Jurnal Malay Reserve Land

Jurnal Malay Reserve Land
  • Jurnal Malay Reserve Land

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International Surveying Research Journal (ISrJ) VOLUME 3 NUMBER 2, 1-28


Malay Reservation Land – Unleashing A Century of Trust Shahrom Md Ariffin Centre of Study for Estate Management Faculty of Architecture, Planning & Surveying Universiti Teknologi MARA [email protected]

ABSTRACT The law on Malay land reservation was introduced by the British colonial in the Malay States in 1913 to protect and preserve the Malay property rights and interests. The British realised that the trend of losing land among the Malay peasants to the immigrants would aggravate further the economies of the Malays and undermine the political stability. Such an unhealthy situation was considered a threat and insecurity to the British presence in the Malay States. Hundred years have passed and the country gained her independence 56 years ago. The country has undergone major structural changes politically and economically and has also transformed into a nation with unique demographic structure with multiple ethnicities, a manifestation of the country’s long history. During a hundred years of implementation, the law on Malay land reservation has been subjected to unwarranted public scrutiny and its relevance has been challenged. As MRL is characterised by multiplicity of constraints which undermine the economies of the stakeholders, the status quo of Malay Reservation Land (MRL), particularly within the Malay socio-economies agenda in the country, is being questioned. In addition, the country’s future direction is uncertain. After hunderd years, there must be concerted efforts from all interested parties and the stakeholders to formulate and enforce amicable strategies and policies for the better future of MRL in tandem with the national aspiration.

INTRODUCTION It has been 100 years since the legislation on the Malay land reservation was enacted. The first ever legislation was introduced in 1913 on Malay Reservation: FMS 1913 Enactments, for the Federated Malay States (FMS) of Pahang, Perak, Negeri Sembilan and Selangor. This entrenched law, which was passed during the British colonial era in December 1913 and came into force on January 1914, was designed to protect the sovereign rights and interests of the Malays, particularly from disposing their lands to non-Malays. According to history, efforts by the British colonial to enact the law on the Malay reservation in the Malay States started earlier than 1913. In 1891, W.E. Maxwell, who was the British Resident of Selangor, had introduced the Selangor Land Code 1891 to provide a security of land tenure to the Malay peasants. Maxwell created a category of smallholding customary lands to protect the Malay landowners interest from the consequences of mortgage default and being ejected from their lands by the Chinese, Chettiars and others. W.E. Maxwell had also played a significant role in introducing the Torrens system in the Malay States, which replaced the land tenure system based on Malay custom and Islamic law. The rationale behind the law on the Malay land reservation was to control power of land alienation by the states and to protect the Malay land owners from selling their lands to non-

ISSN 2232-1306 © 2013 Royal Institution of Surveyors Malaysia



Malays. After 20 years in force, the law was further amended as FMS Enactment No. 30 in 1933. The legislation has undergone a series of further amendments and finally amended in 1938 as FMS Cap 142. It is still in force today in the states of Negeri Sembilan, Pahang, Perak, Selangor and Federal Territory of Kuala Lumpur. The un-federated Malay States only implemented the law on Malay land reservation from 1930 onwards. There are separate enactments on Malay Reservations for other states (non FMS): Kelantan (No. 18 of 1930). Kedah (No. 63 of 1931). Perlis (No. 7 0f 1353H/1935). Johor (No. 1 of 1936) and Terengganu (No. 17 of 1360H/1941). No similar enactments for Penang and Malacca. INTERPRETATION “Malay reservation land” (MRL) refers to a special category of land situated within the territorial boundaries of each state in Peninsular Malaysia which can only be owned and held by Malays (Salleh Buang, 2010). Article 89(6) of the Federal Constitution 1957 defines “Malay reservation” as land reserved for alienation to Malays or to natives of the state in which it lies. The same provision also states that “Malay” includes any person who under the law of the state in which he is resident is treated as a Malay for the purposes of the reservation land. The term “Malay” is defined differently in the state Malay reserve laws. The definition of Malay” in Kedah/Perlis enactments recognise those of Arab descent. The enactments for Kedah and Perlis also allow Siamese in dealings in MRL. The Johor enactment does not recognise Syed (although it is recognised as“Malay” in the Federal Constitution), whereas Kelantan specifies special status of “natives of Kelantan” (Salleh Buang, 2005). HISTORICAL OVERVIEW OF MRL Chronologically, attempts to introduce the law on Malay land reservation can be traced prior to 1900. The first attempt to introduce law on reservation of land in the Malay states was in 1891 by W.E. Maxwell, a British Resident in Selangor. He introduced the Selangor Land Code 1891 specifically created smallholding customary lands to provide a security of tenure to the Malays peasants. Later, on the Conference of the Residents of the four Federated Malay States held in 1908, the issue on the sale of Malay land was addressed for the first time. Due to poverty, the Malays sold or leased their lands to non-Malays. The British representatives were alerted to the drastic increase of land sales initiated by Malay land owners to foreign immigrants. It was anticipated that such acts would inevitably affect the political power of the Malays (Nor Asiah Mohamad; Bashiran Begum Mubarak Ali, 2009). British officials claimed that the declaration of Malay reservation land was aimed at protecting and preserving the right to land ownership of the Malays in Peninsula Malaysia. The declaration and reservation was not confined to the Malay reservation land; it also included several other types of land which could only be owned or dealt over by Malays, such as the Malay holdings, Sultanate land, Malacca customary land, Malay agricultural settlements, the customary tenure of Negeri Sembilan and its Lengkongan (ibid.). The Resident of Perak, Brockman, suggested that Malays land dealings ought to be restricted to prevent a complete sell-out of Malay land. Brockman was supported by Campbell, the Resident of Negeri Sembilan, who recommended the creation of Malay kampong (village) reserves. However, those proposals were deemed impracticable and rejected (ibid.).

