Lease renewal for just RM1,000

PETALING JAYA (Dec 19): Owners of leasehold residential properties in Selangor have reason to rejoice — they will no longer have to worry about hefty land renewal premiums when their leases expire.

Residents of Selangor will be able to renew land leases under the newly introduced Private Residential Ownership Scheme at an affordable token premium of just RM1,000, instead of the current market rate, provided they remain on the property.

In view of rising land costs, the scheme will make premium payments much more affordable for owners of leasehold properties, holders of Temporary Occupation of Land (TOL) licences and those who have just converted the status of their land (from agricultural to residential).

Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim told The Edge Financial Daily in a recent exclusive interview that the philosophy behind the move is to ensure that the people of Selangor can realise the wealth of their assets.

"Let's say, for example, people who have lived in Petaling Jaya for two generations and have a [99-year] lease. They are now left with another 30 years. The value of the land, which has a lease of 30 years is different from the value of the land which has a lease of 99 years. This is very straightforward.

"So why can't you give it to the people? Because after all they are going to stay there. Why don't you ask them to realise the value and the government will not lose out?

"Based on that concept, we allow you to renew your lease for RM1,000 instead of calculating [the premium] based on the market price. The premium is based on market price... a quarter of the value, and the RM1,000 renewal fee is just a fraction of that," said Khalid.

However, if the owner decides to sell or transfer the property subsequently, he would have to pay up the full premium.

The current premium for lease renewal is calculated based on one-quarter of the land's current market value, divided by 100 and multiplied by the number of years renewed.

In effect, for the renewal of a 99-year lease, the owner has to pay around a quarter of the property's current value.

A 10,000 sq ft plot of land in Tropicana at RM250 psf, for instance, would be worth at least RM2.5 million, based on current market rates of RM250 to RM350 psf.

Based on the formula, the land renewal premium is a hefty RM618,750 at current market prices — compared with RM1,000 under the new scheme if the owner continues to live there.

With land prices escalating yearly, the scheme offers a cushion and assurance that the homeowner or the next generation will not not be kicked out of their homes due to a lack of funds for premium renewal.

The scheme exempts transfers due to inheritance from paying the full premium, while owners of 60-year-old leases will be able to convert their leases to 99 years.

For those who can afford to pay the full premium, a 30% discount will be given if it is settled within the next six months from the date of the policy announcement.

It is anticipated that the new policy will benefit 100,000 households in the state, with the numbers expected to rise as more developments are undertaken on leasehold land.

New areas being opened up in the state are increasingly leasehold — as opposed to freehold — as they are mostly state-alienated land.

"As the state is the biggest landowner, it is only natural that state-alienated land becomes a major source of new township development. Plantation land is the only other major source of large landbank for development which is freehold," a property analyst told The Edge Financial Daily.

He cited Kota Damansara and Tropicana as examples of state-alienated land that have become prime leasehold developments in Petaling Jaya, and noted that most of Shah Alam is leasehold.

"For freehold township developments, large landbanks can only come in the form of plantations. That's why developers are moving towards less prime areas such as Beranang, Semenyih and Rawang," he said.

The analyst also expects leasehold and freehold prices. "It's already happening ... the stigma of leasehold properties is no longer there as there is a scarcity of new freehold projects. This move should further narrow the distinction," he added.

"The next big project is the RRI [Rubber Research Institute of Malaysia] land in Sungei Buloh. Given that it is privatised government land, potential buyers will be watching to see if its freehold or leasehold."

The issue of renewing land leases has plagued Selangor residents for the past few years, especially those who have property in prime but older parts of Petaling Jaya, such as Sections 1 to 5, whose leases are running out.

"What we are doing is giving wealth back to the people in a way that it is no loss to the state, but will instead give potential to the state. That is what ‘merakyatkan ekonomi' [the people's economy] is all about," Khalid told The Edge Financial Daily.

The scheme came into force on June 1 this year with little fanfare, and is not well-known within the state or even among property developers.

It is also not without criticism from some quarters, while there were grouses from owners who did not know of its existence.

Indeed, several property developers as well as owners of leasehold properties contacted by The Edge Financial Daily last week said they were unaware of this scheme.

Khalid aims to organise workshops explaining the workings of the scheme.

"Very shortly we will organise a workshop on what to do in order to increase the lease. There are a lot of people who wanted to debate with us on the economics and political philosophy. We don't mind the debate, provided you [have the same] knowledge as we do," he said, adding that it took a couple of meetings with the state district officers to convince them that the scheme is workable.

VPC Alliance (KL) Sdn Bhd chartered surveyor and director James Wong said the move is good for homeowners, as they need to pay only a nominal sum to renew the lease whether for 99 or 60 years.

He said under the Selangor Land Rules, the additional premium would come up to quite a huge sum. He reckoned that owner of a bungalow of 10,000 sq ft would have to pay between RM150,000 and RM250,000 in premium to renew the lease.

However, Wong also said the move would hurt the state government's coffers as collections by the land office contribute a large part of state revenue.

"Perhaps to be more fair and equitable, there should be an assessment means test for those whose income falls below a certain level. This would be a good gesture from the government.

"But for those who can afford it, they should be made to pay the actual sum as it is quite common to get a discount," said Wong, adding that the policy is good for retirees and pensioners who want to continue to live in the one house they own as they would be short of savings in their twilight years to pay a hefty renewal premium.

Owners of leasehold residential properties — such as these houses in Section 5, Petaling Jaya — have reason to rejoice

Looking for properties to buy or rent? With >150,000 exclusive listings, including undervalued properties, from vetted Pro Agents, you can now easily find the right property on Malaysia's leading property portal EdgeProp! You can also get free past transacted data and use our proprietary Edge Reference Price tool, to make an informed purchase.