‘Non-Malays can buy or rent Malay Reserve Land’

Malay Reserve Land can be degazetted to become non-Malay status land and can also be rented out to non-Malays for three years and renewed indefinitely for a three-year period each time, says top legal brain.

Text & Photography by Jan Yong
In West Malaysia, land reserved for Malay only use and ownership is referred to as Malay Reserve Land (MRL) while in East Malaysia (Sabah and Sarawak), it’s called native land. Other than Penang and Melaka, every state has its own MRL enactment.
Whether land is gazetted or degazetted out to non-Malays is governed under this enactment. The body making this decision is the state authority which delegates it to the exco, which is headed by the Menteri Besar as chairman.

Degazetting Requirements

According to Prof Datuk Dr Nik Mohd Zain, one of Malaysia’s top brains in land law, Article 89(1) of the Malaysian Constitution empowers the state to gazette any state land (not owned by anyone) or reserve land as MRL.
“If there is an application by a land owner under Art 89(2) to request the state to revoke the MRL status because he wants to sell to a non-Malay, this is possible provided the state must replace the said land with another piece of land with “similar character” ”, says the professor who was once a member of the committee which drafted the National Land Code of Malaysia.
For example, town land must be replaced with town land of equal value. However, because it is difficult to get another similar piece of non-Malay Reserve town land of equal value, this requirement has been relaxed to allow the replacement land to be of equal value but of a different category.
“For instance, say you want to degazette 10 acres of MRL in Shah Alam worth RM50 mil, both the owner and buyer must find another piece of land in Selangor, for example, 50 acres of agricultural land in Ulu Yam of equal value, to be the replacement land. This 50-acre land will then be gazetted as MRL while the 10-acre Shah Alam land can be degazetted and sold to the non-Malay.”
“In theory, the only condition is that the replacement land must be of equal “status”, but this literal interpretation is illogical because it would be practically impossible to get another town land of similar value to be gazetted to MRL as replacement,” explains Datuk Dr Nik Mohd, who was also formerly the Director General of Lands and Mines Malaysia and the Federal Lands Commissioner of Malaysia.
In other words, the replacement land can be a non-Malay Reserve land of any category within the same state as long as its value is equal to that of the land intended to be degazetted.

Practicality Prevails

Prof Datuk Dr Nik Mohd Zain

This is practised in all the states (except Penang and Melaka) with most occurring in the states of Selangor, Kedah and Johor.
In Kelantan, 85% of the land is MRL, hence it is almost impossible to find non-Malay land to be exchanged. As such, this requirement is waived and the Kelantan exco is given special powers to degazette any MRL to non-Malay land on condition that the land is alienated on a leasehold of 66 years instead of freehold.
“This 66-year period is good enough for three cycles or seasons of oil palm or one cycle of durian life,” notes the land expert.
Usually, the state exco will take about six months as per its client charter to make a decision. Although there are no published statistics on the approval rate of degazetting applications, the land law professor believes that Kelantan at the moment has an approval rate of 100%. This is because most applications there involve the state itself alienating the land; moreover, the land is only granted a 66-year leasehold.
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On the other hand, to gazette into MRL, it is a much simpler and hassle-free process.
If a big piece of land is later gazetted as a Malay Reserve area and some lots within it are originally owned by a non-Malay, ownership of the said lots can be transferred to another non-Malay with no restriction i.e. unlimited transfers. But once ownership is transferred to a Malay, the said lots lose the non-Malay status automatically.
For example, if 500 acres of an area are gazetted as MRL, and out of this, about 10 acres are owned by non-Malays, the non-Malays can still continue to own and make unlimited transfers of their land to another non-Malay. “This is to be fair to the non-Malay owners,” says the former Secretary General of the Ministry of Land & Cooperative Development, Malaysia.

Price Advantage

In Peninsular Malaysia, about 10 mil acres of the land is categorized as MRL. This makes up about one third of the total land area in West Malaysia which comprises about 32 mil acres.
Most MRLs are located in non-strategic areas, for example, country land (tanah kampong), and padi fields, says Datuk Dr Nik Mohd. “In Terengganu, for example, the town area is outside of Malay Reserve area.”
This has contributed partly to MRL’s relative cheapness compared to its surrounding area. More significantly, MRL is cheap because of the restriction in title where ownership cannot pass to non-Malays without being degazetted. “It’s cheap also because the purchasing power of the Malays is not so good in general, hence the demand is not there,” observes the former Secretary of the National Land Council, Malaysia.
However, he notes that despite the restrictions on ownership, rental to non-Malays is permitted. “Any property as long as it’s attached to the MRL including strata title property, can be rented out to non-Malays for three years; this can be continuously renewed for a period of three years each time, with no expiry period. This rental arrangement also applies to vacant land.”

Should I buy Malay Reserve property?

