DEVELOPMENT PROCESS

1
 “Property development arises from the need to
accommodate the increase in demand for more
and better housing accommodation, more and
efficient transportation system, and more and
better facilities and amenities due to increase in
population, earning (income), knowledge
(educational) needs, entertainment needs and
health and lifestyle awareness.”

2
 INTRODUCTION
q The term “development land” refers to the conversion of land for
the purpose of residential, commercial, industrial, or other
activities.
q Development land can be described by the type of land use in an
area, as well as the characteristics of the development e.g.
residential density.
q Development land is an intermediate impact that results in a
variety of other impacts on the physical environment which can
potentially include the loss of sensitive habitats. It is also
associated with a demand for travel to and from the developed
site, which in turn affects the transportation system. 3
 PROMINENT STAGE IN PROPERTY
DEVELOPMENT
q Pre-development stage comprising sub-stages of idea
initiation (decision to develop), site selection,
feasibility, financing and planning consents.
q Development stage comprising sub-stages of
tendering, construction, project management, leasing,
financing and sale (disposal)
q Post-development stage comprising sub-stages of
maintenance, management, leasing, financing and
sale (disposal) 4
LAND DEVELOPMENT PROCESS
1 2 3 4
Initiation Stage Evaluation Acquisition Design and Costing

7 6 5
Implementation Commitment Permission

8
Manage/Dispose

5
 INITIATION STAGE
q The commencement point of land development process is when
a land is considered suitable for a different or more intensive
use or demand for a particular use leads to a search for a
suitable site by an initiator.
q The initiator can be the landowners themselves who in turn may
also assume the role of the developer at the proceeding stage.
In some cases, the initiator is the public sector and
government agencies who also sometimes play the role of the
developer. An accountant also usually features at this stage to
provide advice to the developer and public sector on structure of
partnership.
6
 INITIATION STAGE- CONT'

q Another main actor in this stage is the commercial agent

or estate agent who can identify the right site that
meets the requirement of a developer ’s to the
property development portfolio or criteria and by bringing
together some of the main actors in the process. An
agent is also often involved in every proceeding stage
which is outlined afterwards.

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 EVALUATION
q This is the stage whereby action taken under the form of market
research and financial appraisal guides the developer in
making decisions throughout the process.
q At this stage, the developer is supported by a professional or an
economic consultant or the registered property valuers or
appraisers. Upon instruction, they will prepare a detailed
analysis of the characteristics of the market in terms of the
underlying demand and competitive supply in what is called the
market and feasibility study.

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 AQUISITION
q This stage actually begins with legal investigation of the site on
issues such as land ownership and planning permission,
proceeding with ground investigation which is a thorough
assessment on the physical attributes and capabilities of the site
to accommodate the development, and ending with sourcing and
obtaining financing and funding for the acquisition and
development exercises.
q The developer can either carry out the legal investigation of the
site on its own or engage a lawyer (solicitor) to conduct the
task.A solicitor also plays a role in preparation of legal
agreements of funding arrangement entered into by the
developer. 9
 AQUISITION - CONT'
q The public sector may also become involved in this stage in situations
where a large site with many occupier and landowners need to be
assembled since as the government, they can use their legal powers of
compulsory purchase to acquire the site.
q An accountant also features at this stage by providing advice to the
developer or public sector on the structure of project funding or financing
arrangement. In most cases, financial institutions are the providers of
finance in land and property development in terms of development
finance (short term money) and long term money or financing the cost of
holding the completed development as an investment.
q Alternatively, in land/property development of Sell-Build-Transfer type,
the developer may finance its development project by seeking a buyer for
the completed scheme to repay the short-term loan and realize any profit. 10
 DESIGN AND COSTING
q This is the stage where the preparation of plans and cost were
being estimated for the proposed development undertaken,
generally carried out simultaneously with various other stages of
development process.

q At this stage, if the developer is a large corporate entity already

having the qualified professional staff in its stable, then the
preparation of the plans and estimates can be said as to be
prepared in-house by the developer itself. However, it is also
common practice, as in the case with the public sector and some
private developers to engage an outside professional team. 11
ACTORS IN DESIGN AND COSTING STAGE
Architects Quantity surveyors Building Surveyors