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


Another proposal was submitted by R.J.B. Clayton, the district officer of Ulu Langat (Selangor) in the form of a memorandum to the Resident. This memorandum, known as “The Absorption by Large Land Owners and Estates of Native (Malay) Holdings,” was proposed on July 28th, 1910. Clayton argued that only the Malays were likely to form a permanent agricultural population and labour force in the Federated Malay States, thus their rights to the land should be protected. If not, it would defeat the main objective of the British policy to create a permanent agricultural population. Similarly, any sale of these lands was deemed detrimental to Malay interests, as they would end up being a landless race and forced to work as land-less labourers in their own country. As a way to resolve the problem of a sell-out of Malay reservation land caused by poverty and lack of income, the British initiated a devaluation of the land purchase price (ibid.). Later, the British Residency introduced a scheme for registration of ancestral land, which was implemented in July 1911. The scheme restricted the sale of ancestral land to nonMalays without the permission of the collector. However, many Malays remained ignorant of the rationale of this scheme and refused to endorse their land with the Malay Ancestral condition (ibid.). The issue of Malay ancestral land sales reappeared at the Conference of Residents in November 1911. The four British Residents, the Chief Secretary and the High Commissioner unanimously agreed to pass a common enactment applicable to all four Malay states. The enactment aimed at protecting Malay rights and ensured that they would not become homeless in their own country (ibid.). However, the enactment was never enforced, and on December 23rd, 1913 the Malay Reservation Enactment was passed and came into force on January 1st, 1914. ISSUES AND CHALLENGES OF MRL In principle, the law on Malay land reservation was introduced to protect and preserve the right to land ownership of the Malays in the Malay states. The British colonial justified the cause based on the increasing trend of eviction and land sales by Malay land owners to foreign immigrants prior to 1913 due to unhealthy practices among Malay land owners due to unwarranted debt and expenditures outside their economic means. The spirit of the law on Malay land reservation was more of protection and preservation of Malay property rights and interests, which created strong implication and setback on the economy and political stability. The British realised that the trend of losing land among the Malay peasants to the immigrants – Chinese and Chettiars – would aggravate further the economies of the Malays who were lagging behind. Such an unhealthy situation was considered a threat and insecurity to the British presence in the Malay states. Hundred years passed and the country gained her independence 55 years ago. The country has since undergone major structural changes politically and economically but still enjoys stability and security. It has also transformed into a country with unique demographic structure with multiple ethnicityies, a manifestation of the country’s long history. Life for 100 years is a lot to reckon with, and so is the 100-year law which was developed and enacted under different circumtances and socio-economic environment. Among the many laws introduced and enacted over the last century, the law on Malay land reservation has been the most challenging and controversial. With 100 years of the law on MRL implemented, there are many issues and challenges facing MRL. Until today, the satus of MRL and Malay socio-economies in the country were still uncertain and many questions remain unanswered. ISrJ Vol.3 No.2, 2013



The significance of the law on MRL had always being been questioned, but no effort of “unstrengthening “ the law to suit the demand of the critics has taken place and managed to go that far to the lawmakers’ level. Instead, amendments have been made to tighten the law as with what happened in 1933. It was more towards curtailing dealings in MRL involving non-Malays, such as leasing, charge, lien and power of attorney. Nevertheless, the issue on dealings between the owners of MRL and non-Malays are still being practised behind the curtain without much respect to the law and the constitution on the pretext of economic development. Dealings such as “Ali-Baba” and the equity partnership of so-called joint-venture are still rampant between owners of MRL and nonMalays in property development. Despite the fact that the owners of MRL only enjoy a smaller proportion of equity compared to the non-Malay party to the development, such arrangement are referred to by some Malays as an innovative way of getting around the tightening effect of the law on MRL. The case for owners of MRL resorting to Ali-Baba and on joint-venture schemes with nonMalays should also be seen as a way out of financial lock-out between the owners and the banks. Although the law on MRL had somehow been amended to allow MRL access to credit and financial facilities, the banks are still practising a stringent policy when assessing and approving loans with MRL as collateral. This issue has been raised by the Association of Developers of MRL to the Prime Minister (Berita Harian, 12 April, 2011). Under this circumtances, the owners of MRL are facing two financial predicaments. Apart from the valuation of the MRL being categorically 20 – 30 per cent lower in terms of market value, the loan amount approved is also lower, between 50 – 60 per cent of market value. The critical issue on inefficient economies of MRL was highly debated during the 1996 UMNO General Assembly. There was a strong remark made by the former Premier Tun Dr. Mahathir Mohamed that the legendary attachment and sentiments of the Malays towards MRL would eventually turn on them, just like what happened with the economically and socially deprived natives of the U.S., the American Red Indian (New Sunday Times, 24 November, 1996). Although the analogy was considered to be rather far off, to some observers, it is timely for the Malays to seriously take heed on the remark and adopt a positive move towards solving long and outstanding problems of MRL. As some observers pointed out, his statement came from mere frustration after the government’s serious attempt to redevelop the Malay Agricultural Settlement of Kampung Baru turned out to be a futile effort after all. The National Land Council eventually came up with a proposed formula that said that owners of MRL should be allowed to lease their land to non-Malays for development. Although the focus was on MRL with great potential and ripe for development, the idea on leasing of MRL to non-Malays for development apparently raised strong reaction from the Malays. But then in August 2004, the Deputy Prime Minister Datuk Seri Najib Tun Abdul Razak made a surprise announcement that the government would go ahead with the proposed amendments to National Land Code (1965) and Malay Reserve Enactment (1913) in its effort to solve long outstanding problems of MRL. The chorus of the proposed amendment to the acts was of course to allow leasing of MRL to non-Malays for development (Utusan Malaysia, 20 August 2004). Although the proposal was to liberalise the long standing problem undermining the economics of MRL, just like the previous attempts, the proposal still drew strong public reaction. Many were of the opinion that the government’s proposal to liberalise the economics of MRL through leasing to non-Malays for development

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


disregards the long term economic as well as political interests of the Malays. Ironically, until today, we have yet to hear on the outcome of the proposal. The significance of the events seems to bewilder many of us, in particular on the purported idea of amending the acts so as to smoothen the process of developing MRL. The resentment is not on the whole idea of development, but rather on the idea of leasing to the non-Malays. Critics are also on the rationale behind the proposed amendment of the acts after all, as some have pointed out, that the underlying problem of MRL is not so much a problem of resource allocation that defeats the national economic policies, hence the economic entities of the Malays, but rather few cases involving those MRL are ripe for development or redevelopment. Such include those lands in Kuala Lumpur and Selangor, which are locked from being developed despite the continuing pressure of urbanisation, that demands a change in its highest and best uses. Generally, the main obstacles to the development of MRL are the multiple ownership and relatively small property size, which will require amalgamation and/or consensus from the co-owners. The classic case is, of course, Kampung Baru Kuala Lumpur. Kampung Baru is quite distinct from other Malay Reservation areass because it was gazetted as the Malay Agriculture Settlement (MAS) with the main purpose of alienating land to the landless Malays in Kuala Lumpur in 1897 as stipulated under Section 6 of the Land Enactments, 1897, much earlier than MRL, which was first gazetted under the Malay Reservation Enactment 1913. MAS land is not designated as MRL but having similar legal characteristics to other MRL in term of land dealings which are restricted among the Malays only. The 110-year-old Kampung Baru Kuala Lumpur area covers seven villages, is located on 90.2 hectares of land and occupied by about 35,000 people. The villages are Kampung Periuk, Kampung Masjid, Kampung Atas A, Kampung Atas B, Kampung Hujung Pasir, Kampung Paya and Kampung Pindah. The status of Kampung Baru as a Malay Agricultural Settlement is rather incompatible with the surrounding comprehensive development of Kuala Lumpur. Its redevelopment is long overdue, whilst the pressure is day-by-day increasing, not only from outside, but also from within, especially for those interested parties who hope to benefit from the redevelopment potentials. To many observers, sooner or later, Kampung Baru has no choice but to give way for redevelopment due to increasing urbanisation pressure, given the right formula of course. Efforts to redevelop the centrally-located urban Malay enclave of Kampong Baru Kuala Lumpur had been on the government’s radar since the early 1990s. But such efforts were futile because of various underlying issues and problems of the Malay settlement. Even the ex-Prime Minister Tun Dr. Mahathir Mohamad had to admit that one of his failures during his 22 years tenure as Prime Minister was his administration’s inability to rehabilitate and develop Kampung Baru. According to him, after the government announced plans to develop Kampung Baru, problems arose concerning land ownership and land prices (The Star, 11 January 2011). The latest effort by the government on proposed redevelopment of Kampung Baru Kuala Lumpur was the setting up of Kuala Lumpur Development Corporation (KBDC). The bill, Kampung Baru Development Corporation Act 2011 — for the 110-year-old settlement, was tabled, debated and passed during the Dewan Rakyat sitting in October 2011 and thereafter approved at the Dewan Negara in December 2011 (Bernama, 8 December, 2011). The three most important issues amended in the act were revoking the immunity of the Kampung Baru Corporation, retaining the Malay Agricultural Society and introducing a new post of deputy chairman for the Kampung Baru Development Corporation that would

