HBA: The government intention to adopt a profit-based valuation methodology should be scrutinised

KUALA LUMPUR: Homeowners should not be expected to surrender properties they already own in exchange for promises of replacement homes under redevelopment schemes without adequate legal and financial safeguards.

Datuk Chang Kim Loong, the Honorary Secretary-General of the National House Buyers Association (HBA), said the proposed Urban Renewal Bill (URA) raises fundamental questions about the necessity of new legislation, the fairness of its valuation framework and the protection of homeowners whose properties could be earmarked for redevelopment.

Housing and Local Government Minister Nga Kor Ming has said the proposed legislation would complement existing laws governing dilapidated strata buildings, with developers' projected profits factored into determining the value of replacement properties for affected homeowners.

However, Chang questioned whether projected profits offered a sound basis for valuation, given the uncertainties surrounding property development.

"A projected profit is not a financial guarantee, and a promise of a replacement home is not the same as receiving one," he told Business Times.

Chang argued that Malaysia already has an extensive legal framework governing land ownership, strata management, building safety, planning and compulsory land acquisition.

These include the Strata Titles Act 1985, Strata Management Act 2013, Street, Drainage and Building Act 1974 and Land Acquisition Act 1960, alongside the National Land Code 1965 and other planning and housing legislation.

While acknowledging that existing procedures may not make every redevelopment commercially or procedurally straightforward, he said this did not automatically justify introducing a comprehensive new law.

The government should identify precisely where current legislation falls short and demonstrate how the proposed bill would address those deficiencies without unnecessarily compromising individual property rights, he said.

"If the problem lies in outdated procedures, inadequate enforcement, weak building maintenance or difficulties coordinating the relevant authorities, why not identify the precise deficiencies and amend the appropriate laws? Who determines fair value?" Chang said.

He questioned how developers' projected profits would be calculated, who would independently verify the assumptions and what safeguards would apply if the actual financial outcome differed significantly from the original projections.

A development's expected profitability depends on factors such as land value, development density, construction costs, financing arrangements and market demand. These projections, he said, should not be confused with an independent assessment of an existing homeowner's property or the value of the replacement unit offered.

If the government intends to adopt a profit-based valuation methodology, it should publish the formula, disclose its assumptions and establish independent verification procedures.

Homeowners should also have a clear avenue to challenge valuations and obtain independent legal advice, particularly when they disagree with a proposed redevelopment.

"A feasibility study is not a completion guarantee. A projected profit is not a financial security. And a promise of a replacement home is not the same as receiving one.

"The government must therefore explain what legally enforceable safeguards would protect affected owners if the developer fails to complete the project.

"These should include appropriate financial security, clear responsibility for temporary accommodation, enforceable completion obligations and a credible mechanism to secure completion if the original developer defaults.

"Without such safeguards, the burden of an unsuccessful commercial venture could fall disproportionately on homeowners who never chose to become participants in that venture," he said.

Chang called for legally enforceable safeguards, including appropriate financial security, clear provisions for temporary accommodation, binding completion requirements and mechanisms to ensure projects can be completed if a developer defaults.

Chang said genuinely dilapidated or dangerous buildings may require urgent intervention, but this must be distinguished from redevelopment intended primarily to unlock commercial value.

Local authorities already have powers to address dangerous buildings, while existing maintenance and management laws provide mechanisms to deal with deficiencies in strata properties.

A law intended to improve safety and living conditions should not become a blanket instrument for overcoming the objections of owners who do not wish to surrender their homes, he said.

He also urged the government to examine why existing laws and enforcement mechanisms had not adequately addressed the problems identified before introducing sweeping legislative changes.

Where buildings are unsafe, authorities should enforce existing safety and maintenance provisions. Where management bodies have failed to maintain common property, the underlying causes should be investigated and addressed.

For commercially viable redevelopment projects, developers should negotiate transparently with homeowners and demonstrate that the proposed terms are fair and legally enforceable.

Chang further called for greater scrutiny of proposals that could reduce consent requirements, arguing that majority support for redevelopment should not automatically override the legitimate financial, personal and legal interests of dissenting owners.

Consultation, he said, must give homeowners sufficient information and a meaningful opportunity to raise objections rather than serve as a procedural formality.

"Consultation is meaningful only if homeowners have sufficient information and their objections are properly considered. It should not become a procedural formality before decisions are imposed upon them."

Chang said rather than assuming that a new comprehensive law is the answer, the government should first establish why existing legislation and enforcement mechanisms have failed to address the problems identified.

If the main obstacle is the unanimous-consent requirement for terminating a strata scheme, it should explain why targeted amendments, court-supervised procedures or other narrowly tailored measures would be insufficient.

"Where buildings are unsafe, authorities should enforce existing safety and maintenance provisions. Where management bodies have failed to maintain their buildings, the underlying causes should be investigated and remedied.

"For commercially viable redevelopment, developers should negotiate transparently with property owners and demonstrate that proposed terms are fair, adequately secured and legally enforceable."

Chang said a new law should not be justified simply because it makes redevelopment easier for developers. The government must demonstrate why the changes are necessary in the public interest and how individual property rights will be protected.

He also questioned whose interests urban renewal serves. And why overlook regeneration, revitalisation and rejuvenation as alternative approaches to improving ageing urban areas?

Urban renewal can deliver genuine benefits by improving safety, living conditions and the quality of the urban environment. But these objectives must not come at the expense of homeowners' rights and security.

Chang said developers are entitled to pursue profits, but they must also bear the commercial risks inherent in their business.

Homeowners should not have to surrender their existing homes in exchange for promises contingent on future market conditions, development approvals and a private company's financial survival, he said.

Before proceeding with the proposed legislation, the government must answer two fundamental questions.

"The government must therefore answer two questions before proceeding with the proposed legislation. First, why are existing laws insufficient, and why cannot their shortcomings be addressed through targeted amendments and effective enforcement?

"Second, what concrete and legally enforceable protections will guarantee that homeowners receive fair value and secure replacement properties even if the developer's projected profits fail to materialise?

"Until these questions are answered satisfactorily, projected profits and promises of future replacement properties should not be treated as sufficient assurance for affected homeowners," Chang said.

He said urban renewal must renew the urban environment without diminishing the security of homeownership.

"The law should protect the people whose homes are at stake, not merely facilitate the commercial feasibility of redevelopment."