• Architects main role in this • This consultant (also termed • In re-development involving
stage is designing the as ‘building accountant’ by refurbishment works, building
appearance and construction Cadman and Topping) plays surveyors are engaged to
of new buildings and the role of advising the survey the existing building
refurbishment of existing developer at this stage on the and advice on the alterations
building. In some cases they likely costs of the total to be made to the developer
also administer the building building contract and
contract on behalf of the associated costs by
developer. performing:
• - costing the designs
produced by the architect,
• - administering the building
contract tender, and
• - advising on the most
appropriate form of building
contract. 12
 PERMISSION
q This is the stage where statutory planning permission (preliminary outline
planning consent followed later on by detailed planning consent) from the
local planning authority before commencing with the actual development is
obtained.
q In some cases and depending on the original status of the acquired land,
the landowner or developer has to apply from the state authority for
conversion and sub-division of the land before the land can be developed.
q Land Surveyors will play their role in survey and measurement of the
land. Town Planners in the form of politicians are responsible for
approving the development plans drawn up by professionals in accordance
with policy which they have earlier set down, and approving and refusing the
applications for permissions for development proposals.
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 PERMISSION - CONT'
q Planners in the form of professionals or Planning
Consultants on the other hand come up with the
development plans on behalf of the developer and the
ones who will negotiate with the local planning authority
as to the permission that allow for the ‘highest and best
use’ development particularly with large or sensitive
schemes.
q This planning permission can also be obtained by an
Architect if a planning consultant is not employed.
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 COMMITMENT
q This is the stage where the land development really starts to materialize
in the form of signed agreements on matters such as inputs of land,
finance, labour and materials and statutory permissions.
q Various actors and sub-actors that have been mentioned before will
come together at this stage performing their associated roles as follows:
q Landowners, public sector and developer as the main actors in the
commitment depending on the structure of partnership on the land
development.
q Lawyers / solicitors in overseeing the signed agreements, tenders and
contracts between the developer and building contractor and its
professional team of consultants such as architects, quantity surveyors
and engineers
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 IMPLEMENTATION
q This is the stage when all the raw materials of the development process are in place. Once
again various actors and sub-actors that have been mentioned before will come together at
this stage performing their relevant roles as follows:
q Architects administer the design and build contracts and certify completion of the
building works.
q Quantity surveyors monitoring the construction and approving stage payments to
the contractor, and participating in the administration and management of design
and build contracts.
q Building contractors are the main actor in this stage by undertaking the construction
of the development scheme. A building contractor who undertakes and oversees this
entire stage of land development is also called the ‘Turnkey Contractor”. With relevant
expertise, this building contractor may also be the management contractor who manages
the various usb-contractors for the developer. The developer itself can be the builder if it
has the necessary in-house expertise or keep its contracting division as a subsidiary
company with an entirely separate profit-making centre.
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 IMPLEMENTATION-CONT'
q Engineers are involved in this stage in the construction of
improvements on the land. There are three types of engineers involved
in this stage:
q Civil engineers role is in supervising major infrastructure works and/or
ground work.
q Structural engineers role is in advising architects and quantity
surveyors as to the design of the structural elements of the building.
q Mechanical and electrical engineers are the team that designs all the
services within building of large and complex schemes.
q Project managers are normally employed if the land development
schemes are large and complicated to manage the professional
team and the building contract on behalf of the developer. 17
 LET/MANAGE/DISPOSE
q This is the stage of securing a willing occupier of the end-product of the
development at the estimated rent or price by way of letting or outright
sale. Depending on the type of development, this stage proceeds immediately
after initiation stage as in the case of sell-build-transfer type of development
which is of the norm in Malaysia. The main actor at this last stage (which can
also be the first stage depending on the type of the development) is the
property or estate agent who is the link between the developer and the
occupier. Agents may also be used by developers to assist them in securing
the finance for a development scheme. The agents are professionals who
include chartered surveyors, registered valuers and licensed real estate
agents.
q Apart from the above-mentioned, there are other actors who are also involved
in the development process depending on their area of expertise and the scale
of the development. This includes highway engineers, landscape architects,
soil specialists, public relations consultants and marketing consultants. 18
MAIN ACTORS AND SUPPORTING ACTORS
IN DEVELOPMEN PROCESS
Land Development Stage Main Actor(s) Supporting Actor(s)
Initiation q Landowner q Accountant
q Public Sector q Commercial Agent / Estate Agent
Evaluation q Developer q Professional / Economic Consultant
(eg. Registered Property Valuer or
Appraiser)
Acquisition q Developer q Solicitor
q Public Sector q Accountant
q Financier
q Land SurveyorValuer
Design and Costing q Developer q Architect
q Quantity Surveyor
q Building Surveyor
Permission (including q Planning Authority q Planning Consultant
conversion, sub-division and q Architect
amalgamation) q Land Surveyor 19
 MAIN ACTORS AND SUPPORTING ACTORS IN
DEVELOPMEN PROCESS - CONT'
Land Development Stage Main Actor(s) Supporting Actor(s)
Commitment q Landowner q Solicitor
q Public Sector q Building Contractor
q Developer q Architect
q Quantity Surveyor
q EngineerSupplier
Implementation q Developer q Sub-contractor
q Building Contractor q Architect
q Project Manager q Quantity Surveyor
q EngineerSupplier
Let / Manage / Dispose q Landowner q End Financier
q Developer q Lawyer
q Occupier q Estate Agent
q Valuer
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 FINANCE FOR
DEVELOPMENT

