27 November 2014

Room for improvement

  27 November 2014

SIMPLER PROCESS NEEDED: Developers have to submit many applications just to get projects started the success of a real estate project, whether residential or commercial, is crucial for the stakeholders, who are primarily the developers, the land owners and property buyers.

What is important is the timely completion of the project within budget and in accordance to specifications.

In Malaysia, there are more than 1,000 developers, including public-listed and government-linked companies, boutique developers and small and medium enterprise (SME) builders.

While property development is an interesting business, developers are finding it a challenge to get approvals from the time they buy a piece land till completion of the project.

A property project’s life cycle comprises three stages, which are planning or pre-development, construction and post-development, which is when the keys are handed over to buyers after the Certificate of Completion and Compliance (CCC) has been obtained.

In the pre-development stage, a developer has to obtain planning approvals before any physical work could commence on the site.

The developer has to put in applications for, among others, planning permission, building plan, road and drainage plan, and work and construction plan.

This process alone can take more than five years for a medium-size development.

Developers are also governed by many laws, procedures and guidelines that make property development a tedious process.

To position the housing and property industry as an efficient value-adding sector of the economy, the Real Estate and Housing Developers’ Association Malaysia (Rehda) has proposed that impractical policies, legislative provisions and guidelines and practices that inhibit progress be reviewed.

Rehda said any introduction or amendment of policies or regulations must be looked at in a holistic manner and must consider the SME developers.

In April 2007, the government introduced a one-stop centre (OSC) to facilitate property development approvals.

Prior to the OSC, submissions were done separately and in sequence. For example, only upon the approval of the layout plan could the building plan be submitted, with the rest of the drawings to follow suit.

With the OSC, consultants can submit the layout, building, road and drainage, earthwork and landscape plans simultaneously.

The OSC has since been upgraded to OSC 3.0 to further strengthen the effectiveness of the approval process by local authorities and external technical agencies.

Areas of improvement include referring building plans to only three departments and faster issuance of the CCC.

The other area is the notification of start-work order, which allows works to commence within 14 days if there are no objections from the local authority.

Though improvements have been made, developers said there were still many issues plaguing the industry, such as the long time to process approvals for land, design and building.

Tan Sri Lim Kim Hong, founder and chairman of I-Berhad, the developer of i-City in Shah Alam, Selangor, said getting approvals for the building, planning and development stages was still a challenge that might keep budding entrepreneurs away.

“As entrepreneurs, we are always looking at new concepts and ensuring that the vision is in line with market expectations. In property development, I have to factor in the authorities’ approval. Ultimately, the biggest challenge is coming up with the appropriate development vision for the land.

“While location is important, the right development vision provides the icing on the cake. The right concept not only results in better returns but can also spur the development of neighbouring areas,” he told Property Times.

Lim said in the context of i-City, notwithstanding that it took the company about two years from initiation to getting the development order for the first phase, there were many amendments submitted to the authorities.

“This was partly because we did not get the full gross floor area (GFA) that we applied for and approvals for i-City did not only come from the Shah Alam City Council (MBSA). For example, we wanted to be a Multimedia Super Corridor (MSC) Malaysia Cybercentre, a tourism destination and an international park. These approvals came much later from different authorities.

“Overall, it took us about eight years to crystallise our development plans, with MBSA approvals (after various amendments) as well as government approvals for MSC, tourism and international park status. Today, all our approvals are in place.

“The other key challenge is execution and to what extent we can bring forward the various development components.”

Lim said another concern was the holding cost of land, whereby developers had to develop the land in phases, given that it would take time to build up demand, especially in a greenfield location.

“In the case of the 28.8ha i-City, we are developing it in phases as we are looking at GFA rather than land acreage. Because of the holding cost, the challenge is to be able to quickly launch the first phase. This is where the authorities’ approval comes in.

“The first phase approval in a greenfield area is the most challenging because the local authorities may not be familiar with what the developer is trying to do.

“Secondly, if the developer is pioneering new concepts, the approval process may take longer.

“In the case of i-City, we were planning to create an MSC Malaysia Cybercentre and night tourism destination in an area that was previously not known for commercial or leisure activities. MBSA had to seek approval from the state for many of the concepts that were designed as the backbone of i-City.”

Lim said timing was also an important factor.

“Approvals for major townships may take more than 12 months. Once you get the approval, the market may have evolved. For i-City, we are fortunate as the land was acquired years ago and the holding cost was low. This provided i-City with the flexibility to KAURpursue various approvals to extract best-value potentials from the land.”

Lim said the government and local authorities should streamline the approval process.

He said major townships and urban centres were long-term development projects and as such, there would be periodic amendments as the projects progressed.

“As property development generally

involves land holding cost and long development periods, it is becoming a business that requires a strong financial or holding power.

“The government is moving in the right direction by ensuring that it is no longer a ‘mum-and-pop’ business. However, it is still an industry with low-barrier entries.

“This results in some projects being undertaken by weak developers. It is sad that we still worry about abandoned projects. In the long run, the industry players need to be financially strong, have a long-term perspective and be of significant size,” added Lim.



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