Urban Regeneration in Malaysia : Issues and Practices
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. 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).
With rapid urbanization, large areas of land which were originally alienated for agricultural use have come under tremendous development pressure (Goh Ban Lee, 2004). 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. 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. These inner city sites experiencing urban decay are often termed brownfields.
2. Urban Decay and Brownfield 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 (Wikipedia).
Brownfield on the other hand commonly denotes any former or current commercial or industrial site that is currently vacant or underutilized and on which there has been, or there is suspected to have been, a discharge of a contaminant. Generally, brownfields are properties that are abandoned or underutilized because of either real or perceived contamination. By common definition, brownfield site is a product of urban decay and are more often associated with land left vacant or under-used due to contamination caused by previous land use activities such as waste disposal and manufacturing activities (Encyclopedia of Earth). However the term is also used to refer to any land or premises which has been used or developed and is not currently fully in use, which by this definition, also include underutilized urban residential land.
Urban decay was first associated with Western cities, especially North America and parts of Europe during the 1970s and 1980s during when, major changes in global economies, transportation, and government policies created conditions that fostered urban decay. In North America, industrial based city such as Detroit is an example of a big city which has experienced urban decay. The car manufacturing sector was the base for Detroit's prosperity and employed the majority of its residents. When this industry began relocating outside of the city, it experienced massive population loss with associated urban decay, particularly after the 1967 riots.
On continental Europe, the inner city districts and the edge of town suburbs made up of single-class state subsidised housing, such as the French "cités" and British "council estates", suffer the worst decay and blight. Britain experienced severe urban decay in the 1970s and 1980s. Major cities like Glasgow in Scotland, the towns of the South Wales valleys, and some of the major English industrial cities like Birmingham, Manchester, Liverpool, Newcastle, and East London all experienced population decreases with very large areas of 19th century housing experiencing market price collapse. Large French cities are often surrounded by decayed areas. While the city center tends to be occupied mostly by middle- as well as upper-class residents, the city is often surrounded by very large mid to high-rise housing projects. The concentration of poverty and crime radiating from the developments often cause the entire suburb to fall into a state of urban decay as more affluent citizens seek housing in the city, or further out in semi-rural areas. In early November 2005, the decaying northern suburbs of Paris were the scene of severe riots sparked in part by the substandard living conditions in public housing projects.
In the local scene, the traits of urban decay can be discerned by looking at the increasing number of urban poverty mainly due to migration of workers (both domestic and international) to urban areas in search of better economic opportunities and the expectation of an improved quality of life in urban areas especially within the period from 1980 to 1995 as shown by urbanisation rate, population and housing census and numbers of poor urban household which grew in tandem with each other. This increasing numbers of population among the lower income stretched the amenities, particularly affordable and medium cost housing and public transportation, to the limit. As a result, over the time, particularly beginning from year 1996 onwards, decentralisation of development started to occur and keep continuing resulting in Klang Valley urban sprawl which now sees the larger Kuala Lumpur Metropolitan Region covering an area of approximately 4000km stretching south to the Kuala Lumpur International Airport (Jamilah, 2003). As some urban household’s income has moved up the income ladder, some will move and relocate to more conducive housing areas which were developed rapidly in the suburbs or outskirts of the city centre resulting in empty units among old housing developments. This scenario could be found in old areas such as Brickfields, Sentul and Salak South / Sungei Besi.
A type of urban decay that has been apparent in certain parts of Kuala Lumpur City is the one caused by abandoned projects resulting from the late 1990’s market crash and economic recession. Examples are the Plaza Rakyat bus and light rail transit terminal and Nas Pavillion upmarket condominium which have more or less marred the urban landscape of Kuala Lumpur City. Ironically, these two projects are also urban regeneration attempts of transforming the Jalan Imbi area marked by old and dilapidated shophouses into modern amenities building and upmarket condominium.
3. The Need For Urban Regeneration
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).
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).
In the United States, the main responses to urban decay have been through positive public intervention and policy, through a plethora of initiatives, funding streams, and agencies, using the principles of New Urbanism (or through Urban Renaissance, its UK/European equivalent). Early government policies included "urban renewal" and building of large scale housing projects for the poor. Today with many people interested in moving back to the inner cities, new urbanism has renewed and restored some of these neighborhoods.
