Ripe for redevelopment


THE case for urban renewal has become a topic for debate lately, especially with the government recently announcing that it is mulling the idea of enacting new laws relating to the redevelopment of old buildings in the country.

In April, Federal Territories Minister Khalid Samad told the Dewan Rakyat that the government will be putting forward a new piece of legislation to ensure an effective and implementable urban renewal process.

This could bring about some much needed finality and certainty in how the process of urban renewal is done in Malaysia, usually via collective or en bloc sale.

En bloc can be defined as the sale of two or more property units to a single common purchaser.

However, this concept of “transferring ownership” has not had much success in Malaysia, says VPC Alliance Sdn Bhd managing director James Wong.

“A classic case was the Desa Kudalari development. Built in 1976 by Tan & Tan Developments Bhd, it was the first condominium project in Kuala Lumpur (KL),” he tells StarBizweek.

Desa Kudalari, a development on sprawling grounds within view of the Petronas Twin Towers, was the only low density condominium project in the city centre with large green open space. It comprised a total of 186 units, five blocks of three-storey walk-up units and a 19-storey block.

“A couple of years back, there was an attempt by the majority of the owners to sell the units en bloc, but the deal fell through as not all of the owners were in agreement,” says Wong.

A major stumbling block for the deal was because there was no proper legislation governing en bloc sales. “As there is no provision regarding this type of transaction under the relevant legislation, which, in this case is the Strata Title Act, the buyer needed 100% consent or approval from all of the owners for the Desa Kudalari deal to go through,” says Wong.

“The problem is, it’s difficult to get 100% consent,” he adds.

Savills Malaysia executive chairman Datuk Christopher Boyd shares a similar sentiment.

“Getting 100% can be a problem because the owner might not be in the country.

“Some might be deceased or may have lost the titles to their property. This is why the government needs to make amendments and make it more relevant and workable,” he says.

Boyd says the need to obtain full consent is understandable.

“The need to have full consent is so that the deal is fair to everyone involved. This argument had some logic at one point. However, it’s never easy to get 100%, so you go with the majority vote.

“If you can’t agree to proceed by majority, then older buildings will end up falling into disrepair if the owners do not have enough funds for a refitting exercise. In extreme cases, really valuable land will continue to be underutilised and buildings end up becoming an eyesore.”

En bloc in other countries

In Singapore, en bloc sales are legislated. For private residential properties 10 years and older, the owners holding at least 80% of the share value of the property must agree to the sale. If the property is less than 10 years old, then 90% must agree on the sale.

“En bloc sales are initiated in Singapore as part of the city’s urban renewal process because over there, land is scarce,” says Wong. “If they have no legal act to govern this, there will be limited land for redevelopment,” he adds.

Wong says a similar law also exists in Hong Kong.

“Unlike Singapore, the government acquires the land, but this is provided that 80% of the owners agree.

Meanwhile, in Australia, the registrar general can end a strata scheme when 100% of the owners decide to sell or redevelop the property. Alternatively, if some owners disagree or are uncertain, they may follow a collective sale and renewal procedure.

For a strata scheme to be redeveloped or sold, owners of at least 75% of the lots in the scheme must agree.

Without a proper legislation in place, Boyd says many buildings end up being run down quickly.

“In some countries, there are rules of what a majority is required for redevelopment that reflect the age of the building. A simple stroke of the pen cam unlock development sites.

Today in Malaysia, small offices, homes offices (SoHos) are being thrown up all over the Klang Valley.

Small units means multiple ownerships and the management is a lottery - hopefully you get dedicated management members. Normally, you get a sprinkling of psychopaths running the place!”

Boyd notes that many properties within Petaling Jaya come with a 99-year lease.

“This was so that they can be returned to the government and be redeveloped with a new masterplan. That was the original philosophy. But it’s too idealistic and impractical.

“Imagine if your house will be taken back in another couple of years, or if your highrise unit can’t be redeveloped for another 100 years! A renewal would just be like repeating the original error.”

An ideal solution is to just offer freehold properties, Boyd says.

“Why not? The financial institutions get a better product to bank on and buyers or investors will be happier with the product that they’re buying into.”

Boyd says that in some countries, certain buildings of a certain age are compulsorily acquired.

