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Saturday, July 30, 2011

Plugging the gaps in urban renewal

Urban renewal is necessary if cities are to thrive. When cities thrive, the country progresses. From Penang to Ipoh, Kuala Lumpur to Johor Baru, the major cities in Malaysia are heading towards urban renewal. It is not unique to Malaysia.

Singapore's most recent renewal programme is the Selective En bloc Redevelopment Scheme, or SERS (see inforgraphics) which started more than 15 years ago. Around Asia, urban renewal is an on-going process from China to Indonesia.

But the goal of such an exercise is not just to dress up a city with shiny new buildings cramped with people, nor to put in rail lines that lack connectivity.

Public policy, working in concert with private sector, should be to help people. Ultimately, the job of the urban government is not to fund buildings, nor help certain people to make loads of money. It is to care for the needs of the people.

The pace of urban renewal appears to be picking up in Malaysia. And due to the various renewal programmes undertaken in the country, the term “brownfield”, which describes contaminated or toxic industrial/commercial land that can potentially be re-used after the contaminants have been removed, has become almost synonymous with redevelopment and renewal.

In its strict definition, there is no brownfield project in the country. Datuk Abdul Rahim Rahman, executive chairman of Rahim & Co group of companies says:“I cannot think of any brownfield sites in Malaysia, other than dumping grounds. What we have today in different parts of Petaling Jaya is re-zoning. The term is loosely used to describe redevelopment, which we are undergoing today.

“What happened in Singapore a few years ago - the en bloc sales of Housing and Development Board flats - is also not brownfield. It is redevelopment of different parts of the city state,” he says.

Petaling Jaya City Council mayor Datuk Mohd Roslan Sakiman confirms this. “There is no brownfield sites in Petaling Jaya, only renewal programmes.

“Our renewal and rejuvenation programmes do not go into acquisition. A major part of Petaling Jaya is leasehold where people own the building, but not the land that the building is on. “The lease of the land and its extension come under the state land office. Our role is mainly as a facilitator. In the event there is an issue of en bloc sale, I would think this will be a problem,” says Roslan.

Turning over a new leaf

Unlike Petaling Jaya, a large part of Kuala Lumpur is freehold. As the momentum for urban renewal accelerates under the Government's Economic Transformation Programmes, more sites will be identified for redevelopment. Some of these sites may have multiple owners. However, the country still lacks legislation for en bloc sales of strata-titled residential and commercial properties, let alone en bloc sales of landed properties, which is complicated by the fact that public areas in such properties have been surrendered to the local authority.

Kuala Lumpur mayor Tan Sri Ahmad Fuad Ismail Ahmad Fuad says city hall has a flexible stance on redevelopment even on landed properties despite there being no legal precedence or legislation for such property transactions. (read interview with city hall mayor.)

In light of this, there is one big question that has yet to be answered when it comes to renewal and redevelopment what happens if multiple owners are involved, as in a block of flats, or rows of privately-held landed houses?

The announcement in early June of an urban renewal project in Bandar Tun Razak, Cheras to be undertaken by the Federal Territories and Urban Wellbeing Ministry together with city hall begs the question of when this country will have laws to smoothen transactions for en bloc sales.

SP Setia Bhd was picked for the RM2.8bil project in Cheras involving the redevelopment of the Seri Johor, Seri Pulau Pinang and Seri Melaka low-cost apartments and the Taman Ikan Emas low-cost homes.

The project, sprawled over 130.96 acres, will not affect any of the residents comprising tenants of the apartments and owners of the low-cost homes initially as they do not have to move out since the first phase will be developed on vacant land. But they must move out eventually. As compensation, the affected homeowners will each receive an apartment of 800 sq ft to 900 sq ft while existing dwellers will be allowed to purchase or rent from city hall.

It's complicated

Therein, lies the complication. Because existing laws do not provide for such sales and are also vague about “eminent domain” - the compulsory purchase of property with due compensation but without the owner's consent should residents decide not to take up the offer.

