing building and shop fitting, unaware of the high pressure and long working hours at night and over holidays and weekends. It couldn’t last, and as with so many Chinese operators, Carl swopped the insecurity of contract work for the seemingly low risk business of management rights and the opportunity to earn a steady income and have flexible hours.
“As everyone finds out, management rights is hard work but the opportunities offered in this industry are significant. I am often asked about my experiences, the pains and the gains, and will continue to actively encourage those within the industry,” says Carl.
When asked what he thought other Chinese operators could benefit from most, he says:
“Once you have clearly defined your duties and things are working well – whether they are handled inhouse or are outsourced, ensure that you keep good records. More than that, understand why you need to keep good records and why you need to keep ahead of any regulation changes. Help each other by networking and sharing experiences, and most importantly, communicate with your owners all the time.
“It’s important,” says Carl, that even if you have difficulty with the language, you consistently demonstrate your willingness and enthusiasm for the property and the value that you offer.”
Speaking as chairman of the APMA and a trainer of specialised management rights courses including the Australian Resident Accommodation Managers Association MRITP and ABMA training in Mandarin through Professional Real Estate Training Australia and Knowledge Bank, Paul Po-Hsin Shih says: “As the property market attracts more buyers from diverse cultures, professional training to increase cultural intelligence is becoming almost mandatory. Developing increased awareness of personal bias and developing respect for the habits, customs and norms of other cultures is the first step to building positive relationships and laying the foundation for mutual trust.
“By understanding the visible and invisible factors of culture and becoming more proficient cross-cultural communicators, stakeholders will be able to avoid, and/or de-escalate potential conflict situations as well as create a more productive and positive work and living environment.
“Certainly, the most obvious consideration when aiming for better understanding of the changing industry are our fundamental cultural differences, and how they influence our behaviours.”
Where Caucasians, and Australians in particular, tend to be naively altruistic, Chinese may appear to be quite suspicious and cold towards strangers with whom relationships have not been established. One needs to remember that in China, chronic suspicion typically prevails. In business transactions, a great deal of adulteration of goods is practised; for example, weights and measures are juggled, and to protect one's interest and ensure that opportunistic behaviours such as cheating are kept to a minimum, trust must be established before any serious business relationship can be cemented. Chinese people prefer to establish a strong relationship before closing a deal and seldom start a discussion or meeting by getting straight to the point about business.
The Chinese are strongly influenced by Confucianism, which emphasises respect for education, authority and age, and although modern urban Chinese may not adhere to Confucian principles as rigidly as previous generations, these principles continue to underpin many customs and business practices.
This manifests in several practical customs that are observed. As we are well aware, one of these virtues is to respect authority (title) and the elderly (seniority). Someone with authority, often elderly and with a good reputation, can ask favours of others. That sounds ideal doesn’t it, but when taken literally or out of context in a committee or body corporate meeting environment, it can easily lead to confusion and misunderstanding.
Compounding this potential disconnect is the engrained principle urging individuals to avoid discord and confrontation, and to rather adopt a non-assertive approach to conflict resolution.
“Reaching a win-win or compromise is obviously the best outcome for all concerned,” says Paul, “but in situations where there is antagonism, disrespect and even bullying by entitled committee or body corporate members or lot owners, the inability of the manager to confidently address and resolve the issue may lead, in the most extreme instances, to managers leaving and properties being sold.”
These types of scenarios are also referenced in the 12-month research study recently undertaken by Dr Sacha Reid and Dr Aaron Hsiao of Griffith University into the management rights industry, and more specifically new management rights owners.
Seeking a greater understanding of how and why they entered management rights, Drs Reid and Hsiao interviewed hundreds of operators about their experiences and what information and services they believe are required in order to make the industry more amenable to new Australians.
“As identified by others, it takes confidence to enter into a foreign business environment when English is not your native language,” says Dr Reid, “and even though the majority of operators are highly educated and hold a range of university degrees, this isn’t always apparent as the industry complexities and cultural gap can seem insurmountable.
“A surprising result revealed in the research however, shows that the diverse languages spoken by Chinese managers (Mandarin, Taiwanese, Cantonese, and so on) may actually be an added skill, effectively enabling them to interact with the increasing number of foreign lot owners, residents and tourists residing in their properties. The report also suggests that this evolving demographic of residents consciously select buildings and resorts where they can communicate with the proprietors and feel comfortable in their surroundings.
“Contrary to this, while the Chinese have an innate ability with technology, the research has also highlighted the lack of digital systems or platforms in the industry that exist for the dissemination of information, assistance and self-regulation.
“The overall take away from the research,” says Dr Reid, “is that the majority of Chinese managers are doing exceptionally well and committees have praised the standards being achieved. Unfortunately, we tend to only hear about the negative.
“As with all transitions there is still a learning curve in management rights and a large part of that learning is to acknowledge that we are from different cultures and have different ways of managing. Rather than relying on the past, and the way things have always been done, we need to integrate not just assimilate. The industry, and buildings are becoming increasingly more complex and stakeholders need to be flexible enough to implement practical outcomes that are both manageable and sustainable.