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Note : This writeup is a more indepth version of the previously posted article on Land
Development Process in Malaysia

Directors Profile
LAND DEVELOPMENT PROCESS AND PROPERTY DEVELOPMENT

Professional Fees
Bank Panel List

1.0 Introduction
The term land development refers to the conversion of land for the purpose of residential,
commercial, industrial, or other activities. Land development can be described by the type of land
use in an area, as well as the characteristics of the development e.g. residential density. Land
development 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.

2.0 Land Development Process and its Main Actors


Land development process starts with the decision to develop the land. This decision to develop can
be initiated by the landowner himself/herself who is the main actor whereby the landowner is
normally directly involved in the development process from the early stage of conceptualization of
the suitable type of development to be built on his/her land right to the implementation of the
development itself.

The relevant stages of development process are as follows:

(1) Initiation Stage


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. 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.

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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 developers 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.

(2)Evaluation
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. At this stage, the developer is
supported by a professional or an economic consultant in the person of 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.

(3) Acquisition
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.

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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. 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.

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. Alternatively, in land/property development of SellBuildTransfer type, the developer
may finance its development project by seeking a buyer for the completed scheme to repay the
shortterm loan and realize any profit.

(4) Design and costing


This is the stage where the preparation of plans and cost estimates for the proposed development is
undertaken generally carried out simultaneously with various other stages of development process.

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 at this stage comprising
the following consultants:

i. Architects
Architects main role in this stage is designing the appearance and construction of new
buildings and refurbishment of existing building. In some cases they also administer the
building contract on behalf of the developer.

ii. Quantity surveyors


This consultant (also termed as building accountant by Cadman and Topping) plays the
role of advising the developer at this stage on the likely costs of the total building
contract and associated costs by performing:
costing the designs produced by the architect,
administering the building contract tender, and
advising on the most appropriate form of building contract.

iii Building surveyors


In redevelopment involving refurbishment works, building surveyors are engaged to
survey the existing building and advice on the alterations to be made to the developer

(5) Permissions
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. 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. Land Surveyors will play their role in survey
and measurement of the land. 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.

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. This planning permission can also be obtained by an
Architect if a planning consultant is not employed.

(6) Commitment
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.

Various actors and subactors that have been mentioned before will come together at this stage

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performing their associated roles as follows:
i.Landowners, public sector and developer as the main actors in the commitment
depending on the structure of partnership on the land development.
ii.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

(7) Implementation
This is the stage when all the raw materials of the development process are in place. Once again
various actors and subactors that have been mentioned before will come together at this stage
performing their relevant roles as follows:

(1) Architects administer the design and build contracts and certify completion of the
building works.

(2) Quantity surveyors monitoring the construction and approving stage payments to the
contractor, and participating in the administration and management of design and build
contracts.

(3) 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 usbcontractors for the developer. The developer itself can be the builder if
it has the necessary inhouse expertise or keep its contracting division as a subsidiary
company with an entirely separate profitmaking centre.

(3) Engineers are involved in this stage in the construction of improvements on the land.
There are three types of engineers involved in this stage:
1) Civil engineers role is in supervising major infrastructure works and/or ground work.
2) Structural engineers role is in advising architects and quantity surveyors as to the
design of the structural elements of the building.
3) Mechanical and electrical engineers are the team that designs all the services within
building of large and complex schemes.

(4) 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.

(8) Let / manage / dispose


This is the stage of securing a willing occupier of the endproduct 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 sellbuildtransfer 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.

Apart from the abovementioned, 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.

In practice, the land development process also does not always rigidly follow the sequence of stages
as mentioned above. Some stages may overlap and occur simultaneously.

Table 2.1 shows the stages and the actors involved in the land development process at every stage.

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Land Development Process and Its Corresponding Actors

Land Development Stage

Main Actor(s)

Supporting Actor(s)

Initiation

Landowner

Accountant

Public Sector

Commercial Agent / Estate


Agent

Evaluation

Developer

Professional / Economic
Consultant (e.g. Registered
Property Valuer or Appraiser

Acquisition

Developer

Solicitor

Public Sector

Accountant

Financier
Land Surveyor
Valuer

Design and Costing

Developer

Architect
Quantity Surveyor
Building Surveyor

Permission (including
conversion, subdivision and
amalgamation)

Planning Authority

Planning Consultant
Architect
Land Surveyor

Commitment

Landowner

Solicitor

Public Sector

Building Contractor

Developer

Architect
Quantity Surveyor
Engineer
Supplier

Implementation

Developer

Subcontractor

Building Contractor

Architect

Project Manager

Quantity Surveyor
Engineer
Supplier

Let / Manage / Dispose

Landowner

End Financier

Developer

Lawyer

Occupier

Estate Agent

Valuer

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3.0 Land Development Process In Malaysia