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Private Development Projects Financial
Resources
q The private sector needs sufficient financial resources to finance
a project. The type of financial resources depends on the project
duration whether the interest is kept as an investment, or sold to
interested institutions.

q In general, financial resources for private projects can be divided

into two categories, which are equity funds or debt funds.

22
 Equity Fund
q Equity fund can represent a personal investment on the
planned private project. Sometimes the equity fund is known as
“risky capital” because investors are assumed to accept the risk
(basis) if their business fails. However, they will also enjoy return
and interest if the project succeeds.
q At the start of the project, equity fund is considered cheaper
than external loans from financial institution. This equity
consists of the sale of ordinary shares and preference shares.
q To encourage participation from outsiders (other than ordinary
shareholders), private developers can invite banks and
contractors to invest in both types of shares
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 Benefits of Equity Fund
q Sufficient and fixed return can be gained by both parties namely the
contractors and financial institutions.
q An “exit tool” can be provided where there is a possibility for
investment liquidation through sale in the open market or sale and
leaseback by the owner when the project completes.
q To provide a share from the contract total amount to the contractors.
q This equity fund has a number of advantages. It facilitates the
private sector in reducing original cash expenses and thus reduce
loans, reduce cost of funds, obtain contractors commitment, and
ensure that the job in the contract is completed according to the
original agreement. 24
 Debt Fund
q Debt fund involves the resources from borrowings and then paid back at
an interest rate. The borrowed capital allows developers to maintain full
ownership of that project. There is a variety of credit options based on the
credit characteristics.
q Thus by understanding the different types of debt fund resources
(commercial and government loan) and their characteristics, the developers
are able to increase their chances of obtaining a loan at an optimum cost.
q The sources of debt fund resources are debt security; commercial banks,
merchant banks and local and overseas financial institutions; insurance
companies and also the government.
q Debt Security- Normally, this type of security is in the form of loan stocks
that is transferable, gives a fixed interest rate, and thus gives the option to
the investors to switch their investment into equity. 25
 Commercial Banks, Merchant Banks and
Local and Overseas Financial Institutions
q These banks and financial institutions are at the centre of the financial
market and offers different types of loans and credit facilities. The periods of
the loans are as follows:
q Long-term loan- There are several types of long-term loans , for example
loans exceeding 10 years, debentures and mortgages for 20-25 years for
freeholds and long term leasehold (95-120 years) and through sales and
leaseback. The parties involved in offering this type of loans consists of
insurance companies, developer groups, property sales unit, large property
companies and other investors.
q Medium-term loan - This loan is between 3 and 10 years.
q Short-term loan - This type of loan is between 1and 5 years. The source of
this loan is Merchant Banks. 26
 Types Of Loans
q Several types of loans are available to the private sector. They are as follows.
q Bridging finance - In general, banks expect that private parties will mortgage their
assets as collateral to finance its development.
q A financial institution or usually a group of banks under a syndicated loan arrangement
manages bridging finance.
q Here, private parties will appoint a main manager (usually a Merchant Bank) to pool
certain funds by inviting other banks to participate and thereafter manage the loan.
This loan is a periodic loan with fixed instalments. Sometimes, overdraft facilities
offered can be reduced by redeeming ownership of sold units. In some cases, to
facilitate the initial problem of cash flow, half of the loan can be released to the
borrower at early stages of the development when situation permits.
q The interest rate stated is the rate agreed on above the bank’s base lending rate.
Private parties should realise on the interest rate trend between banks (given by the
Merchant Bank) that contradicts with the commercial banks’ base lending rate and then
continue to choose a two-way strategy that gives both benefits. 27
 Types Of Loans - Cont'