Due to higher population densities in Europe, economics dictates that extremely low-density housing would be impractical. In Western Europe, where land is much less in supply and urban areas are generally recognised as the drivers of the new information and service economies, urban regeneration has become a quasi industry in itself, with hundreds of agencies and charities set up to tackle the issue. European cities have the benefit of historical organic development patterns already concurrent to the New Urbanist model, and although derelict, most cities have attractive historical quarters and buildings ripe for redevelopment. In the suburban estates and cités the solution is often more drastic with 1960s and 70s state housing projects being totally demolished and rebuilt in a more traditional European urban style, with a mix of housing types, sizes, prices, and tenures, as well as a mix of other uses such as retail or commercial. One of the best examples of this is in Hulme, Manchester, which was cleared of 19th century housing in the 1950s to make way for a large estate of high-rise flats. During the 1990s it was cleared again to make way for new development built along new urbanist lines. The area is held up as an excellent example of Urban Renaissance.
In the local scene, in particular in Kuala Lumpur City, the local authority in its effort to elevate the city’s status at par with other premier cities in the world, urban regeneration has been recognized as one of urban planning mechanism that can help achieve the target. Under the Draft KL City Plan 2020, older areas which include dilapidated and blighted housing areas, abandoned projects, brownfield sites and urban villages will be systematically and progressively regenerated and revived according to the urgency of the urban needs.
4. Urban Regeneration Traced and Defined
"Urban regeneration is a widely experienced but little understood phenomenon.” (Roberts & Sykes, 2000 : 3)
In the book entitled “Urban Regeneration – A Handbook”, the editors Peter Roberts and Hugh Sykes termed urban regeneration as a global phenomenon. It is an outcome of the interplay between the many internal forces that are present within the urban areas itself and the external forces that dictate the need for the urban areas to adapt. Within an urban area, a rational pattern of land use will evolve and this tendency is exhibited in all cities irrespective of size, origin or geographical location. Principle factors that determine the pattern of land use in a particular urban area include competition for sites, accessibility and complementary factor in the sense that once a number of sites in a given area have been developed, this will have a strong bearing on the use of the remaining sites.
Urban regeneration (similar to urban renewal in American English) is a program of land re-development in areas of moderate to high density urban land use to reinvigorate a run-down urban area, such as the inner city. It is defined by Roberts & Sykes (2000) as:
Comprehensive and integrated vision and action which leads to the resolution of urban problems and which seeks to bring about a lasting improvement in the economic, physical, social and environmental condition of an area that has been subject to change.
In North America and Europe, urban regeneration process began as an intense phase in the late 1940s after the World War II and continued into the late 1970s with traces of it still occurring in the early 1980s. Similar mechanisms has played an important role in the history and demographics of cities around the world, including: Beijing, China, Melbourne, Victoria; Saint John, New Brunswick; Glasgow, Scotland; Boston, Massachusetts; Warsaw; San Francisco, California; and Bilbao, Spain. Commonly cited examples include Canary Wharf, in London, and Cardiff Bay in Cardiff.
Urban regeneration does not only mean re-development per se. Due to rather destructive nature of re-development process, there have been alternative methods of re-generation practiced by planners and authorities such as refurbishment, upgrading and restoration. Many US federal programmes have been directed towards urban revitalization, not all of them successful, but the containerization of Boston's docks, the redevelopment of the waterfront, and improvements in transport facilities have been accounted a success.
Similarly, urban regeneration programs in the UK have evolved over the years. The British government was concerned to target regional aid, and set up enterprise zones and urban development corporations, while encouraging the growth of housing associations. A score of the regeneration programs were carried out with participation from the private sector. In the UK, there are private companies known as Urban Regeneration Companies that seek to achieve a radical physical transformation of their areas through master-planning and coordinating financial assistance to developers from both the public and private sector.
5. 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.
- 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.
- 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)
- In 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.
- In 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.
- 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.
- 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.
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.