Land development in Malaysia simply means the change of original use of any alienated land that
effects its restriction in interest, express conditions and category of land use as opposed to what has
been earlier approved by the State Authority upon alienation.
Land development is not mentioned specifically under the National Land Code (NLC) which is the
governing code for land administration in Malaysia. However, under the Code, land development
takes place in one or more of the following forms:
(a) Variation of conditions, restrictions and categories (Section 124)
(b) Subdivision (Sections 135 139)
(c) Partition (Sections 140 145)
(d) Amalgamation (Sections 146 150)
(e) Simultaneous applications for subdivision and variation of conditions, restrictions and
categories (Section 124A), and
(f) Surrender and realienation special provisions (Sections 204A 204H)

Thus, in cases where the land chosen or acquired for the purpose of development is still in its
agriculture status, the application for the conversion (to building or industrial status), subdivision,
partition or amalgamation of land, wherever applicable, must be obtained first before any actual
development can take place.

In Malaysia, there have been regular occurrences in the past whereby decision for land development
was initiated by the government especially if it is recognized that development of certain land not
necessarily idle or underdeveloped, is essential in fulfilling certain urban planning policies of the
government. Two good examples are the acquisition of urban land for the light rail transit project
and the acquisition of mainly estate land for the Putrajaya development. In some cases however,
even though the government initiates the development plan which may involve acquisition of private
owned land, the implementation of the actual development is still usually offered to private
developers.

The stages involved in land development whereby the state government played the role as the
initiator and the role of the developer was taken by a private entity, as follows:

(1) Initiation by government to privatize the acquired land for development


The government establishes the allocation of land within a local planning authoritys development
plan and establishes the framework for the permitted use of land hence establishes its potential
value for the purpose of development. In formulating planning policies for the development plan the
government has to balance the requirements of developers against the widerlong term interest of
the local community.

(2) Land acquisition


After the decision to develop the particular tract of land had been made, the land acquisition stage
was carried out in accordance to the governing law under the LAA as follows:

i) Legal Investigation
A special task force in the Federal Dapartment of Lands and Mines known as Unit Khas
Bergerak who is responsible for all land acquisitions in the state first made relevant
searches on the register document of titles of all the land involved to establish the legal
owners and their share portions on the land ownership. In situations where the
landowners were deceased, legal process of land distribution to the rightful beneficiaries
was first established.
Section 7 of the LAA clearly outlined the procedures involved in this acquisition stage.
The relevant land office is required to list in Form C all landowners name, the
respective title numbers and accompanying lot numbers, domiciled mukim and the
approximate areas affected by the land acquisition in the State Government Gazette
Notification, pursuant to Section 8 of the said Act.

ii) Ground Site Investigation


Section 9 of the LAA empowers the land officers to enter the acquired land (termed in
the GN as the Scheduled Land) and make detail ground inspection on every affected lot
in order to establish the existence of buildings (houses), either permanent or temporary,
crops, fruit trees, or other materials that will influence the amount of compensation to
be paid to affected landowners.

iii) The Land Administrator to Commence Proceedings

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The next step under Section 10 of the LAA empowers the Land Administrator to proceed
with the acquisition of land by giving public notice under Section 11 of the Act in Form E
and by fixing the date of enquiry for the hearing of claims for compensation for
disputes. A formal hearing is carried out in the land office where the affected owners
are required to personally appear before the land officers to agree or disagree on the
amount of compensation (financial reward). Section 12 of the LAA empowers
the Land Administrator to make a full enquiry into the value of all scheduled lands and
shall assess the amount of compensation that in his opinion is appropriate in each case.
The Land Administrator will establish the appropriate amount of compensation on all the
affected lands based on a market value or any form of criteria in arriving at such values
determined by the Valuation and Property Services Department.

iv) Payment of Compensation


Under Section 14 of the Act, upon the conclusion of the enquiry under Section 12 relating
to any scheduled land, the Land Administrator then prepares a written award in Form G
to each person whose interest in the land has been established. In case of disputes,
under Section 37 of the LAA the landowners are given the right to appeal to the High
Court by first engaging an independent Valuer to value the Scheduled Land and get a
second opinion as to the Market Value of the scheduled land, the cost of which (engaging
the independent valuer) is borne by the land office.

(3) Invitation to bid


The next step is to invite private developers to bid for the development project by
submitting tenders comprising financial and development proposals. Other details submitted include
developers experiences and track record, financial status, professional team and project brief
containing details on planning requirements. In certain cases, this call for bidding is carried out
even before the acquisition stage has been completed and in others, selected private developer or
developers have been handpicked to carry out the development project.

