Land Development Process and Property Development

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.

    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 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.

    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 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.
     
  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 re-development 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 sub-actors that have been mentioned before will come together at this stage 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 sub-actors that have been mentioned before will come together at this stage performing their relevant roles as follows:

    i.    Architects administer the design and build contracts and certify completion of the building works.
     
    ii.    Quantity surveyors monitoring the construction and approving stage payments to the contractor, and participating in the administration and management of design and build contracts.
     
    iii.    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.
     
    iv.    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.
     
    vi.    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 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. 
     
    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. 
     
    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.

    Land Development Process and Its Corresponding Actors
     
    Land Development Stage Main Actor(s) Supporting Actor(s)
    Initiation Landowner
    Public Sector
    Accountant
    Commercial Agent / Estate Agent
    Evaluation Developer Professional / Economic Consultant
    (eg. Registered Property Valuer or Appraiser)
    Acquisition Developer
    Public Sector
    Solicitor
    Accountant
    Financier
    Land Surveyor
    Valuer
    Design and Costing Developer Architect
    Quantity Surveyor
    Building Surveyor
    Permission (including conversion, sub-division and amalgamation) Planning Authority Planning Consultant
    Architect
    Land Surveyor
    Commitment Landowner
    Public Sector
    Developer
    Solicitor
    Building Contractor
    Architect
    Quantity Surveyor
    Engineer
    Supplier
    Implementation Developer
    Building Contractor
    Project Manager
    Sub-contractor
    Architect
    Quantity Surveyor
    Engineer
    Supplier
    Let / Manage / Dispose Landowner
    Developer
    Occupier
    End Financier
    Lawyer
    Estate Agent
    Valuer

 

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)  Sub-division (Sections 135 – 139)
            (c)  Partition (Sections 140 – 145)
            (d) Amalgamation (Sections 146 - 150)
            (e)  Simultaneous applications for sub-division and variation of conditions, restrictions and categories (Section 124A), and
            (f)  Surrender and re-alienation - 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), sub-division, 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 under-developed, 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 authority’s 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 wider-long 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
    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 developer’s 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 – Developer’s 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 approval has been endorsed by the authority’s 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.
     

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 party’s 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 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. Pre-development stage comprising sub-stages of idea initiation (decision to develop), site selection, feasibility, financing and planning consents
  2. Development stage comprising sub-stages of tendering, construction, project management, leasing, financing and sale (disposal)
  3. Post-development stage comprising sub-stages 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.    pre-development stage which combines all the sub-stages in the old school of thoughts’ pre-development and development stages;
ii.    and post-development stage comprising the same sub-stages 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 owner-occupied, 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 re-arrange 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 earth’s surface and 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 earth’s 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 Re-Developing 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