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include a landowner. The KBDC would function to implement the policies, directives and strategies on Kampung Baru’s development according to the Structural Plan and Local Plan as provided under the Federal Territories (Planning) Act. Critics of the law on Malay land reservation said that such an outdated law of the colonial was unsincere and superficial in the cause of protecting the Malays rights. Such a law discriminates against the Malays, who were already economically weak, by locking down the economic potential of their land. The necessity and uselfulness of Malay reserve land continues to be questioned again and again over time, particularly during the post-independence era. The opponents of the law on Malay land reservation also categorise MRL as static asset to the Malays, which deprive the financial facilities and retard the long term economy of the Malays. Overall, until today, we can see that most of the critics on the law on Malay land reservation are fundamentally economic and hinged on the principle of lassez faire, which rejects any form of barrier and restriction to the economic process. Of course, a critic on the status of the law on MRL as a 21st century anachronism or branding the MRL as “a Cinderella piece of property” was deemed to put MRL in the right direction in tandem with the changing socio-economy of the country (Collector of Land Revenue V. Noor Cahaya (1979) 1 MLJ 180, Wan Suleiman FJ). But to the opponents who undermine the role of MRL indiscriminately in term of economic rationale of market mechanism overlooked the contribution of MRL to the national economy since the law was implemented. Despite the many restrictions and contraints that undermine the economies of MRL, MRL has contributed significantly to the national economy over the last 100 years, more so to the development of public goods and services. During the pre-independent period, since 1940, the physical size of MRL has been on a decreasing trend due to economic activity of tin mining, which encroached and consumed MRL. In the 1950s, during the communist insurgency, Brigg’s idea of setting up new Chinese villages also ecroached into the MRL area. By 1952, about 400 new villages were created nationwide, most in Perak and Selangor (Ahmad Nazri Abdullah, 1985). After the country gained independence, both the political and economic focus of the country had shifted into a new paradigm. As the country put the agenda of economic development at the forefront, resources of land became a significant factor that needed to be mobilised. As the state required more land to meet the physical developent, the law on compulsory land acquisiton was enacted to accomodate the role of the state to pursue development for public purposes. In 1960, Land Acquisition Act 1960 was implemented, which gave the power to the state authority to compulsorily acquire land for public purposes. To meet the demand for public goods and services, private land had to give way to compulsory acquisition. MRLs were also affected. Today, the practice of compulsory acquisition is still going on, and of course by spate of economic development, pursued by the rule of market mechanism. The size of MRL involved should be bigger to meet the aspiration of a developing nation. But again, over these years, despite the many claims that the size of MRL across the country had been decreasing due to economic development, these claims, however, were not substantiated by real statistics. Although there had been statistics reported by academic researchers and also by the land ministry, on comparison, the figures appeared intriguing. According to reported statistics on the trend of depleting MRL size across the nation in tandem with national development plans beginning in 1970, the remaining area of MRL had been reduced to 1,757,884 hectares from a recorded area of 2,432,790 hectares in 1947. The statistics in 1982 showed that the size of MRL nationwide is 1,752,293 hectares (ibid.).

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


Another study reported that as of February 1983, the MRL area is 3,221,079 hectares (inclusive of Malay customary land of Malacca) (Ridzuan Awang, 1994). The figures were quoted from the Ministry of Land and Mines. According to another statistic reported in 2002, the total MRL area in the country is 3,724,852.82 hectares (Tan Sri Kasitah Gaddam, 2002). As reported at the parlimentary session Dewan Negara in 2011, the MRL area as of 2008 is 4,268,537.23 hectares (exclusive of Malacca Customary land), whereas the Ministry of Land and Mines reported a figure of 4,087,268.47 hectares as of 2009 (inclusive of Malacca Customary land) (refer to Table 1-5 for details). Table 1 – Malay Reservation Land – 1983 (Hectare)

State Perlis Kedah Perak Selangor W.Persekutuan Negeri Sembilan Johor Pahang Terengganu Kelantan Malacca*

Area of State 79500 942500 2105000 795500 243000 664300 1898600 3596500 1295500 1492000 NA

MRL Area 34,120 654,160.72 168,177.12 158,372.79 988.29 220,741.29 221,588.48 268,474.20 107.69 1,493,765.06 4,348.619




*Malay Customary Land (MCL) Source: Pengarah Tanah dan Galian Malaysia (as reported in Ridzuan Awang, Undang-undang Tanah Islam, DBP, 1994) Table 2 – Malay Reservation Land – 2002

State Perlis Kedah Perak Selangor W.Persekutuan Negeri Sembilan Johor Pahang Terengganu Kelantan Malacca Total

Area of State

Area of State

MRL Area

(sq. km)



795 9425 21050 7955 2430 6643 18986 35964 12955 14920 NA 131,124.00

79500 942500 2105000 795500 243000 664300 1898600 3596500 1295500 1492000 NA 13,112,400

37,516.95 86,842.62 880,158.00 174,837.79 **838.51 210,988.46 327,373.46 436,133.98 *78,163.08 1,492,000 NA 3,724,852.85

% of MRL 47.19 9.21 41.8 21.98 3.45 31.76 17.24 12.12 6.03 100 NA 28.4

*Gazetted land only. MRL less than 10 acres are administered under ERM Terengganu **Exclusive of Kg. Baru area of 89 hectares administered under MAS (KL) Rules 1950 Source: Kasitah Gaddam (2002) Pemilikan & Penguasaan Tanah Oleh Orang Melayu, Jurnal Tanah Vol. 3

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Table 3 – Malay Reservation Land (1947 – 2008) (Hectare)


Area of State







(C/A x 100)











Kuala Lumpur




Negeri Sembilan


































Pulau Pinang







0% 0%




*Proceeding paper by Mohd Yusof Kasim dan Zainal Abdin Hasim, UKM as extracted from the Federal Legislative Council February 1948 – February 1949, page B1 **Statistic from Pejabat-pejabat Tanah dan Galian Negeri-negeri 2008. Total MRL as of 1947 = 2,422,720 hectares Total MRL as of 2008 = 4,268,537.23 hectares Additional MRL as of 2008 = 1,845,817.23 hectares Source: Parliamentary session (Dewan Negara), March 2011.