q End-financing- This type of financing is easily obtained. For

example, housing developers will try to get the best deal from
banks for their customers by arranging an end-financing scheme.
q Currently, the interest rate imposed on buyers is between 1.5%
and 2.0% higher that the banks’ base lending rate (between
6.75% and 10.0%). The loan duration is 15 to 25 years. As
collateral, banks need first fixed charge on the ownership, loan
agreement or deed of assignment.

28
 Other Types Of Financing
Joint Ventures

Leasing Turnkey Contracts

Other Types
Of Financing

Overdrafts Debentures

Issue of Company Shares

29
 Joint Ventures
q For companies that have insufficient capital, they usually will search for
partners or joint ventures that have strong financial standing. By using
financial resources of the partnership, ongoing projects can be funded.
Profits from the projects are usually, divided equally or based on a
percentage of contribution between the partners. In Malaysia, private
local companies often practise this system with overseas companies.
q Development can also be financed through joint ventures between:
q Banks and developers, JV between two developers, Landowners
and developers and Public bodies and developers.
q Loose arrangements are simply an arrangement to cooperate in order to
achieve a common objective that takes the form of a single purpose
vehicle, a limited liability company established solely for carrying out the
project and which the joint venture partners have shares.
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 Advantages Of Joint Ventures

q To spread the risk among participating parties

q To enable the development of large projects
q To attract market knowledge and development expertise
q To secure sufficient development finance

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 Disadvantages Of Joint Ventures

q Control over the development project is dissipated

q Disposal of a particular interest in a partnership scheme
is more difficult
q There may be double taxation

32
 Consideration Before JV
q Number of participants in the qTax position of the respective
project parties
q Nature of the proposed qWay in which profits are to be
scheme and the relative risks distributed
inherent in development q Any relevant statutory
q Time scale involved and the legislation on joint ventures
policy towards disposal or q Ability and ease of disposing of
retention interest by the parties involved
q How the venture is to be qAny special balance sheet
financed and the desired mix requirements
of debt and equity qResponsibility for losses and
33
limitation on liability
 Turnkey Contracts
q The landowner will appoint a contractor fully responsible in
completing the project. This provides a single point responsibility
so that in the event of a building failure the contractor is solely
responsible.
q The client’s interest is safeguarded.
q The project will only be handed over to the client after the project
is completed.
q The fees imposed are according to the agreement made before
the project is executed.
q The nature of the contract tends to reduce changes (variations)
from the original design and disruption of the works is less likely
to occur, hence encouraging time and cost savings. 34
 Sale of Company’s Shares
q For large companies that have gained respect of many, company
shares are issued to the public.
q These companies normally gain profits from their business deals.
q The money from the sale of the shares is used to finance their
projects.
q The profits obtained from their projects will be channelled to their
shareholders in the form of dividends or bonus.
q To date, many companies list their shares in the Bursa Malaysia
either on the Main Board or Second Board

35
 Debentures

q Private developers can also obtain loans in the form of

debentures that is redeemable or non-redeemable,
exchangeable or non-exchangeable, secured or non-secured.
q This loan is for a certain period with interest payment at an
annual rate.

36
 Overdrafts (OD)
q An overdraft is a credit agreement where banks allow the
borrowers to manage their current account into deficit to the
approved amount.
q An overdraft is a main short-term financial resource that is
offered by the commercial banks.
q The borrowers are free to mange it within the fixed overdraft limit
and repay as much as possible at anytime without any notice.
q Interest is calculated on the daily loan balance and is usually paid
every month or within an agreed period.