(4) Preparation of project proposal


4.1 Evaluation Developers Perspective
Before any commitment is placed on the land development, proper evaluation which
involves conducting a market research and feasibility study of the proposed development
are carried out so that the developer will know as to the prospect and risk it is taking.

4.2 Design and Costing


As already discussed before, this is the progressive stage where the preparation of plans
and cost estimates for the proposed development is carried out simultaneously with
various other stages of development process which increases in intensity and getting
more detailed in terms of drawing designs, layout plans and cost estimates towards the
later stages of development process.

4.3 Proposed Job Implementation


This stage includes detailing out the work schedule or sometimes called as the Critical
Path Analysis containing anticipated time of completion of various stages of construction
and activities at the same time taking into account possible delays and cost overruns.

4.4 Financial Resources


Once the final estimate on development value and development cost have been
established, the developer then sources for financing from the various financial
institutions who will in turn evaluate the viability of the project from their own stand
point or criteria.

(5) Submission of the project proposal to the government


After the final evaluation, planning, design and costing, and financial commitments have all been
established, the developer then submits the project proposal to the government.

(6) Evaluation By The Government


The government via their tender committee then process each proposal submitted by the respective
developers, giving due consideration to the planning layout, building design, landscape, population
density, public amenities and infrastructure, strength and weaknesses of the developers in terms of
experience, track record, finance and professional team. Other criteria remaining the same, the
developer promising the best financial quantum and reward to the government often will be the one
chosen to undertake the development project.

(7) Award by the government


The tender committee having evaluated all the developers proposals will then award the
development project to the developer deemed most capable and meet all the criteria. After the

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approval has been endorsed by the authoritys executive councilor, the government next will notify
the successful developer as to the award via a formal documentation outlining the terms and
conditions and obligations and responsibilities on both parties. Finally, the developer next prepares
the contract documents to be signed by both parties containing conditions, restrictions, costs of land,
period of leasehold, premiums, and other state and planning policies.

The land development process under privatization as discussed above is shown in the Figure below.

STATE
GOVERNMENT

Tender Committee
Decision To

Acquisition

Privatise

investigations

proceedings

compensation

Evaluation

Tender

Award

Invitation To
Bid

Development proposal
Financial proposal

DEVELOPER

Company profile

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Evaluation

Market and feasibility


study

Engage Consultant

Fast Track: Award to handpicked developer

Long Track: Normal procedure

Figure 2.1: The land development process under privatization

4.0 Property Development


Closely related to the term Land Development is the term Property Development. There are
various definitions by scholars on the term Property Development. The one that best encapsulates
its meaning and processes involved is given as follows:

Property development is a process that involves changing or intensifying the use of land to
produce buildings for occupation. Property development is an exciting, at times frustrating,
complex activity involving the use of scarce resources. It is a high risk activity which often
involves large sums of money tied up in the production process, providing a product which is
relatively indivisible. The performances of the economy, at both national and local levels,
directly influence the process.

Cadman and Topping (1:1995)

Byrne and Cadman (1984) defines it as:

a process carried out by development agency either on its own or otherwise to fulfill the
social and economical via land rehabilitation and construction or building refurbishment for
the purpose of its own occupation or other partys occupation.

This definition is derived from Pilcher Report ( (HMSO Report, 1975) in Byrne and Cadman, 1984 )
which gave the answer to the question What is development? as:

Development comprises the following aspects:


(i) Perception and estimation on demand for various categories of new building
(ii) Identifying and ensuring safety of site before building is built on it to meet the demand
(iii) Designing accommodation to meet the demand for the identified site
(iv) Long term or short term financing to fund the acquisition of and construction on the site
(v) Design management and construction, and
(vi) Leasing out and management of completed building.

The Town and Country Planning Act 1976 (Act 172) of Malaysia defines property development as
the carrying out of any building, engineering, mining, industrial or other similar operations in on,
over or under land, or the making of any material change in the use of any buildings or other land,
or the subdivision or amalgamation of lands.
In broad terms, development can be divided into two categories;
i.the carrying out of physical operations such as building or engineering works, and
ii.the making of a material change of use

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. This is compounded by the fact that
as time goes by, existing property stock experiences depreciation and obsolescence or what is termed
as urban decay (Aminah, 1999). As a consequence, as in the case of Kampung Baru, there exist the

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need for the betterment of existing property stock, construction of new housing estates and
townships and the provision of more amenities and facilities. These needs are being catered to by
the government and its agencies more as fulfilling their duty and social obligation as well as by
private developers with income and profits as their driving motives (Ismail Omar, 2005).