Table 4 – Malay Reservation Land – 2008 (Hectare)

State Perlis Kedah Kuala Lumpur Negeri Sembilan Johor Pahang Terengganu Kelantan Perak Selangor Pulau Pinang Melaka Total

Area Revoked 17.06 2,986.39 96,499.86

57.57 157.25 5,102.55

Area acquired 542.69* 50.50* –

Area replaced 533.82 1,701.58 9,033.16

194.25 18,318.90* –

194.25 75.43




Area of State 37,322.60 868,821.05 803.43 240,741.17 195,262.42 424,743.83 118.21 1,493,130.40 881,366.78 126,227.34

No MRL 104,820.68

Note: *MRL status retained Source: Parliamentary session (Dewan Negara), March 2011

International Surveying Research Journal (ISrJ)


Malay Reservation Land — Unleashing A Century of Trust


Table 5 – Malay Reservation/Customary Land – 2009 (Hectare)

States Johor Kedah Kelantan Melaka Negeri Sembilan Pahang Perak Perlis Pulau Pinang Selangor Terengganu WP Kuala Lumpur WP Putrajaya Total

Malay Reservation/Customary Land 195,262.42 868,836.09 1,307,153.40 187,378.34 161,982.75 438,491.68 763,666.28 37,348.53 0.00 126,227.34 118.21 803.43 0.00 4,087,268.47

Area of State 1,898,688.00 942,500.00 1,510,462.00 165,200.00 665,709.00 3,596,500.00 2,100,500.00 79,500.00 103,104.00 793,020.00 1,295,514.00 24,270.00 4,930.00 13,179,897.00

Source: Jabatan Ketua Pengarah Tanah & Galian / Bahagian Tanah Ukur & Pemetaan, 2009

On comparison these reported figures showed marked diferences and were rather intriguing at each state between the years 1983 and 2009. The question is whether the differences are due to the rescission of MRL status or addition; such cannot be verified. Until a comprehensive survey on the latest statistics is carried out, the prevailing status of the actual area of MRL in the country is yet to be confirmed. THE ECONOMIC PARADIGM OF MRL As an economic resource, land exhibits a multiplicity of characteristics which economists classify as factor constraints to the free flow of the economic process. Factor contraints to land in today’s economy is more than just geographical and physical; it extends to legal, institutional, social and political factors which could undermine economic efficiency. Land and man have established a long relationship since the history of human culture and civilisation. As a man’s maturity is normally associated with age, hence experience, on the contrary, 100 years of an economic resource such as MRL exhibits a multiplicity of characteristics, which to some extent, undermines its economies. The effects of the constraints can be seen as a wide spectrum, including economic redundancies on the landowners and the stakeholders of MRL, inequitable distribution of income and wealth, socio-economic imbalance, jeopardised national policies and prolonged social injustice. Generally, the opponents of the law on MRL regard it as a stumbling block to economies of the Malays, outdated law of colonial, discriminative, depriving Malays of credit facilities and disincentive to the owners. Despite the complexities of various factors undermining the economics of MRL, it is unjustifiable to disparagingly classify the MRL as a liabilty or second class asset which all these years had marginalised the Malay economies from the national development agendas. It is principally and grossly unfair to equate the diseconomies, problems and inefficiencies of the Malays with the MRL. After all, MRL is categorically one of the economic resources that is significant in pursuing the economic process of production, consumption and

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exchange that will affect the well being of the society. So, at the end of the day, it is about how the society manages and utilises the economic resources in an efficient manner without neglecting the distribution criteria. In pursuing efficiency in an urban economy, land is a significant factor required apart from other factors in the on-going economic processes of production, consumption and exchange. As the supply of land is relatively inelastic, any changes in the underlying conditions of occupation demand for land would considerably affect both rentals and prices of land. In the urban area, the market disequilibrium of the urban land persists due to the continuous pressure of the urbanisation process searching for possible available geographical and economic space within the thriving urban economies. In the central area of the city, where land available for development is already limited, the avenue is to maximise development of existing sites available and or redevelop those sites which are underutilised and uneconomic in order to meet the increasing demand for urban space (Shahrom, 1997). As an asset, generally MRL is, however looked upon as a secondary and of lower economic value asset because the market is restrictive and limited within the Malay interests only. Taking a piece of agricultural land under Malay Reservation status located in the same area with other agricultural land without such restrictions in interest having same acreage, planted with similar crop and harvesting similar yield, the difference in market value is still vast. Such a difference in pricings may not be sensibly enumerated using possible pricing and valuation techniques, but the practice is such a difference that it is merely a reflection of market restriction affecting the MRL. Of course on a serious note, the market restriction can be associated with the economic status, wealth and purchasing power of the Malays. From an investment point of view, as an asset, MRL carries the many disadvantages that impede the investment potential that a valuable asset should have (ibid.). In a free market economy, business and wealth are created through debt and a healthy economy is dependant on the ability of the industry and enterprise to borrow (Fraser, 1984). Land as an asset is a significant factor that contributes to the fund raising activities of the entrepreneurs. Unfortunately, as in the case of MRL, the legendary restriction in interest would instead lower the market value of the land as a collateral, hence reducing the amount of fund that could be raised. On top of that, it is also the practice of the lending banks to give the amount of loan to value ratio (LVR) on lower rate to MRL, normally between 50 – 60 per cent only. On this count alone, a Malay entrepreneur owning a MRL as an asset would have to accept such a pathetic discrimination and somehow learn to compete in the open economy but on an inferior platform (Shahrom, 1997). Since the main underlying question over these years is on the question of economic efficiency, despite some other setbacks which impede the optimum use of the MRL, it is therefore pertinent to suggest possible solutions and agendas that would promote the economies of MRL. After all, MRL is still a factor-resource that is required to be combined with other resources of capital, labour and entrepreneurship towards achieving optimum production efficiency. Over all, it is about how the economic process of production, consumption and exchange fulfill the efficiency and distribution criteria. But from the wider perspective of the market economy, the market players play a significant role in a factor and product market. As the factor-product of MRL is confined and limited to Malay market players, such normally undermine the efficiency criteria of both the factor and product market. But the situation prevails not because of the identity of the market players, but basically because of the level of income and wealth of the Malays until today.

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


It is interesting to note that despite the various national and affirmative policies directed to alleviate and improve the economies of the Malays all these years, the Malays are still the race lagging behind in majority of economic sectors, having wider disparity in income and wealth compared to other races in the country. Such policies that were directed to bring out the Malays from the vicious circle of economic inefficiency and poverty have failed and the underlying problems of the Malay economies is still structural in stature. Although the policy towards reducing the structural problems of the Malay economies through human capital development and promoting rural-urban migration took effect, nevertheless, these have not met the purported objectives but instead end up widening and diverging the regional imbalance and more of relocating the problems from rural to urban areas. In other words, the Malays are still a worse off lot in their economies both in rural and urban habitats. The policy objectives of reducing poverty and restructuring the society in the New Economic Policy (NEP) ended up to be more of redistribution of problems without achieving the targetted equity ownership after 30 years of implementation. Comparatively, urban economies are more challenging and full of pitfalls under the pretext of market mechanism for the Malays to adapt and compete. From the economics perspective, the real issues on the economics of MRL principally lies with the economic structure of the Malays. Despite the fact that there are other undermining factors, the economic dimension has been grossly misinterpreted within the market economy. As a land, MRL is just a factor that needs to be combined with other resources in a production process in an efficient manner to produce desired factor goods, which in turn will be used in the main economic sectors. Since the active parties to the economic process are Malay-biased, so are the market players. Just like the bull and the cart, the strength of the bull is significant in order to pull the cart. Strong and resilient Malay economies will determine movement and direction of the MRL. In other words to put the MRL market at par with non-MRL whether as a factor (pure land) or a factor-product (developed land) the Malay economies must be at par with the nonMalays, in term of efficiency, hence distribution of income and wealth. While the Malay demography is on the majority trend compared to other races, it is imperative that there is already an established and strong Malay market that can absorb Malay goods and services but for the purchasing power. Making a comparison with other races such as the Chinese, they can enter the real estate market openly because they have a strong economy, hence purchasing power. Looking at the real estate market across the country generally, it is evident that the presence of non-Malays in the market have contributed to sustainable growth and value to the real estate assets in the area. The analogy of a bull and a cart has actually been used in the context of the significance of the economy to the movement and direction of the real estate market generally. A healthy and stable real estate market is dependant on a healthy and stable financial market, hence the national economy generally (ibid.). But of course above all, there must be political stability in order for a nation to enjoy the fruits of the economy. With the Malays having the dominant privileges as provided by the constitution and having main political strength, they should also have the upper hand to steer their economy in the right direction and become established as prominent market players. With continuous affirmative policies crafted for the benefits of the Malay-bumiputera for 30 years, the economic imbalance between the Malays and non-Malays still persist. The bull is not strong enough and not performing to expectations to pull the cart in the right direction. But,