37
 Leasing
q Leasing facilities provide an opportunity to use capital goods by
paying a certain amount of rents within a fixed period under a
leasing contract.
q There are two types of leasing, which are:
q Direct leasing - Two parties are involved where a bank obtains
the capital goods and lease them to a company.
q Leverage leasing- It is within a syndicated loan arrangement
where a large amount of financing is involved. Three parties are
involved in this type of leasing namely the company, equity
participants and borrowers.
38
 Forward Sale and Rental Guarantees
q Two main options are available to a developer as follows:
q Forward sales where the project is sold before any work has
started.
q Wait until construction has been completed and the buildings
have been fully let.
q Most short-term financiers will look for a guarantee that there is
an arrangement with a long-term investor or a prospective owner-
occupier to “take out” their interest when the project is completed
and often occupied.

39
 Sales and Leaseback

q This arrangement involves a developer selling the freehold

interest and the investor taking back a long lease at a rent that
equates to the initial yield reflected in the selling price.
q The developer sublets the property at a higher rent paid to the
investor thus creating an immediate profit rent.

40
 Government
In a high risk construction industry, the types of support that are
offered by the Government are as follows:
q Soft loan that is a loan with low interest rate and reasonably long
repayment period.
q To determine that the foreign exchange rate is secure to avoid
fluctuations in foreign exchange.
q To ensure a secure traffic flow such as toll collection that
constitutes a part of the financing resources; and
q As a guarantor to borrowers (private sector) by imposing a tax
rate that supports the project.
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 Other Resources

q Other financing resources in the private sector are institutions of

Social Security, Foreign Government and the World Bank.

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 COMPREHENSIVE
REDEVELOPMENT / URBAN
REGENERATION

43
 FORMS OF DEVELOPMENT

q Refurbishment : Modification of the existing

building through refurbishment;
q Redevelopment : where existing buildings are
demolished and replaced by new ones;/
Brownfield developement
q New development on virgin through outward
expansion on undeveloped land.
44
 The Rationale of Redevelopment
q Re-development is necessary to ensure the efficient
use of land resources.
q In the main the life of a building ends not because the
structure is physically worn out but for economic
reasons.
q Sometimes operating costs exceed revenue and
because there is no alternative use, the structure is
abandoned, and so on
q The site can be used more profitably.
45
 The Rate of Redevelopment
Method of approach - The rate of redevelopment will
depend upon changes which occur over time the
relationship between:
q The present value of the existing use of the land
resources;
q The present value of the best alternative use;
q The cost of rebuilding.
Redevelopment will be accelerated by a fall in real building
costs because this will increase the value of the cleared
site 46
 Conditions That May Effect The
Redevelopment Process
Conditions in the real world may affect the pace of redevelopment:
q Imperfect knowledge, immobility of factors, or just inertia, may
mean that it takes time for profitable redevelopment to get under
way.
q Imperfections of the capital market may affect the type of
development.
q Legal restrictions.
q There may not be perfect competition in the supply of sites.
q Government policy, particularly as regards planning, may
prevent redevelopment for certain uses. 47
Considerations For Redevelopment

q To choose between development projects

q DD for different development projects
q Decide on quality of the building
q Intensity of development
q How much to bid for the site
q Obtaining finance
48
Considerations For Redevelopment
- Cont'
q To decide whether to develop alone / partnership
q Demolition aspects
q Existing building
q Infrastructure
q Access
q Facilities
49
 Introduction of Urban Regeneration
q Urbanization is a very real occurrence in our society today. It is a
global phenomenon and Malaysia is no exception. In the world,
50% of the population lives in an urbanized society, whereas in
Malaysia, the 1991 Population Census shows that 51% of the total
population of Malaysia resided in the urban areas compared to
34.2% in 1980.
q By 2003, the urbanized population share has gone up to 62.5% as
a result of increased migration, growth in new urban areas and the
extension of administrative urban boundaries (Ragayah, 2008).
q With rapid urbanization, large areas of land which were originally
alienated for agricultural use have come under tremendous
development pressure (Goh Ban Lee, 2004). 50
 Introduction of Urban Regeneration -Cont'
q In Klang Valley for example, large tracts of surrounding estate lands
have been converted into new housing estates and townships to
solve the development pressure.
q This practice whilst cater to the need to ease the inner city
congestion and over-crowding as well as accommodate the
increasing urban population, at the same time becomes an
alternative accommodation for housing estates, commercial centres
and industrial parks for the existing urban dwellers resulting in
some older accommodations in inner city areas being gradually
under-utilised and some being left abandoned.
q These inner city sites experiencing urban decay are often termed
brownfields. 51
Definition of Urban Decay & Brown Sites

“Cities or part of cities experiencing urban decay are

easily recognized by characteristics which include
depopulation, economic restructuring, property
abandonment, high unemployment, fragmented
families, political disenfranchisement, crime, and
desolate and unfriendly urban landscapes.”

