How can investors analyse the feasibility of a plot of land and what are some of the mandatory due diligence one should carry out?
I have actually developed a 10-step feasibility framework which has proven to work for all my land ventures in prime areas within the KV. This due diligence guide covers all bases from research to purchase and works to provide land investors with maximum value while mitigating risk:
The Rule of Thumb is especially helpful to carry out a quick preliminary test or when you have to make a judgment call. It calls for the land cost to not be more than 20% of its potential Gross Development Value (GDV); i.e: estimated value that the total development would fetch in the open market. Currently though, investors are able to purchase land which cost is roughly 10% of its potential GDV.
Say for instance, you have your eye on a plot of land which is able to generate a GDV of RM100 million – if the seller will not budge from a minimum asking price of RM25 million, you know it is time to walk away from the deal.
Level 5 is one of the most important steps – investors must appraise the rules and policies stipulated by the government pertaining to land. The Local Municipality’s planning department is in charge of the area’s Town Planning or future development blueprint. You will want to determine that you are purchasing the right type of product.
Should investors purchase a land gazetted for agricultural use, they will not be able to sell it off to developers as the land is not zoned for development use. Instead, it can only be utilised for plantation purposes. So unless investors are planning to plant durian or mangosteen trees, their investment will backfire.
Case in point, there are numerous plots of land in the Melawati area that have been gazetted as forest reserve; but land purchasers who did not check beforehand had to kiss their home development dream goodbye.
Owners can apply for a re-gazetting of land use, say from industrial to commercial but this process is a tedious one as considerable cost and time are involved. In Selangor, the re-gazetting process takes 2 years and land purchasers will have to bear the financing’ instalments in the meantime, which translates to unnecessary losses.
Other points that investors should cross off their list include zoning, density and height restrictions for property development – you would not want to get a plot of land that is not going to generate maximum yields for you or your future buyer.
The next step, Land Office Checking is equally vital – here investors will get to determine if a plot of land is being owned by your seller or if it’s actually a ‘charge’ under a bank. Investors can also find out if their investment target is under any provision which allows the government to acquire it at any time for public use, transportation infrastructure, social housing purposes, etc.
Land News Flash!
In June 2017, the government launched e-Tanah, a land administration and management system operated electronically
It serves to provide a Single Point of Contact at e-Tanah counters and tax-payments can now be made at local payment centre (post office, TMpoint, etc) apart from any land office in the state.
Customers can also acquire information and services online as e-Tanah is integrated with land administration agencies such as the Malaysian Survey and Mapping Department (JUPEM), the Malaysian Centre for Geospatial Data Infrastructure (MaCGDI); making it so much more convenient for land investors to carry out their due diligence.
e-Tanah has already been implemented in Penang (http:// etanah.penang.gov.my) & Malacca (http://etanah.melaka.gov.my); it would make its debut next in Selangor and Negeri Sembilan before it goes nationwide.