DBKL freezes approval for certain developments

This article first appeared in The Edge Malaysia Weekly, on November 20, 2017 - November 26, 2017.
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DEWAN Bandaraya Kuala Lumpur has frozen approval for new applications to build shopping centres, offices, serviced apartments and luxury condominiums in the capital city following a directive from the Cabinet, a document obtained by The Edge shows.

Though the freeze came into effect on Nov 1, its duration remains unclear.

The move follows a study conducted by Bank Negara Malaysia, which indicates an excess of floor space in the four categories of buildings identified, according to the document, which has gone viral. The freeze does not apply to condominium projects offering units at less than RM1 million.

The Edge understands that several other states were caught out by this new ruling.

In its study, Bank Negara highlighted the large incoming supply of shopping complexes across the Klang Valley, Penang and Johor and the incoming supply of office space that could exacerbate the glut in the Klang Valley.

Federal Territories Minister Datuk Seri Tengku Adnan Tengku Mansor, when contacted by The Edge, confirms the contents of the document. He says the decision was made on the advice of the central bank “about two to three Fridays ago”.

“There is a glut of shopping centres. We don’t want a situation where there are empty shopping centres,” he says, adding that with so many projects already having been approved, new development orders will only worsen the situation.

“There are many condominiums priced above RM1 million. This needs to be controlled since there is a glut. There is also too much office space already approved. We need a balance. If there is excess space, the owners may not be able to rent it out.”

Nevertheless, Tengku Adnan hinted that some considerations may be made. “If these are new areas and we can disperse it (the development) out of the city centre, we can look into it.”

When asked if the planned development within Bandar Malaysia will be hit by the ruling, Tengku Adnan says its master plan has already been approved. Similarly, many of the developments within Tun Razak Exchange have already been approved.

“We want to help the developers. We also don’t want to create a situation where the number of abandoned projects increases,” says Tengku Adnan.

Asked about the duration of the freeze, he says, “Maybe one year, maybe two years, maybe three.” It all depends on the state of the market, he adds.

The document also reveals that the freeze is applicable to variations made to building plans. This is when developers that had obtained development orders do not commence their projects but plan to make changes to them later.

Developers that had submitted their plans prior to the freeze must also receive their planning permission by Jan 1, 2018, at the latest.

Paramount Corp Bhd CEO Jeffrey Chew Sun Teong says it is a positive move to rein in the oversupply in the commercial and office segment. “It’s about time they addressed the oversupply of shopping malls. If the industry cannot discipline itself, then I would agree. The government is just helping to put on the brakes.

“I think the market is generally aligning itself to that kind of thinking (less development of malls) anyway. So, the freeze is to get the others to align themselves as well,” he tells The Edge over the phone.

Chew notes that the threshold for condominium projects is not much of a hindrance as most new units are already priced below the RM1 million mark; the exception are those in the Golden Triangle.

Nevertheless, he says, it is a good preventive measure against developers or foreign players that may not have sufficient insight into and knowledge of the Malaysian property market, which could distort it further.

Axis REIT Managers Bhd’s head of investments, Siva Shanker, however, does not agree with the freeze. He strongly believes that the market should drive itself.

Pointing out that there was no proper consultation with the various stakeholders of the property segment, he says the decision is a knee-jerk reaction to the oversupply situation. “It is good to slow the development of shopping centres, offices and serviced apartments, but I am a firm believer that the market should take care of itself. What the market doesn’t need today is more cooling measures. Free enterprise should prevail.

“If you are a property developer that built something after doing the necessary research and yet the units remain unsold, then it is your own fault. The developers are not so naïve as to continue building things that can’t sell.”

Moreover, says Siva, the RM1 million threshold may cause an oversupply in the RM800,000 to below RM1 million range as developers price down their units to meet the new requirement.

He adds that developers could also skirt the requirement by selling bare units or building smaller units to avoid the threshold. “If you are pricing your unit at RM1.1 million, you can easily bring it down to below RM1 million. This will drive the supply to the slightly below RM1 million range, creating an oversupply in that segment of the market.”