52
 The Brownfield Redevelopment
q In Klang Valley for example, large tracts of surrounding estate lands
have been converted into new housing estates and townships to
solve the development pressure.
q This practice whilst cater to the need to ease the inner city
congestion and over-crowding as well as accommodate the
increasing urban population, at the same time becomes an
alternative accommodation for housing estates, commercial centres
and industrial parks for the existing urban dwellers resulting in
some older accommodations in inner city areas being gradually
under-utilised and some being left abandoned.
q These inner city sites experiencing urban decay are often termed
brownfields. 53
Urban Regeneration Practice

Revitalization /
Refurbishment

Total Re- Conservation and

Development Preservation

Urban
Regenenation
Practice

54
 Total Redevelopment
q This method will involve total demolition of the existing building and clearance of
the site which include removal of existing business and residential occupants.
q It is particularly suitable for blighted housing and industrial areas to transform a
dying area into a positive and dynamic image of the city. The areas identified to re-
developed will be more intensified in use such as mixed development and medium
to high density residential.
q All redevelopment areas will be required to provide for community facilities,
improved infrastructures and urban parks/local play area. Any proposals for
redevelopment also are required to be integrated with the surrounding urban fabric
by ensuring continuity in public realm, green spaces and pedestrian networks.
q Where redevelopment areas are identified as Transit Planning Zones, provisions
for transit facilities are to be made and the developments are to be integrated fully
with transit facilities and high quality pedestrian environment.
55
 Refurbishment & Preservation

q Revitalization / Refurbishment - This method will

involve upgrading of the existing building or site in order
to rejuvenate and gives a new lease of life to the building
or the site.
q Conservation and Preservation- The method is
particularly suitable for buildings or sites with historical
value and have tourism potential.

56
 The Need For Urban Regeneration
q Considering that land is a scarce resource, it is thus essential that land
especially urban land needs to be properly, efficiently, profitably, feasibly and
professionally invested, developed, administered and managed. The objective
is to ensure that urban land is used efficiently and effectively in relation to the
national development objectives which call for growth with equity (Goh Ban Lee,
2004).
q Whilst it is considered easier and cheaper to look for ‘greenfields’ to solve
development pressure resulting from rapid urbanisation, efficient land use
management dictates that there is the need to adapt to external as well as
internal pressures within the existing urban area and look at these brownfield
as potential sites for re-development that can accommodate the increase in
demand for more and better housing accommodation as well as other usage,
thus the need for urban renewal or regeneration. In other words, urban
regeneration is a solution to the opportunities and challenges presented by
urban degeneration itself (Roberts & Sykes, 2000). 57
 Successful Urban Regeneration Cases
There are many examples of urban regeneration practices successfully carried out in
many major cities in the world. Listed below are some of the more prominent and
popular success stories.

q In the UK, the redevelopment of the London Docklands into attractive waterside
apartments along the River Thames and the old docks by the London Docklands
Development Corp, the agency set up to regenerate the 22 sq km area in east
London has brought many benefits to areas including major facelifts in terms of
new shops and food and beverage outlets.
q In Canada, the regeneration of False Creek, a former railway and industrial area
located in inner city area of Vancouver has resulted in an increase of green areas
and parks amounting to 20 % of the total False Creek area of 204 acres that are
accessible to city dwellers, a vibrant waterfront and additional supply of public
housing (constituting 20 % of the total housing in the area)
58
 Successful Urban Regeneration Cases - Cont'
qIn Shanghai, China, the regeneration by way of restoration,
preservation and rejuvenation (by adding new high-rises at the
periphery) of old and historical buildings of Xintiandi, has given new
lease of life to area which has since become a major tourist
attraction.
qIn Hong Kong, the regeneration of Langham Place located in the
heart of old Mongkok area has transformed the once red-light
district area into a thriving commercial and retail address of today
through a joint venture between the Urban Renewal Authority
(URA) of Hong Kong and a private developer.

