Recently, the Kuala Lumpur City Hall (DBKL) has announced a 50% discount on development charges for high-density projects starting this month. According to Sharom Ujang, DBKL Urban Planning Department Director, this discount will serve as an incentive to encourage developers to continue building the city despite the slow economy.
iProperty.com sought the opinions of some experts about this incentive for developers.
James Tan, Associate Director of Raine & Home International
This is indeed some good news for the developers but there is a catch here; developers are profit driven. The formula is as follows:
Developer’s Profit = Gross development value – Gross development cost (which include development charges, construction cost, land cost, etc).
It is a good thing that DBKL is proactive in this as the property market is heading downwards in a consolidation phase. Any reduction in cost will help encourage developers to build more due to a slightly lower cost base. However, this is only one item as there are many other factors involved in the construction/ development process. The softening market and tightening credit approvals have a bigger impact despite this incentive. The supply situation and socio political factors will be the other factors considered in analysing the decision whether to build or not.
This incentive actually favours DBKL in the medium to long-run as the increase in assessment fees that it can charge for more number of units translates to more revenue coming in.
Dr Gerard Kho, Futurist and Property Entrepreneur
Any incentive provided that would spur economic growth and activity is welcomed. However, this has to be examined in light of whether there are other processes which could be streamlined to help make it easier and clearer for parties who are submitting for approvals. For developments, it is often not only the regulatory cost that is a factor considered by developers, but it is also the ease of the approval process including streamlined timing for approvals and clarity of expectations which will all lead to projects being approved faster or within an expected time frame. This streamlining and transparency in the application process would also aid developers in ensuring that they are able to launch projects in a timely fashion. For developers, time is of the essence and timing to launch the right product in a cyclical market is even more crucial today. Missing an opportunity because of missed timing could result in a decreased likelihood of projects being sold at the best price or increased holding cost for developers.
Boo-Khuan Khoo, Co-Founder of Network Property Investors and author of the 9 to 5 Property Millionaire
I am actually quite happy about the offered discounts. I like the fact that the local government is taking the initiative to boost the property industry which is one of the key drivers of the overall economy. This is especially so since there has not been much good news about Malaysia’s economic climate. My only reservation is that I do hope that proper planning is done with additional infrastructure being put in place to support the increased density. One thing that is definitely needed improved transportation, without which, we may see traffic jams worsening in the city centre.
Khalil Adis iProperty.com’s brand ambassador (Iskandar Malaysia) property speaker and author
The discount is quite significant and this will have an impact on the pricing of high density projects. Land cost is quite significant in KL and factored greatly in the pricing. With the 50% discount, it will mean it will be cheaper to develop the land parcel and developers will then be able to pass on the cost savings to consumers. House prices in KL starts from a quantum price of RM600,000 on average. With this incentive, we could see more affordable homes being introduced. This will entice first time home owners who don’t want to live in Greater KL to seriously consider projects that enjoy this incentive. We could also see a renewed interest among buyers in an otherwise quiet market. The only drawback would be the increase in traffic jams within the Klang Valley areas when such high density projects are introduced.
Cynthia Nikitin Senior Vice President Project for Public Space
Kuala Lumpur is an attractive proposition for development and developers will continue to invest in further growth. Municipalities however should look for innovative ways to further reinvest in the city’s future. In other countries around the world, it has been proven that reinvestment in the city leads to further prosperity not just for developers but for city dwellers themselves as this leads to higher property values and property taxes for municipal governments. Reinvesting in the city here could mean upgrading sewer systems or transit facilities or public spaces that benefit everyone. As an innovative idea, why not consider having a surplus on development charges around prime locations with the additional money going back towards the city’s public transportation infrastructure or upkeep?
This would provide for a win-win solution affecting city dwellers, the municipality and the developers themselves as everyone would love to live around areas where investments have been made to improve the public realm. The success of Desa Park City is a case in point. In fact taking this one step further, through a focus on placemaking, everyone would have the opportunity to invest in the city’s growth, not just developers. Rather than being master-planned, it would be community-planned.