6. Urban Regeneration Trend and Practices in Klang Valley
Urban regeneration practices in Malaysia can be considered to be still in its infancy stage. The exception to this perception is perhaps Kuala Lumpur City. Malaysia is still a developing country and many major cities in Malaysia are still growing with new on-going developments carried out and the full impact of urban decay is yet to really put its toll, if compared to other major cities in the world. However, for older established cities such as Kuala Lumpur, Georgetown (Penang), Melaka and Johor Baru, directions as to the sustainable future development trends in inner and outskirt areas of the cities have brought about proposals and debates on urban regeneration practices, especially among the local authorities, property developers and landowners. Consequently, of late, various news and articles on regeneration issues have surfaced and made special features in major section of local business papers.
From local authority’s perspective on urban policy, Kuala Lumpur City Hall is pre-emptive among the municipalities in terms of urban regeneration practices by recognizing it as one of the strategic directions the city will take in an effort to encourage more sustainable lifestyles by providing opportunity to recycle land, clean up contaminated sites, and assist environmental, social and economic regeneration, whilst at the same time reducing pressure to build on Greenfield sites.
The City Hall has identified 35 potential sites for urban renewal which are mostly privately owned land in the city centre comprising a total of 548 hectares. The approach will be based on the following urban regeneration exercises:
- Total re-development.
This method will involve total demolition of the existing building and clearance of the site which include removal of existing business and residential occupants. 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. 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. 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.
- 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.
- Conservation and Preservation
The method is particularly suitable for buildings or sites with historical value and have tourism potential.
The City Hall has identified the 35 potential sites for urban renewal according to the following criterias:
- Existing residential or commercial areas facing problems identified as follows:
i. Building with dilapidated physical – structure and façade
ii. Limited land size and multiple ownership – large scale development difficult to be carried out
iii. Limited facilities and infrastructure
iv. Re-developments carried out in piecemeal manner
v. Un-optimized land use
vi. Negative social activities (vice) such as drug addicts and prostitution
- Strategically located
- Have redevelopment potential in terms of physical, economical and social aspects
The 35 potential sites identified in the Draft KL City Plan 2020 covers the whole of Kuala Lumpur Federal Territory and are found located in four main areas; City Centre, Damansara / Penchala, Bandar Tun Razak / Sungei Besi and Bukit Jalil Seputeh. Out of the 35 sites, 15 have been identified as being in urgent need for regeneration. They are:
- Area near PWTC LRT Station
- Areas around Tiong Nam
- Areas next to Sultan Ismail LRT Station
- Malayan Mansion, Selangor Mansion & Wisma Yakin
- Areas around Leboh Ampang
- Areas around Jalan Petaling
- Bus terminal, Pasarama Kota and Police Traffic Office
- Kampung Attap’s government quarters
- San Peng and Loke Yew Flats
- Pudu Gaol
- PPR Hang Tuah
- Around Jalan Berangan areas
- Jalan Alor / Tengkat Tong Shin areas
- Jalan Bukit Bintang shophouses
- Jalan Davis old government quarters
From another local authority’s perspective on urban policy, Majlis Bandaraya Petaling Jaya (MBPJ) has also recognized the importance of sustainable urban regeneration practices. The Local Draft Plan for the city has come up with a Special Area Plan (Rancangan Kawasan Khas or RKK) that was ready for public scrutiny in 2008. Under RKK, proposals that would encourage urban regeneration practices are stipulations that allow for increase in plot ratio and maximum building, conversion of land to commercial uses and restriction on new industrial activities will be imposed or no new manufacturing activities are allowed (existing ones area allowed to carry on) for areas specified under RKK.
For old established area that are built-up with and occupied by large factories such as Section 13, the above policies are seen as to encourage landowners and property developers to embark on regeneration which most probably involve total redevelopment of their land from that of industrial use to commercial activities. Over the years, the section has been deemed as more suitable for commercial use as tougher environmental issues, higher rent and/or land costs and logistical reasons have forced some of the heavy and light industrial factories to move out to areas like Shah Alam, Klang, Sungai Buloh and Puchong.
Already, the area has seen some kind of transformation via recent completion of commercial development on previously factory sites such as the new and trendy commercial (retail) developments of Jaya One and Jaya 33.