59
 Successful Urban Regeneration Cases - Cont'
q In Singapore, brownfield developments exercises carried out by Sime Darby Property
Berhad on its properties, the Orion, an originally old serviced apartment with low
building efficiency into a 27-storey high-end condominium with 46 luxurious units, and
Petro Centre and Sime Darby Enterprise Centre (originally both were old factories) into
high-rise modern light industrial buildings, have resulted in increased returns on
investment of 63%, 36 % and 12 % respectively.
q In Kuala Lumpur, Malaysia, the regenerations by way of redevelopment of Brickfield’s
old KTM’s godowns and warehouses complex into a transportation hub and mixed
development hub comprising retail complex, five star hotels, office buildings and
upmarket condominiums now known as KL Sentral by MRCB, and Sentul East from old
railway line areas into up-market high rise condominiums known as the Tamarind by
YTL, have rejuvenated the commercial activities in both areas and improved
accessibility into and out of the area via improved transportation and road networks.
q At the same time, the regeneration of both areas have acted as catalyst for other re-
development projects as well as new developments projects in the nearby areas. 60
61
 Decision Techniques in the Public Sector
q The main objective of investment by the Public Sector is to maximise social welfare and to
provide facilities to the public. The approach in appraising investment projects are different
and depends on the methods used. Some of the methods used in appraising public
projects are Cost-Benefit Analysis, Planning Balance Sheet and Goal Achievement Matrix.
If compared to the private investment valuation technique, the public sector techniques
are different because:
q The market mechanism that is generally received by the public as the basic method in
allocating resources (in a free market economy) cannot be carried out in the public sector
because each individual in the society has to be considered and involved in the decision
made.
q Cost and interest elements involve the calculation of visible and invisible matters. The
private sector usually does not consider invisible matters and focus on the profits and
revenues only.
q Most public projects involve large capital and public resources where private sectors do
not want to be involved. For example, highways, airports, and pollution control system
projects and others that require the economisation of those resources. 62
 Procedures in Executing Cost-Benefit Analysis
Several aspects that have to be considered in the use of Cost-
benefit analysis as a method in decision-making are as follows:

1. What are the costs and benefits that need to be valued?

2. How to measure those costs and benefits?
3. What are the discount rate that needs to be used in valuing
the future costs and benefits and the next course of action?
4. What is the project’s viability?

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 Stages in Cost Benefit Analysis Valuation
The valuation approach involves three stages of analysis as follows:

1. Financial Valuation
2. Economic Valuation
3. Project Social Analysis
i. Allocation between current income groups
ii. Allocation between areas
iii. Allocation between ethnic groups
iv. Allocation between citizens and non-citizens
v. Allocation between generations

64
 Critiques Toward the Cost Benefit Analysis
q Proposals such as urban and regional planning involve a wider group and
influence the whole society. Therefore, hidden cost and benefit needs to be
considered but it is difficult to measure. For example, not all conversion
factors can be obtained from the State Economic Planning Unit, thus there
is a need to find our own information. In determining the conversion factor,
the crucial market price is forced to face the problem of constant changing
world price. Each world currency exchange rates with the US Dollar will be
stated. The process of determining the exchange rate is related to the
price theory. The local exchange rate is the number of US Dollar for each
Malaysian Ringgit. In the end, the exchange rate in determining the market
price may not reflect the shadow price

65
Critiques Toward the Cost Benefit Analysis - Cont'

qCost benefit analysis is only suitably used in one economic

sector only. It does not consider the practice in urban and
regional planning that usually involves a number of different
types of investment made at the same time.
qIt is difficult to determine or classify an external factor whether it
is an external factor or not. This is because according to its
principle, external factors cover parties that gain profits or loss
in terms of cost and benefit due to ongoing development. The
problem is to determine how far the element is considered a
loss or profit from the development.