Under the “eminent domain” clause, when private property is compulsorily purchased, it is usually reserved for government use or for the construction of public infrastructure and in some rare cases, for commercial purposes.

For example, the Government may have a more compelling case for the use of eminent domain in respect of the Mass Rapid Transit project where for the Sungei Buloh-Kajang line, a number of residential and commercial properties will have to be compulsorily purchased.

At the height of a debate on amendments to lower the threshold for Hong Kong's en bloc sales rules in 2009, a South China Morning Post reader wrote in a letter that “the powers to compulsorily take away private homes are a draconian statutory provision that should be vested only in government - and used only for a defined public purpose. Making a profit for developers is not a public purpose”.

In any case, developers are averse to compulsorily purchasing properties as this smacks of arm-twisting or bullying, which will not go down well with the public and become a public relations disaster.

To make matters even more complicated, land is a state matter in Malaysia, but the National Land Council, which was set up in 1966 to ensure uniformity of law and policy relating to land administration among the peninsular states, may have a role to play. However, this may be disputed by the state governments.

The good and bad

There are arguments for and against such legislation for en bloc sales. At the heart of it, with rising property prices in urban locations, property owners will want to know how they will be compensated since for most, the house they are living in is their only tangible asset.

Tong: ‘Redevelopment of en bloc residential properties is one way to continue to refresh a growing city.’

Real Estate and Housing Developers' Association Kuala Lumpur branch (Rehda KL) chairman NK Tong says in an e-mail reply that for redevelopment projects to succeed in the long-term, they must be done in an equitable manner where property owners are fairly compensated.

He says this can be taken both ways - where owners receive fair market compensation for their properties and where a small percentage of owners should not unnecessarily be allowed to stop future redevelopment to the detriment of the majority's wishes.

Tong says Rehda KL and the authorities have been exploring this in detail and workshops have also been held on the issue.

“In Malaysia, the authorities are considering using a threshold of 85% and 75% for properties older than 10 and 20 years respectively. This will encourage more progressive redevelopment once a majority of owners have agreed to it,” he says.

Tong adds that study trips with the Federal Territories Ministry, city hall and Rehda KL have been conducted to Tokyo, Singapore and Hong Kong to specifically look into the issues surrounding redevelopment. He says for cities to remain competitive and vibrant within a thriving region, redevelopment of critical city sites need to be facilitated.

“Redevelopment of en bloc residential properties is one way to continue to refresh a growing city. This has to be with the consent of the majority of owners of these properties, and such consent can be achieved if they are fairly compensated,” Tong says.

Rising trend

There is no doubt that parts of Kuala Lumpur and Petaling Jaya will need urban renewal in the years to come. This is in addition to the areas identified for redevelopment under the Greater Kuala Lumpur/Klang Valley National Key Economic Area (NKEA).

Among the areas slated for redevelopment are the government quarters along Jalan Cochrane, the Royal Malaysian Air Force base along Jalan Sungei Besi, land along Jalan Davis, the former Pudu prison site and plantation land belonging to the Malaysian Rubber Board in Sungei Buloh.

Another area slated for redevelopment which has stirred some excitement in recent years due the role it plays in the Malay historical presence in the capital is Kampung Baru, which is actually seven villages spread over 378.93 acres.

A bill is now pending in Parliament for the redevelopment of Kuala Lumpur's oldest Malay enclave while Kampung Baru-based non-governmental organisations have agreed to the formation of a Kampung Baru Development Corp.

According to Federal Territories Minister Raja Datuk Nong Chik Raja Zainal Abidin, other areas of Kuala Lumpur proposed for urban renewal under the Sustainable People's Housing for Urban Renewal programme include San Peng in Pudu, Kampung Kerinchi and Sri Pahang in Pantai Dalam and other areas with flats over 30 years old.