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the question is whether the bull is fed well enough and in a healthy condition in order to have the strength to do the job, or do we need to reinvent the wheel instead for the cart to move faster? The moral of the bull and the cart story is to portray the dilemma of MRL today; it is basically about the underlying economic structure of the Malays that has been the ongoing deterrent to the optimum utilisation of MRL, not because of the stigma of being MRL. UNLEASHING THE ASSET RICH MRL It is interesting to see that some MRL lands have undergone a restructuring phenomena over recent years, proof of the significance between the market factors of the Malay economies. For instance, a report in a local daily on proposed Kiara View, a high-end residential development on Malay Reserve Land (MRL) attracted about 95 per cent sale well before its official launch (Property Times, 30 April 2005). The report had proven otherwise many of the critics on the MRL, particularly those who used to brand MRL as a “second-class asset” or “liabilities” that impede development of the Malay economies (Shahrom, 2005). Kiara View is a fine example of how a MRL could successfully be developed despite the underlying economics and legal constraints attached to the land. Above all, its developer had proven that with the “right formula,” even MRL could be efficiently utilized for optimum return at par with other high-end property development projects. Such an accomplishment on the part of the developer is a commendable achievement indeed, not only measured in monetary terms, but also measured by the satisfaction of being able to turn around the table and prove that the socalled constraints on the MRL can be overcome or that it’s not relevant in certain cases. The problem undermining the economics of MRL is literally more about the people and their very sentiments, not the land (ibid.). As such, it is timely that we change our mindset about MRL and find ways in putting the land to optimum use. We must regard MRL as a valuable economic resource that the country had long inherited. MRL had significantly contributed to our national economy ever since the Malay Reservation Enactment was introduced 100 years ago. Apart from being privately utilised for agriculture and developed for housing and commercial use, a greater proportion of MRL had been compulsorily acquired by the state for public developments. Those who are familiar with the Sungai Pencala Malay Reservation, where the proposed development of Kiara View is located, must have noticed that the area has virtually transformed into Kuala Lumpur major development suburbs. It is the only outlying area that is yet to be fully developed compared to its surrounding area. Whilst the pressure of demand for housing in Kuala Lumpur has been on the increase based on the current state of the property market, the opportunity has come for the area to be eventually developed. Being the last frontier of KL as well as being ideally located, the pressure for comprehensive development of the area is inevitable despite being a Malay Reservation. If we were to dip into the property market of the area, the prevailing market value of MRL in the Sungai Pencala area suitable for development had shown a marked increase over the years. As such for a profitable development to take place, the type of suitable development has to be comprehensive and on the high end category in order to commensurate with the high land cost. Kiara View is a fine example. But the intriguing question is… would such a development attract the restricted market of the Malays, despite the fact that not only it is a MRL development but high priced too? Is

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


it an indication that there are increasing numbers of rich Malays which enable them to penetrate such a niche market? There are reasons behind the good demand for the proposed Kiara View despite being sited on MRL and a high end development. Being strategically located in established high class residential suburbs of Kuala Lumpur endowed with higher income population catchments, excellent highway networks and public amenities, its viability is unquestionable even if the development is high end and located in Malay Reservation. The unprecedented high takeup of the proposed Kiara View is already an answer to the question on current purchasing power of the Malays, particularly in KL and Klang Valley area (ibid.). In other words, undoubtedly it is already a good sign that there are an increasing number of wealthy Malays in KL and Klang Valley area that are ready to fulfill the market for such a high end development. With the lending sector providing competitive funding to house buyers, even for the high end category, it is not impossible for such development to attract certain Malay populace. Above all, the developer of the Kiara View must have the edge when it was decided to go ahead with the proposal, despite the underlying constraints on MRL. But again, property development is about making the right decision taking account of the underlying risks and uncertainties. The philosophy of “choosing the right location, building the right property types, for the right buyers and at the right price” still applies, even if the development is on MRL. To the question on why some developments failed to attract Bumiputra buyers on the allocated 30 per cent, even with the discount, perhaps the philosophy is the answer. Comparatively, developers of MRL are normally cautious because generally they realise their limitations, particularly on the fund and market share. As such, the size of development is normally small compared to the main market players (ibid.). Apart from the success of the above high-end housing development on MRL, to date there are many other successful developments on the MRL taking place across the peninsular states, even in some secondary and remote locations. Unfortunately, many people are unaware of these pockets of developments, probably due to the factors of location, scale and market information. It has also been a trend for developing MRL on joint-venture between the landowner and the developer. It has been considered one of the innovative ways to unlock the economics of the MRL, despite the underlying risks and pitfalls to the landowners. However, the schemes are also prone to malpractice like “Ali-Baba” arrangements, which involve a non-Malay party. As such, whether such a joint venture scheme should be considered as an innovative approach or just a way of manouvering with the law is very much questionable here. A lack of research and statistics on the successful developments on MRL is one of the factors that prolonged the ignorance and negative mind-set of the public about the status of MRL today. In actual fact, there are statistics and information pertinent to MRL that have not been recorded, updated and reported by relevant authorities for benefit of the public. It is time that the success story of MRL utilisation and development be highlighted for the public awareness. It is time to create role models among the successful MRL owners and developers. This is one way forward to unleash and promote the MRL and market potentials for aspiring landowners and various stakeholders. At the same time, it is also one way out to detach the stigma of negative perception to MRL which degrades the economics and the real asset values. As an economic resource, MRL needs to be efficiently combined with factors of capital, labour and enterpreneurship in the process of production of factor products. As mentioned