66
Critiques Toward the Cost Benefit Analysis - Cont'
q The discount rate used varies and is not based on a solid basis. This
creates critiques towards the application of the discount rate.
q Problems in placing a price on public goods also arise. This is
because some of the public goods are not marketable and does not
have a price, for example, more highways and transportation
facilities to save time.
q A problem may arise in the calculation of cost and benefit. In doing a
cost and benefit calculation, care has to be taken to avoid double
counting or insufficient calculation. For example, the benefits that do
not have a price sometimes can be given a value that is possible to
count but usually the value given is inaccurate.
67
 Examples of Cost Benefit Analysis Application
in Urban Renewal Project
q Parties Receiving Benefits
q Government q Traders
• Facilities provision • Transportation system and storage
• Job opportunities to the citizens area
• A good impression to the tourist and • Vehicles and others
others on aesthetic values • Shop lots for business
q Residents • Safety to run business
• Educational facilities and others • Prospect of more profits
• Avoidance of congestion
• Clean and more comfortable
environment for daily activities
• A better place to live 68
 Examples of Cost Benefit Analysis Application
in Urban Renewal Project - Cont'
q The Costs Involved • Transfer of residents
q Government • Emotional and sentimental values
• Financial cost for the project on old houses
• Delay will cause a decline in trade • Living routine is temporarily
• Development time may evade traffic disrupted
movements and trading activities q Traders
• If fail, problems will arise from the • Disrupts daily trading
public • Related opportunity cost
• Subjected parties’ refusal to carry • Loss from price of land, goods
out trade or live in those areas and transportation
q Residents
• Noise, dirt and dust the during 69
PLANNING CONTROL AND EFFECT
ON REAL ESTATE MARKET AND
DEVELOPMENT

70
 Contexts Of Planning Controls
q In the market economy, the price system may not achieve full
efficiency in the allocation of resources due to the imperfect
nature of the property market.
q It is appropriate if planning controls are examined in the context
of a means of dealing with the defects in the market economy.
q Planning controls involve the need for: (1) Planning permission
/ development order to develop a piece of land under certain land
use (2) Detailed compliance on planning aspects e.g. density;
plot ratio; plinth; setbacks etc.

71
 Contexts Of Planning Controls -
Cont'
q Implementing Planning procedure:
q A structure plan – policy statements
q Local plan c. Policy guidance / circulars
q Planning consent / permission

72
The Need for Planning Controls
q To improve knowledge
q Allowance for externalities
q To deal with imperfect competition
q The provision of public and collective goods
q Improving the mobility of resources
q Redistribution of income
73
The Need for Planning Controls
- Cont'
q Planning control is more flexible compared to minimum
standard regulation
q Possible achievement of planning gains Secure a better
environment in which to live e.g. Green Belt
q Ensure the most appropriate use of society’s stock of
land resources having regard to both the present and
future
q Reconcile competing claims for use of land
74
Difficulties of Planning Control
q Opportunity cost of a better / green environment
q Planning for the future very much depends on the
affordability factor of the nation
q Price system may be able to reconcile competing claims
for the use of land as opposed to planning controls
q The passive nature of planning system. Planning
controls in themselves do not lead to market forces
initiating these schemes that would like to promote
q Compared with taxation 75
Difficulties of Planning Control - Cont'
q Compared with taxation, planning lacks flexibility as
regards individual preferences
q Structure plans may impose rigidity the highest and best
uses of a land resources can alter overtime with changes
in transport development
q Planning may take in sufficient account of certain
benefits which exist in the current land use situation
q Case by case approval – time consuming
76
 Impacts of Planning Control

q Restriction limits the amount of capital which can be applied

to a given site. Hence economic value of an individual site
can also be restricted
q The pattern of land values e.g. restricting the amount of land
available for offices raises the value of existing office and of
any land which in future is given planning consent for offices
q Effect on the overall land values. Planning may not shift land
values from one site to the other but may reduce the overall
land values of an area. Hence affect allocative efficiency
77
 Impacts of Planning Control - Cont'
q The distributional effects. The owner of land who obtains
planning permission for development receives a wind fall profit.
On the other hand where a restrictive land-release policy forces
up the price of land, new purchasers of houses may incur losses
q Supplementary effects. E.g. loss of jobs in the city centre,
destruction in social contacts, higher cost of transport, delay in
granting planning permission may increase development cost,
bureaucratic machine to administer planning, possibility of
planning blight in area subject to proposals, planning gain in
terms of money may not benefit the society, planning is ultimately
controlled by local committees of politically motivated individuals
78