In recent months, there are increasing numbers of new property developments sited on Malay Reserve land and targeted only at Malay buyers. Asian Property Review talks to land investment expert Tan Hwa Chuan, on this new trend.
APR: Is it worth buying property sited on Malay Reserve Land (MRL)?
Tan: Yes, if it is 50% cheaper than non-Malay Reserve property surrounding it. For example, a newly completed development in Mont Kiara is priced at between RM800 – RM900 psf. It would cost over RM1.3 mil to buy a unit sized about 1,300 – 1,500 sq ft.
But if the developer can launch it at half price, say at RM450 psf, with an area of about 800 – 900 sq ft, this would cost over RM300K. If the cost of fund is about 3%, which is the current rate now, the yield for this freehold property would be about 6% which is acceptable. If this area is near Mont Kiara, then the rental rate can fetch about RM1,800 – RM1,900 per month. This compares favourably with a typical Mont Kiara unit which fetches about RM4K – RM6K per month. This allows people to upgrade to a more upscale neighbourhood with lower costs.
Banks are also more willing to lend RM300K compared to RM1.3 mil under current market conditions.
APR: How good is the demand for such properties?
Tan: Very good! An example is the Trees Damansara, near Taman Tun Dr Ismail. The total units launched in January 2018 was about 400 units. It was priced below RM500 psf with unit areas ranging between 850- 1,000 psf. The price per sq foot for
the freehold condominium was about half the price of units in surrounding areas. Within 8 months, it was 80% sold out. So, there is proven demand for such properties in the Malay market. Moreover, the Malay owners can rent out the units to non-Malays.

Tan Hwa Chuan

APR: So, are you proposing for owners of MRL to joint venture with developers to build such projects?
Tan: Yes, it’s a win-win situation. All such developments I know of are joint ventures between Malay land owners and non-Malay developers. Examples are Kiara View and The Trees Damansara. It has been proven that the take-up rates are very fast. Other popular areas include Melawati, KLCC and Kampung Baru. The key deciding factor is the 50% discount compared to its neighbours.
APR: Wouldn’t developing more properties on MRL be adding to the chronic housing oversupply situation?
Tan: No, it’s a different segment because properties located on MRL can be priced about 50% lower than similar developments on non-MRL. So, it’s perfect for their own stay at a price they can afford.

Kampung Baru – forever ‘Reserved’?

Legal issues, negative perception, and valuation disagreements, amongst others, are hindering redevelopment in the most undervalued land in the heart of Kuala Lumpur city centre, says land law expert.
Kampung Baru, though always cited as Malay Reserve land, is in fact categorised as Malay Agricultural Settlement (MAS) land but with the same restrictions against transfer, charge or lease to non-Malays. The land was meant for agriculture during the olden days but today, due to its strategic location, has become very expensive.
However, it looks like any fruitful development would not take place for a long time to come due to a number of factors including existing cumbersome ownership structure, legal issues and valuation disputes, amongst others.
“If however there is strong political will to push through for development in the area, all these could be solved,” asserts prominent land law professor, Prof Datuk Dr Nik Mohd Zain.
According to him, at one point, he was engaged as a land consultant with a view to developing the 250-acre Kampung Baru. He and his team made two proposals:
a. Establish Kampung Baru Development Corporation (KBDC) by an Act of Parliament. This was done and staff were hired.
b. KBDC to acquire the land in Kampung Baru to develop. Payment to owners would be in kind, like a joint venture instead of cash. KBDC to value the land to determine the share for the owners.
Says the former Director General of Lands and Mines Malaysia, “We valued the land through a government valuer. Owners were informed that they could get a private valuer and if they are not satisfied with our valuation, they could appeal and even go to court. At that time, we valued it at about RM500 psf as it could not be the same value as the surrounding land which was about RM1,000 psf. This was because of the restriction from selling to non-Malays, etc, similar to a Malay Reserve Land situation.”

Win-win if JV

“If the residents were to joint venture with us, then KBDC could construct affordable high rises which the many owners of Kampung Baru could rent out to non-Malays. The situation in Kampung Baru is such that only 10% – 20% of the owners are staying there – the rest either have passed on or many of the houses have been rented out.”
“If the government could acquire the land, the planning authorities could restructure the entire place such as construct new infrastructure, re-plan the roads including widening it and building drainage.”
There are also legal issues such as too many subdivisions of the lots to the point that an 8,000 sq ft land, for example, can have 125 owners on record!
“That piece of land was sold and the full purchase price paid 20 years ago but the transfer could not be done even today,” Datuk Dr Nik Mohd Zain reveals. “This was due to discrepancies in the names of some of the owners. As a result, the Land Office would not register the transfer into the new owner’s name.”
The academic explains further that all that was needed to resolve the issue was to get the said owners to make a Statutory Declaration that they are the same persons despite their different names. But some of these owners couldn’t be located anymore!
“This issue could have been avoided if the government could acquire the land. Then, the government only needs to either pay compensation in cash or in kind, for example, give an apartment unit to 10 owners. If payment is in cash and the owner can’t be found, then the money would either be deposited in Amanahraya or the High Court. And if no one claims within seven years, the Majlis Agama Islam can make a claim if the money belongs to a Muslim.”

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