Property development can be divided into three prominent stages, namely:


1) Predevelopment stage comprising substages of idea initiation (decision to develop), site
selection, feasibility, financing and planning consents
2) Development stage comprising substages of tendering, construction, project management,
leasing, financing and sale (disposal)
3) Postdevelopment stage comprising substages of maintenance, management, leasing,
financing and sale (disposal)

New school of thoughts in Malaysia (eg. Tan, 1998) contends that property development contains
only two prominent stages;
i.predevelopment stage which combines all the substages in the old school of thoughts pre
development and development stages;
ii.and postdevelopment stage comprising the same substages identified by the old school of
thoughts.

Byrne and Cadman (1984) on the other hand divide the development process based on the perspective
of uncertainty analysis which is relevant to the aspect of viability of a development into three
stages:

1. Acquisition
In this stage, development process involves land acquisition upon which the development is
to be carried out. There exists the element of uncertainty in this stage due to physical features of
the land, restriction in interest in the land ownership which may benefit the land or otherwise and
natural features and type of land use allowed or approved by the local planning authority.

2. Production
This stage is when the construction of building takes place and the risk and uncertainty that
exists here is in the form of construction cost which constitutes the second capital outlay. As such
the provision for risk is included when deciding on the building contract.

3. Disposal
This stage is when the completed building is owneroccupied, single or multi occupied or
disposed of as investment item. Risk and uncertainty exist in this stage when disposal is by way of
renting and selling whereby rental and return on investment and purchase price contain risk element
since the result of the development must be produced first even though the developer cannot
guarantee or know for sure that the stability of the market at the beginning of the development is to
last right till the disposal stage. However some of the risk can be minimized and avoided.

Since land development is a process which allows for some degree of evolution in certain elements,
there are new scenarios that are gradually emerging within and between the land development
stages. For example, apart from the normal staple of main actors and supporting actors involved in
land development as discussed in this chapter, there are gradual emergence of new actors who are
also involved in the development process depending on their area of expertise and the scale of the
development. They are new breed of consultants who are gradually being recognized as specialists
and professionals in areas that are surfacing with identities of their own having a degree of technical
sophistication depending on the circumstances of a project and its complexity. This includes interior
designers, development surveyor and image consultants.

The complexity and/or flexibility of the land development process have also resulted in the
development stages to commence, overlap and end in new ways that have not been seen before due
to the changing nature of its governing framework. To give an example, the recent property
(housing) development policy of build first sell later which will give a major impact on the
economics of financing a development (thus changing the nature of the economic framework) soon
to be reinforced will definitely rearrange the flow of the land development process and the
overlapping nature of some of the land development stages. This phenomenon will have a
considerable impact on key agents behaviour especially that of the developers in their evaluation
and assessment of the viability of any land and property development project in order to minimize
risk and uncertainty which are part and parcel of a development process.

Land and Property


Land under normal day to day usage of a layman is referred to as solid part of earths surface and

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not covered by water. It can also mean ground, soil, and expanse of country. Property on the
other hand is loosely defined by The Oxford Dictionary of Current English (1985) as possession or
thing owned with special attribute to real estate.

Within the economic (and also legal) framework however, land is taken to mean not simply that
part of the earths surface not covered by water, but also all the free gifts of nature such as
minerals, soil fertility, etc. Land provides both space and specific resources. Much semantic
argument has taken place on the extent to which land as a factor of production is really distinct
from capital. Land is a free gift from nature that yield an income and many of the services of
land in fact require expenditure of resources to obtain or maintain them, and hence they are
often produced means of production. However, although at the edges the distinction may often
become blurred, it has been retained as a useful analytical convenience. Land is also meant to
include the resources of the sea, so that once again we have a difference between the economic
and everyday usage of a word (Bannock et. al., 1984).

As vast as the economic definition of land is, it is paradoxically recognized that land is a scarce
resource resulting in the essential need for land to be properly, efficiently, profitably, feasibly
and professionally invested, developed, administered and managed. The outcome of failing to
do so is what we now see in derelict land, abandoned land and underutilized land either in urban
or rural areas. Since land is a factor of production able to yield income, it is thus a source of
investment.

The economic characteristics of land that affect the viability of property development are; its
relative fixity of supply, it incur no cost of creation (i.e. it is already naturally available) but
costly and risky to manage, it is heterogenous but also homogenous in nature, it is governed by
the law of diminishing return zoning, view and plot ratio, it has no physical market (it changes
hand or transfer of ownership is by piece of paper), and finally it has scarcity (economic) rent
element.

Excerpted from:
The Viability of ReDeveloping Kampung Baru Within The Ambit of Current Planning Structure and
Market Condition From Financial And Social Perspectives,
Msc. Land Admin & Development Thesis by Nik Nazariah Nik Jaafar

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