“Usually, the local authority buys it all up. This method has worked pretty well. In the United Kingdom, the local authority will recognise an area that needs redevelopment. They will acquire the properties at market value and have a new masterplan with new amenities.

“Everything is done in a transparent way. The local authorities will invite joint venture partners from the private sector to become involved in the redevelopment of that particular project.”

Boyd says this kind of collective effort helps to preserve the community, adding that as an added incentive, the former owners are also given a discounts should they decide to repurchase the property they had sold.

“The whole approach of city hall planning has to change 180 degrees. The have to look at what we have in the city. Not just master-planning but also micro-planning.”Not completely unsuccessful

In spite of there being no proper legislation in place, there have been instances of successful en bloc transactions in Malaysia, says Wong. “In Malaysia there are precedents where en bloc sales have succeeded. One example is the Datum Jelatek development in Taman Keramat, Selangor. What attracted the owners was that they were getting value a few times higher than what they could sell individually,” he says.

Spread across 5.65 acres of prime land, Datum Jelatek is a transit-oriented integrated development that directly connects to the Jelatek light rail transit. The development comprises 712 residential units across four towers and a four-storey mall.

Datum Jelatek is owned and developed by Perbadanan Kemajuan Negeri Selangor’s (PKNS) wholly-owned subsidiary DatumCorp International Sdn Bhd, which was established in 2012 to take charge of mixed development projects in strategic areas around Selangor.

Wong adds however that the whole process wasn’t a smooth affair. “Some of the owners refused. PKNS took them to court and the court ruled in favour of PKNS.”

Another success story was the redevelopment of the 50-year-old low-cost flats of Razak Mansion, in which the developer managed to get 100% consent from property owners, says Wong.

Located near the old Air Force base in Sungai Besi, Razak Mansion was launched in 1967 by the then Deputy Prime Minister Tun Abdul Razak Hussein.

It was redeveloped and completed in 2017 into 1Razak Mansion, comprising 658 three-bedroom apartment units.

According to reports, of the 658 residents, 557 gave up their old Razak Mansion flat units in exchange for new apartment units free of charge. The remaining 101 who were renting the Razak Mansion flats were offered the new apartment units at RM42,000.

The 1Razak Mansion was built by developer Impianika Development Sdn Bhd in a public-private partnership with the Government, with construction starting in 2014.

However, not everyone thinks that a proposed regulation governing en bloc sales is a decision in the right direction.

In April, following the announcement that Putrajaya is mulling an urban renewal law, National House Buyers Association secretary-general Datuk Chang Kim Loong said the proposed regulation ignores the unconstitutional impact that a proposed urban redevelopment renewal law will have on Malaysian home owners.

He said the concept of en bloc sales is a concept that forces the homeowners to sell off their units for profit and not for the purpose of rejuvenation or renewal or beneficial interests.

“The aim as perceived by HBA is forceful acquisition of suitable commercial land, for example the Desa Kudalari apartments. Why forceful? Because en bloc sale does not respect the opinions of the minority owners.

“En bloc sale / redevelopment / renewal law only upholds the might of the majority and profit margin per se. It ignores the objections of those who do not want to dispose of their property as it operates based on the majority rule,” he said in a commentary on an independent, bi-lingual news portal, said

Chang reckons that the concept of en bloc sales is a viable option in countries such as Singapore and Hong Kong, where land is scarce.

HBA has explained numerous times that, in Singapore and Hong Kong, there is only leasehold land for existing buildings, and new developments are scarce on the islands. Not so in Malaysia and especially in KL (Putrajaya is not dilapidated yet and Labuan is not even fully developed).

“There is plenty of development land within the greater KL vicinity, without having to congest inner KL with more high-end expensive condominiums (currently existing ones are mostly unoccupied) and commercial buildings (existing ones are also mostly untenanted).”

Wong says that an en bloc sale offers the home-owners an opportunity to improve their livelihoods.

“You are being offered a higher property value, which then gives you the chance to upgrade to a higher quality home in a location with better amenities, all of which will lead to a better lifestyle.

“Isn’t this better then to continue living in a home that’s dilapidated, in an area that may not even have proper amenities and in dire need of rejuvenation?