7. Selected Major Urban Regeneration Cases (On-going)
- KL Sentral
The development of the Kuala Lumpur Sentral Station (KL Sentral), the new transportation hub of Kuala Lumpur over 30 hectares of land situated in Brickfields started in 1994. The MRCB group in consortium with Keretapi Tanah Melayu Berhad (KTMB) and another construction company was awarded the privatization exercise by the Malaysian Government. The site which was previously used by KTMB as a marshalling yard, locomotive maintenance and warehousing and built with godowns, warehouses, sheds, living quarters, office buildings and facilities for locomotive cleaning has now been transformed into a contemporary and bustling transporation nucleus comprising:
The central station which is designed as an elevated building above the railway operations. The transit concourse is designed as a ‘transfer bridge’ linking the main concourse with all the train platforms of the station i.e. the intercity concourse located at the same level with the main concourse; LRT concourse located to the east of the Transit Concourse and the ERL concourse to the south of station
Office towers as the prime commercial component of the development with a provision made for a total of 19 office tower blocks (eg Menara MIDF)
- Integrated office
- Retail and entertainment complex (Sooka Sentral)
- Hotels (KL Hilton and Le Meredien)
- Condominiums (Suasana Sentral)
- Public amenities including an auditiorium
Upcoming developments in KL Sentral include:-
1. Lot A: CIMB Investment Bank Tower
2. Lot B: Commercial development by MRCB, Kuwait Finance House and Quill
3. Lot C: St. Regis Hotel and Residences KL – scheduled to open in 2014
4. Lot D: Tallest condos in Malaysia by MRCB, Capitaland and Quill Group
5.Lot G: KL Sentral Mall and Serviced Apartments – will feature an 8-screen Cineplex – located opposite Skybus terminal (AirAsia bus shuttle from KL Sentral to LCCT)
Tamansari Riverside Garden City
The RM9 billion riverside city project at the intersection of Jalan Pahang and Jalan Tun Razak area in Kuala Lumpur, previously occupied by the Pekeliling Flats which will have as its centrepiece a 60-storey tower unlike any other in the world. Residents of the one-room flat built in the 1970s have since been relocated to a three-room flat built by ASIE with financing from Bank Pembangunan.
The project is slated to be undertaken on a joint venture basis comprising a team of foreign and local financiers, project managers, consultants, architects and designers. Construction started January 2008 and the entire project is targeted for completion within seven or eight years. The project owners comprising Australian financial services group Macquarie Bank, Australian construction and engineering company, Leighton Group, construction investment firm Saha Regal and local project developer ASIE Sdn Bhd. Master planner and architect for the project is the renowned firm Goh Hock Guan & Associates (GHG). Also involved are Malaysia's Bank Pembangunan Bhd, Australia-based design group, Hassell; global project consultant, Rider Hunt; and international consultant engineers comprising the ARUP group, Lincolne Scott and Connell Wagner.
Based on a waterfront city-within-a-city concept, the 22.3ha Tamansari will consist of a mixed development of commercial and residential properties spread over 21 parcels, featuring a 60-storey spectacular tower, malls, hotels, commercial and residential units. Parcel M within the Tamansari project's first phase will cost about RM700 million. The project parcel will be connected across the busy Jalan Tun Razak to the site across the highway via an elevated walkway. Parcel M within the first phase will include a unique tower to be built on the banks of the Gombak River. The parcel will cost about US$1 billion (RM3.36 billion). Other parcels within the entire project will include hotels, condominiums, office and commercial blocks, government and public housing and a medical centre. The entire project will be done on a private financing initiative basis. Its ownership will remain with the joint-venture partners while financing will be undertaken by Macquarie Bank which will also conduct international sales of the properties.
Sentul Raya Re-Development by YTL
Sentul, an area stigmatised as crime-infested area has seen a major facelift by the Sentul Masterplan regeneration involving a 294-acres of prime land divided into two portions by the existing Sentul KTM commuter station and its track forming two precincts; 186-acre Sentul West and 108-acre Sentul East. Sentul is now synonymous with KL’s performing arts centre.
Salient details of the redevelopment include:
- Construction of 7000 residential units housing 50,000 residents over 117.6 ha of land
- A unique feature is the 14ha private gated park in Sentul West, the first of its kind in Malaysia and an elevated pedestrian skywalk that connects one end of the pedestrian link from Station Square to Sentul East LRT station.
- The Sentul East development include the upmarket Tamarind condominium and the proposed The Capers.