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earlier, the issue raised by the Association of Developers of MRL to the Prime Minister, one of the major obstacles of developing MRL, is to raise adequate capital from the lending institution (Berita Harian, 12 April 2011). Although the law on MRL had somehow been amended to allow MRL access to credit and financial facilities, the banks are still practising a stringent policy when assessing and approving loans with MRL as collateral. For this reason, some landowners and developers tend to seek recourse to out-venture with non-Malay parties. This senario will persist as long as the banks continue practising this discriminatory exercise of lower valuation on MRL developments on the ground of market restrictions. To the bankers, the risks associated to MRL developments are much higher compared to others, and therefore, justify a lower valuation instead. It is well understood within the literature of real estate development, that it is generally a highly risky economic venture and full of pitfalls. But to assess and to rate MRL development inferior to other developments is unjustifiable and premature before assessing the proposal on individual merits, taking into account various underlying factors of each development. It appears as though the bankers have resorted to more of a perceptive approach to the evaluation exercise rather than adopting a qualitative and quantitatve assessment on MRL developments. Perhaps it is time that a national research should be conducted to compile the statistics on all MRL developments to date. The research should identify the actual number of successful MRL projects as well as those that ended up with problems, particularly those that come under the list of abandoned projects and overhang. These figures should be compared to the figures of non-MRL developments which face the same problems. Such information is necessary for the industry and market players to assess level of exposure of risks and faults of developments that can be used in financial evaluation and decision making. DEVELOPING MRL In todays economy, there are ways and means of getting resources to pursue an economic venture. An entrepreneur has access to the economic resources of land, labour and capital within a wider market. The owner of MRL can be an entrepreneur-developer by engaging expertise available in the consultancy market to develop MRL. With the development of financial markets today, potential MRL developers can raise bridging finance through conventional or Islamic financing sources, which can be either debt or equity based. EXPLORING THE EQUITY SHARING & PARTNERSHIP SCHEME This type of financial arrangement has been used for centuries for large development projects in the 18th and 19th centuries in the west. It enabled a wide variety of developers to undertake development on long building leases, thereby ensuring that the freehold owners retained control over the form and content of development with an annual income and eventual reversion (Darlow, 1982). The alternative term of this arrangement is joint venture. A joint venture may be established for a specific project or for several projects which satisfy stated criteria. In the classic property joint venture, one party will provide the land and another (or others) will provide the finance and development expertise. The classic forms of joint venture are joint venture company; or partnership and limited partnership; or the “contractual” joint venture (Stevenson, Potts and Houlton, 1994). There are several statutory provisions governing the equity sharing and partnership scheme which normally involve leasing exercises between the parties in the development. For

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


redevelopment of Kampong Baru or even other Malay reserve lands and customary lands in the country, there are provisions or additional statutes that have to be referred to for structuring the leases. The relevant statutes are as follows: •

National Land Code (Act 56 of 1965): Section 221 – 228A

Land Enactments 1897

MAS Land Rules 1950 (Amended 1954)

Malay Reserve Enactment 1913: Section 17

Customary land rights e.g. Malacca Lands Customary Rights Ordinance.

This equity participation involves the development team – landowner, funder and property developer (refer Figure 1). This financial arrangement involves the landowner, who agrees to enter a deal with a funder and a development company to share in the return from the completed development project. The landowner will retain the site, but the funder will finance all development costs and on completion of the project, the landowner will lease the property to the funder and developer as joint tenants on a long lease subject to regular rent revisions. The developer and the funder as joint tenants will sublease the property to the occupying tenants. The landowner will be guaranteed an initial ground rent and the funder and the developer will receive their share based on a percentage of development costs and rental income on completion, respectively (Darlow, 1982; Fraser, 1993).



Real Estate

Funder Landowner

Tenants Guaranteed Ground Rent


Market Rent

Figure 1: Equity Sharing & Partnership Scheme

EXPLORING OPPORTUNITIES IN ISLAMIC FINANCE The role of the financial industry in providing capital to the real estate sector is very significant, whatmore to the developers of MRL. The normal arrangement of traditional bridging finance has been the practice between the banks and the MRL developers. Nevetheless, in view of the development in the financial industry today, in particular with the increasing prominence of the Islamic financial market and the wider choice of instruments made available today, real estate developers have a wider choice of shifting to other financing methods for real estate developments. Norms of Ethics in Islamic Financial System (Mohammed Obaidullah, 2005): •

Freedom of Contract

Freedom from Al Riba

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Freedom from Al Gharar (uncertainty)

Freedom from Al Qimar (gambling) and Al Maysir (unearned income)

Freedom from price control and manipulation

Entitlement to transact at fair prices

Entitlement to equal, adequate and accurate information

Freedom from Darar (detriment)

Mutual cooperation and solidarity

Maslahah Mursalah (unrestricted public interest)

Some common Islamic financing products for real estate development and investment (Ibid.): •

Trustee Partnership (Mudaraba) Facility (equity-based)

Joint Venture/Equity participation (Musharaka) Facility (equity-based)

Leasing (Ijara) Facility (debt-based)

Islamic financing instruments, such as the Mudarabah and Musyarakah, are based on the principles of sharing equity and risks between the financier and the entrepreneur; these are a better way out from the traditional one-sided risk taker practised conventionally. The beauty of the Islamic financial arrangement is not only is it free from the forbidden usury (riba’) and uncertainties (gharar), but it also promotes and emphasises the active roles and contribution of the parties’ common interest in a project. Since the traditional bridging finance exerts financial liability heavily on the part of the developer of MRL as a higher risk taker, in contrast, Islamic financial arrangement promotes equity and risk sharing and therefore should be a suitable mode of financing MRL developments instead. MUDARABA TRUSTEE PARTNERSHIP •

Trustee partnership based on Mudaraba is a mode of financing through which the funder provides capital finance for a specific project indicated by the customer.

The funder is the owner of capital and the customer is responsible for the management of the project.

Profit is shared according to a pre-agreed ratio. Losses, if any, are entirely absorbed by the capital provider.


A joint venture based on Mushraka involves a partnership in which both the funder and its customer contribute to entrepreneurship and capital.

Both parties agree to combine financial resources to undertake the project and manage the same according to the terms of agreement.

Profits are shared between the parties in the pre-agreed ratio. Losses are shared strictly in proportion to their capital contributions.

LEASING (IJARA) FACILITY Ijara means a lease contract or hiring contract of physical assets. In the context of Islamic finance, it is a lease contract under which the financial institution leases its particular asset to its client against payment of pre-determined rentals. The Ijara financing structure could