While these projects are part of the Government's urban renewal programme to inject life into decaying and ageing townships and slum areas of the city, increasingly as the central Klang Valley becomes developed and space for development becomes scarce, en bloc sales will become more common.

The tightened rules for projects on or near hillsides and the move to preserve as much of Kuala Lumpur and Petaling Jaya's green zones will also mean the supply of land for development will become scarce.

What may be different is that later transactions will take place not under the auspices of the Government's urban renewal programme but on the initiative of private developers looking to acquire prime real estate.

Currently, most of the redevelopments involve developers acquiring office, factory or showroom properties where ownership is not fragmented.

There are many examples of such transactions as they are straight forward and some have already been developed into new properties.

Jaya One, a commercial centre developed by Tetap Tiara Sdn Bhd on a former Aluminum Company of Malaysia factory site along Jalan Universiti and IJM Land Bhd's redevelopment of PJ8, a former factory site cum showroom in Section 8 are two examples in Petaling Jaya while Mah Sing Group Bhd's Southgate project (the former Nichii showroom along Jalan Sungei Besi) is another.

Observers are saying that how the Taman Ikan Emas en bloc sale is done will set a precedent for other such sales. What makes it important is that this sale is for landed residential properties.

This en bloc sale is more complex as a result of the public areas surrendered to the local authority as compared to Sunrise Bhd's acquisition of the 24-storey Wisma Angkasa Raya along Jalan Ampang in 2008 or Mah Sing's acquisition of the Panasonic factory site in SS8 two years ago.

These properties would likely not involve any surrendered public areas whereas Taman Ikan Emas, being a housing estate will interest developers, who will want to know how the Government plans to overcome this legal obstacle.

An old property hand who was a two-term state legislator and also a member of the state executive council overseeing town planning asked some years ago where does the law stand on this?

Setting a precedence

MIDF Research analyst Syed Muhammed Kifni says how the property transaction involving Taman Ikan Emas works out between the developer and homeowners will be a test case and create a precedence for later urban renewal projects, whether under government auspices or private sector initiatives. “At present, there are no laws for en bloc sales and the law is unclear as to whether eminent domain can be used under these circumstances,” he says.

In a report dated June 16, Syed Muhammed posts the question of what would happen if any of the 858 existing homeowners (of the Taman Ikan Emas estate) decided to reject the offer for new apartments in lieu of their existing ones.

He says perhaps policymakers can look to Singapore to see how the island-republic facilitate en bloc redevelopment.

“There are two laws in Singapore - the Land Acquisitions Act involving the principle of eminent domain and the Land Titles Act passed in 1999 - which facilitate en bloc redevelopment,” Syed Muhammed says.

He believes the main obstacle hampering growth of en bloc redevelopment locally is the lack of legislation to facilitate its implementation.

The Singaporean way

“The Government will need to introduce new laws or make necessary amendments to the existing laws for the economy and more importantly, the residents, to benefit from the en bloc redevelopment project,” Syed Muhammed says.

A lawyer attached to a prominent firm in Bukit Damansara says he is not aware of any moves by industry players lobbying for amendments to laws or tabling a bill in Parliament for en bloc property transactions.

Tong says the Singapore model may be something that stakeholders here can look to for a workable model where fair compensation and safe guarding the rights of the majority are concerned.

He says in that sense, Singapore has had a workable model for many years now, where en bloc sales require a majority of homeowners to accept an offer before a transaction can go through.

In an e-mail response from UOA Holdings Sdn Bhd, senior manager Eugene Lee Chin Jin says in order for redevelopment to take place, some form of legal framework definitely needs to be in place.For example, collective sale upon certain level of acceptance.

On how such transactions can be expedited, via legislation or other methods, Lee says Hong Kong and Singapore have models which Malaysia can emulate.

“UOA Group has yet to undertake such a development except for the redevelopment of Wisma Socfin (some years back) into today's Wisma UOA Damansara 2. However, the major difference in this development was that the former building was wholly-owned by Socfin Plantations,” Lee says.

By The Star

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