Pavilion Commercial Complex
The redevelopment was undertaken by a subsidiary company of Berjaya Group. The land was previously occupied by Bukit Bintang Girls School. The development among others comprise of
- One mega shopping mall, the Pavilion which has become on of KL’s best shopping mall since it was officially opened by the Prime Minister on 1Feb 2008
- Two towers of premium condominium, The Pavilion Residences (recently completed)
- The proposed Raffles Hotels & Resorts which is expected to be the most prestigious and expensive hotel in Kuala Lumpur when it opens atop Pavilion Kuala Lumpur in 2011. It will offer the most spacious hotel rooms in the city.
Southgate Commercial Centre, KL South
Inspired by Xintiandi in Shanghai, Southgate is an integrated business centre with a fusion of creative work spaces and lifestyle retail developed over site previously occupied as industrial premise. Mah Sing Group is the developer of Southgate and has since managed to sell a block of the office building within the development to a government linked agency even though construction is still in early stage.
8. Pros and Cons of Urban Regeneration
Urban regeneration's effect on actual revitalization is a subject of intense debate. It is seen by proponents as an economic engine, and by opponents as a regressive mechanism for enriching the wealthy at the expense of taxpayers and the poor. It carries a high cost to existing communities, and in many cases resulted in the destruction of vibrant, albeit run-down neighborhoods.
For the proponents, the main argument is that urban regeneration would cut the tendency to urban sprawl, reduce pressure to extend development on green-field sites, prompt the rehabilitation of dilapidated properties and bring vacant properties back on the market. It would also remove a perceived imperfection in the current land market, which today is certainly forcing people and businesses out of the inner city, sometimes unwillingly. Best of all, the communities in which these ``future brownfield sites`` reside are benefited by the obvious and instant community and environmental benefits associated with the cleanup of a polluted site.
For the opponents, urban regeneration is extremely controversial in that it typically involves the destruction of businesses, the relocation of people, and the use of eminent domain (known as compulsory Land Acquisition or Compulsory Purchase in the UK) as a legal instrument to reclaim private property for city-initiated development projects in order to secure sites into public ownership. Many authorities are sitting on large tracts of suitable land, but in the main any major development programme would involve the public sector acquiring land from the private sector. In many cases, compulsory land acquisition is too costly for the government to bear due to high land values generally associated with urban land.
Urban regeneration also has been known to demolish entire neighbourhoods in many inner-cities and in many ways it was a cause of urban decay rather than a remedy. In cases involving slum areas, slum clearance is redevelopment after wholesale clearance of the site, but this has the effect of destroying communities and has become unacceptable in certain cities in the world. In Oxford, England for example, the community of St Ebbe's was relocated at the edge of the city, in Blackbird Leys, leaving the population with a long journey to work and fewer amenities. Often, at the same time, gentrification also occurs as a direct result of regeneration whereby the original inhabitants no longer afford to live at the same area after redevelopment has been completed and are priced out by the increase in property values caused by new higher-income communities that moved in.
Similar urban regeneration efforts carried out in Kuala Lumpur involving slum area is also not without similar controversies. The Tamansari project is a perfect example whereby regeneration project of a slum area has caused total removal and relocation of the occupants of the demolished building to a site which in the opinion of the majority are not suitable and rather costly to the their new livelihoods. Whilst some residents have agreed to move to their allocated new housing units in the fringe of the city, the remaining residents did not like the ones allocated to them and have refused to move unless they are given a written guarantee they will be allotted flats which are nearer to the city centre.
Other scenario found in Kuala Lumpur is cases whereby urban decay is a direct product of regeneration itself. The stalled Plaza Rakyat bus and light rail transit terminal project and the abandoned Nas Pavillion upmarket condominium are two examples of urban regeneration efforts which failed and instead contributed to the decaying facets of the existing nearby properties in the area.
Without the added cost of compulsory land acquisition, urban regeneration exercises on its own is also known to be costly much due to problems caused by the type of property dealt, brownfield sites and dilapidated buildings. In most cases, it requires a concerted effort and cooperation between the public sector, the private sector and the community affected.
To property developers, regeneration involving brownfield redevelopment is a unique real estate development type. The economic drivers are generally similar to those found in typical real estate/greenfield development, but environmental contamination introduces several hurdles to successful economic redevelopment. On the cost side, the expenses associated with brownfields redevelopment are higher than those of greenfields and include the purchase price, closing costs, remediation and risk management costs, capital expenditure (e.g., infrastructure, building improvements), soft costs (e.g., legal, rezoning, engineering and consulting) and sales costs (e.g., marketing and/or commissions).