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


take the form of operating lease, financial lease or sale and leaseback model. In real estate development and investment, Ijara is a fundamental element in structuring equity partnership ventures and also in asset securitisation exercises such as real estate investment trusts, which involves leasing and leaseback arrangements. ASSET SECURITISATION – CONVENTIONAL VS. ISLAMIC INSTRUMENTS Today, there has been a phenomenal development in the global financial markets to cater to the needs of major as well as developing economies, whereby structured financial instruments have been innovatively created and adopted in both conventional and Islamic financial markets. As the development economics continuously seek funding sources, the traditional funding is not suitable, whatmore when the capital projects are large scale and with long term view. Large public projects are now turning to privately funded capital from the global capital markets. Similarly, private developments such as real estate are now sourcing funds from both the conventional and Islamic capital markets. Issuing traded bonds and sukuk (Islamic bond) in the international capital markets has been a phenomenal practise to raise fund both by the government and private corporations today. Other significant development in the capital markets today include the growth in the securitisation industry for real estate investment. Real Estate Investment Trusts (REITs) have made a global impact, which have made a paradigm shift in the real estate investment market today, innovatively creating structured financial vehicles in the real estate industry. With the development in the financial market today, certainly somehow such will provide wider choice and avenues for financing, as well as funding real estate projects. Of course some of these financing methods are not suitable for smaller projects that require a smaller capital outlay. But for major development and redevelopment exercises involving MRL, the concept of real estate development or investment trust should be suitable, whatmore if it involves multiple landownerships and stakeholders. PROPOSED REDEVELOPMENT OF KAMPUNG BARU KUALA LUMPUR VIA SECURITISATION VEHICLE The idea of undertaking comprehensive redevelopment and rehabilitation of a prominent Malay enclave of Kampong Baru Kuala Lumpur by using the concept of land trust was mooted when the government attempted a proposed plan for redevelopment in 2010. The Kampong Baru Malay settlement is located adjacent to the Central Business District of Kuala Lumpur. It is one of the biggest Malay enclaves of land in Kuala Lumpur with a total land area of 378.93 acres, of which 225.89 acres were under MAS and the remaining 153.04 acres are on non-MAS land. There are about 4,300 lot owners on both the MAS and non-MAS land, spread over seven villages. The Malay Agriculture Settlement (MAS) areas were introduced in Kampung Baru Kuala Lumpur on alienation of agricultural land to the landless Malays in 1897. MAS land is not designated as Malay Reserved Land (MRL), which was introduced in 1913 via Malay Reservation Enactment. But both lands carry similar restriction in interests, which prohibit transfer or occupation by non-Malays. The existing development is generally varied in character, comprised of traditional kampong dwellings interspersed with semi permanent and some low rise permanent buildings. Generally, the overall physical landscape of Kampong Baru is in contrast to the surrounding vicinity characterized with obsolete buildings, narrow roads and some vacant lands which signify obstacles in development exercises.

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The immediate surroundings of the Kampung Baru Malay enclave is overshadowed by many prominent city landmarks, such as KLCC and Petronas Twin Tower and other highrise notable commercial buildings of the central business area. In view of the various constraints mentioned above, there are several key factors that must be strongly adopted by the government-proposer before the proposed redevelopment of Kampong Baru could be implemented. Since the proposal is government driven, it requires a strong political will dealing with such a huge number of land owners, their representatives and other interested parties. The government- proposer must be transparent and all details of the proposal must be spelled out to the parties involved. The landowners must play a participating role at the plan formulation and the decision making process should work on unanimity rule; otherwise majority consensus should be adopted in order to uphold social justice in the whole exercise. Looking at the whole structure of the proposal, the stakeholders of the proposed development will comprise the following: •

Land owners

MAS Board /representatives

Kampong Baru Development Corporation (KBDC) (to be established as development agency)

Government linked companies (GLC) viz Lembaga Urusan Tabung Haji (LUTH), Permodalan Hartanah Berhad (PHB) and Permodalan Nasional Berhad (PNB) as funding institutions (Media reports, August 2010).

The proposal is first to set up a corporate governing body called the Kampong Baru Development Corporation, which will serve as the planning and governing body for development activities in Kampong Baru. The proposal also sees the involvement of government-linked companies and institutions such as Permodalan Hartanah Berhad (PHB), Lembaga Tabung Haji (LTH) and the Permodalan Nasional Berhad (PHB) to be active equity partners/funders in the development. The government also proposed to set up a trust, namely Kampong Baru Land Trust, a securitisation vehicle ala Real Estate Investment Trusts (REIT) to foster equity participation and safeguard interests of the land owners in the proposed development. The securitisation can be via conventional or Islamic vehicle. The structure of the securitisation vehicles as proposed by the writer are as in Fig. 2 and Fig. 3 (Shahrom, 2010). PROSPECTS OF REPEAL/AMEND/ENACT THE LAWS RELATING TO MRL – THE FEDERAL CONSTITUTION, MALAY RESERVE ENACTMENTS, NATIONAL LAND CODES, LAND ACQUISITION ACT, ETC. Today, it has been 100 years since ERM was enacted. It is a law that has seen much controversies, but it is entrenched so as to safeguard the long term interest of Malay land ownership in the country. Despite the complexity of various constraints undermining MRL, we have to accept the fact that the Malay Reservation Enactments had played significant roles to protect and prolong the ownership interest in land of the Malays. After 100 years, the law still remains intact, despite some efforts to amend the law by the ruling government. The last effort was a proposed amendment of the law on Malay land reservations is to allow leasing of MRL to the non-Malays for development made in 2004. Until today, the idea did

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


Landowners/ Unit holders Investment

Business Decision

KBLT Manager


Safeguards LO interest


Trustee Fees

Fees Manages property

Net Income


Property Manager



KBLT Properes Fees


Fig. 2 – Proposed Conventional Model of Kampung Baru Land Trust (KBLT)

Shariah Commiee

Landowners/ Unit holders Shariah Advisors

Business Decision




Safeguards LO interest


Trustee Fees

Fees Manages property


Property Manager

Net Income



Properes Fees


Fig. 3 – Proposed Model of Islamic Real Estate Trust for Kampung Baru Development

not go through. Apart from political opposition, even from within the ruling party members and the Malays, inevitably, the government realised that it has to undergo a very complex process of the law as provided by the constitution. Furthermore, the proposed amendment is further complicated by a requirement to amend other related laws such as the national land codes. Article 89(1) of the Federal Constitution emphasizes that any act of excision, revocation, acquisition or alteration of the size of Malay reservation land can only be made by the legislature of the state. It has to enact a new Malay Reservation Enactment that is passed by the legislative assembly and approved by each house of Parliament. In the legislative assembly, it is passed by the majority vote of all members of the assembly, whether present

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or not, with votes of not less than two-thirds of the members present. Subsequently, the enactment has to be approved by resolution in each house of Parliament based on similar proceedings. The law that is applicable in the revocation of Malay reservation land that has been declared as Malay reservation prior to Independence is Article 89(1) of the Federal Constitution, and not section 4(i)(b) of the Malay Reservation Enactment 1933. Article 89(3) envisages that if any Malay reservation land is acquired or revoked, the state authority shall replace it with another piece of state land. There are three conditions which need to be adhered to for replacement: a. It has to be similar in character; b. An area not exceeding the area revoked; c. The replacement should be exercised immediately. On the contrary, instead of going for repeal and amending the laws relating to MRL, the government should instead strengthen the existing laws and other laws on security of title, which has created injustice to land owners due to fraud and forgery in land transfer (Adorna Properties Sdn. Bhd. v. Boonsom Boonyanit @ Sun Yok Eng , 2001). ROLE OF GOVERNMENT, INSTITUTIONS AND AGENCIES Perhaps it is time that the government through its appointed agencies at national level and state levels play an active role in developing MRL, which have potentials and are ripe for development, particularly those MRL located in strategic parts of the urban areas or even at urban fringes. Rather than acquiring those MRL via compulsory purchase as a common practice before using the amended Land Acquisition Act 1960, it should be on a longer term benefit to both the government and landowners to consider a win-win approach on developing MRL just like other privately developed schemes. In view of various financial arrangements available nowadays, it is not impossible that some form of cooperation and participation could be organised between the government and the landowners to develop commercially viable MRL. As to date, there are government arms and agencies such as state development corporations, Urban Development Authority (UDA) and the newly established Yayasan Amanah Hartanah Bumiputera (YAHB) and its management company, Pelaburan Hartanah Berhad (PHB), that could play positive roles in identifying the development opportunities available for those MRL suitable to be developed that will benefit not only the landowners, but also the Malays in general. Developing MRL particularly in a town or city or even at the urban fringe should be looked at as a long term effort to urbanise the Malays and to spur their economic participation, as well as to increase their political share in urban areas. It is interesting to note a major move by the government a few years back in pursuing the bumiputera agenda to increase their participation as well as ownership in commercial properties in major locations of urban areas. Apart from the setting up of YAHB and its management company, PHB, to develop its property assets, the government had also recently through its investment arm Khazanah Nasional Berhad (Khazanah) had undertaken a major corporate takeover exercise of UDA Holdings Berhad (UDA), a public listed company, to be wholly owned by Khazanah. Although the takeover of UDA has no connection with the setting up of YAHB and PHBB, the objective of getting back UDA is also to fulfill the government agenda of increasing bumiputera equity in the urban economy.