The other hurdle associated with contaminated real estate which is as important for the developer is the potentially larger environmental liability and the difficulty of finding debt project financing. Brownfield developers have difficulty using financial leverage (e.g. debt) because brownfield appraised value is generally low, and banks require lower loan-to-value ratios to protect themselves from the risk of having to own and manage stigmatized properties. As a result, the equity requirement for brownfield redevelopment is high. High equity requirements combined with increased expenses due to remediation costs often lead to low return on investment.
Another hurdle specific to brownfield transactions is that other dilapidated sites frequently surround individual brownfield sites. Successful redevelopment of an individual brownfield site is often contingent upon developing a master plan for an entire area, which may require the development team to buy adjacent sites from multiple owners. (This scenario is particularly true with the local case of Kampung Baru’s Malay Agriculture Settlement Area). The complexity of dealing with multiple sellers adds to the risk inherent in brownfield development projects. In some cases, buying additional surrounding parcels is the only way for the project to offer the potential to generate, on a blended basis, enough gain to offset the risks and costs associated with the core contaminated parcel(s). However, as more property is acquired on the perimeter of a contaminated site, the investor assumes greater assembly and market risks. For example, with a smaller, core contaminated parcel, a revitalization effort hinging on future market acceptance and absorption is less risky than investing in a geographic so large that the future transformed region would need to be significantly deeper to accommodate the newly created supply in the marketplace.
The problems of urban decay and brownfields can be greatly alleviated by creating a rational economic framework in which the private sector may operate, respond and be guided by well-considered, typically local, public decisions for prioritization of private-sector driven site cleanup. In an unsubsidized setting, market economics drive the cleanup decisions of these challenging sites. With public guidance, private forces can operate efficiently to produce revitalization in places where communities most need it, but where without such public incentive, revitalization may not occur.
Urban regeneration in its original form has been called a failure by many urban planners and civic leaders, and has since been reformulated with a focus on redevelopment of existing communities. Over time, urban regeneration evolved into a policy based less on destruction and more on renovation and investment, and today is an integral part of many local governments, often combined with small and big business incentives. But even in this adapted form, in many cities in the world, urban regeneration projects are still widely accused of abuse and corruption.
Municipal officials and urban residents increasingly fight suburban sprawl by encouraging development of urban sites. Communities are supporting redevelopment of in-fill sites they previously avoided due to uncertain or complicated environmental issues. Although challenges remain, federal, state and local governments and private groups are collaborating to explore creative ways to remediate environmentally impaired sites.
In spite of the various challenges, the successes of the previously mentioned regeneration efforts serves to strongly evidence that brownfield sites still have potential if broad community support exists to restore them, and creative development teams can structure the transactions to maximize the customarily low return. Brownfield investors and developers must think creatively about ways to complete a transaction that appears upside-down (i.e., higher cost than potential sale/exit value), using tools such as private equity funding, environmental insurance, public-private partnerships, tax relief financing and other public financing components. Public financing helps lower the capital cost and thereby increase returns. Simply put, public incentive for private activity is necessary to remediate and revitalize the thousands of brownfield sites nationwide. Together, a private company can shoulder the investment and liability of clean up, while the host community receives the environmental benefits of a cleaned site and the community and economic benefits of revitalization.
LIST OF REFERENCES
- Bernama The Malaysian National News Agency, July 29 (Bernama)
- Scope of the Report and Memorandum by English Partnerships (GF 23)
PARTNERSHIP INVESTMENT PROGRAMME APPRAISAL PROCESS AND CHECKLIST , 2000
- Land Securities (website)
- Investor Property Forum (website; ipf)
- The Star, December 3, 2007
- The Edge Malaysia (City & Country), June 22, 2009 and July 6, 2009 issues
- Urban Regeneration, A Handbook, (Robert & Sykes, 2000)
- Rail Transit Development and Urban Regeneration in Kuala Lumpur (Jamilah, 2003)
- Revisiting Urban Poverty and the Issue of Social Protection in Malaysia (Ragayah, 2008)
- Draft Kuala Lumpur City Plan 2020