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


The rationale for the government in buying UDA is to bring back its former role and function as agent for development and investment for bumiputera property assets in urban areas. The government realised that since UDA was listed in 1999, the organisation had taken a different route just like other companies. It became profit oriented in its development activities and failed in its social responsibility to uplift the bumiputera economy in urban areas. But of course the more the reason that the government chose to have UDA back is the two valuable assets that it has acquired for all these years – its vast experiences in property development and investment and property assets that it had already accumulated in prime urban locations. So, by having YAHB and UDA, the bumiputeras now have two vehicles specially designed and built to generate their economies in urban areas generally via property development and investment activities. With enormous size of assets in place for YAHB and UDA, collectively it would create a significant impact on the urban property market, the capital market and urban economy. Certainly, it will require due diligence, good corporate governance and full responsibility on the part of YAHB and UDA in managing the assets so as to meet the underlying objectives – achieving economic efficiency and social justice. After all, these are not merely assets, but more of the trusts for the rakyat and generations to come. In fact the government should also go beyond that by entrusting the state development corporations, YAHB and UDA, as the main vehicles to solve the long overdue Malay agenda of developing Malay Reserve Land (MRL) located in some parts of the towns and cities which are ripe for development. The urbanization process over the years has turned some Malay reserve areas into prime area of the towns and cities, but due to some legal and economic constraints, these areas were not developed. These are valuable pieces of land that need to be developed and turned into high value assets that do require some organisational and institutional involvement due to economic, financial and legal constraints. They should consider the various alternative financial formulas in realising the development of MRL, such as through conventional joint venture or equity sharing or using the alternative Islamic route of Mudaraba or Musyarakah or using special purpose vehicles such as REIT/Islamic REIT to model the development of MRL. As such, the way forward for MRL is for the government and its related institutions and agencies to be instrumental by playing an active role to promote efficient utilisation and development of MRL via the followings: •

formulation of economic policies, planning and development, land readjustment, land rehabilitation and consolidation, asset securitisation, real estate trusts.

establish entrepreneurship programmes, education, training, advisory, consultancy as ways to solve the structural problems undermining the eonomies of the land owners and interested parties.

provide financial support, grants, subsidies, incentives, tax exemptions.

create awareness campaigns, social integration programmes, community development programmes to the Malay community.

government and institutions to be more sensitive and avoid practice of revocation and compulsory acquisition of MRL. It must replace the MRL if revoked or compulsorily acquired as required by the constitution.

promote a land readjustment system as alternative to land acquisition.

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promote concepts of equity participation and real estate trust in development projects involving MRL rather than by compulsory acquisition.

Involvement of government linked companies (GLC) in developing MRL.

PROPOSED SET-UP OF INSTITUTION OF MRL AND MALAY CUSTOMARY LANDS In view of the many underlying issues and critics undermining the MRL as of today, it is in our opinion, that an institution should play a leading role in providing both academic and professional services to the good and betterment of MRL, hence the various stakeholders. Quoting the esteem words of the late Director of Institut Teknologi MARA (ITM), Professor Datuk Dr. Nik Abdul Rashid Nik Abdul Majid… “The Malay Reservation Enactment is nothing but small token of love from our grandfather handed down to us with a trust that we shall hand it down to our children and their children. Malay Reservation Land is a land under a trust. We are the trustees of the Malay Reservation Land” (Nik Abdul Rashid,1993), therefore, it is timely for the country to move forward as the trustee to the MRL which constitute about 30 per cent of the land resources of the country, to promote and enrich the MRL and other customary lands. To fulfill the role and objectives, it is in the opinion of the writer that MRL and customary lands (MCL) should be institutionalised nationwide i.e. the need to set up Institute of Malay Reservation Land. The proposed institute can be set up under the land ministry or any public university. The proposed idea of the institutiton is modelled after some of the land institution that had been established in other countries with indigeneous communities such as on the USA, Canada, New Zealand and Australia. The proposed institute acts as an institution that brings research, consultancy, teaching, outreach and engagement activities in the area of MRL, customary land and resource management together under one umbrella unit. The mission of the institute is to work with MRL and customary landowners, the stakeholders, the government and related agencies to realise a more prosperous future through optimal land and resource management practices. The institute will provide the professional consultancy services to the MRL owners on land administration and land development exercises. VIEWPOINTS AND CONCLUSION •

It has been 100 years since the law on Malay land reservation was enacted. The society must accept the fact that the law will be entrenched as one of the Malays’ special rights as enshrined within the Federal Constitution. Despite the ongoing issues and challenges, MRL is an inherited trust that the stakeholders must protect, preserve and utilise efficiently. It is long overdue that the various interested parties and stakeholders should come out with amicable solutions and strategies to overcome the various impending constraints on MRL. There must be a comprehensive plan on MRL as part of the overall local, regional and national plan that will promote and steer the future development of MRL in the country. As the statistics show, overall about 30 per cent of the country is under gazetted Malay reservation area, and in some states, the gazetted area exceeds 30 per cent. The State of Kelantan is the highest, with more than 95 per cent of the state gazetted as MRL. With such a size, MRL is a significant factor to reckon with; hence if utilised and developed efficiently, it will contribute to a sustainable local and national economy.

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


As land is scarce and is a highly valuable economic resource, we should instead leave the future of MRL with potential or to be ripe for development to be determined by market forces of supply and demand. Since interest in land normally signifies nationalism, political as well as economic interest of a community. For the long term benefit of the Malays, it is imperative that the Malay community should have the privilege of steering the development of MRL within their own agenda without compromising the economics, Malay sentiments and their political aspiration (Shahrom, 1995).

It is undisputable that the majority of the Malays would like to see that MRL be utilised economically in tandem with the country’s economic growth; however, the ownership interest in land must still be in the hands of the Malays in perpetuity. We have to accept that the Malay legendary sentiment on the MRL is there forever, despite all the statutory and economic restrictions and constraints affecting the land. After all MRL is not a problem of misallocation of resources in economics which dampens the national economic objectives. MRL has largely contributed to the economy, particularly in agriculture as well as in public goods and commercially oriented developments, despite the underlying market constraints. It is a fact that the number of MRL had tremendously been reduced in size from state to state due to continuing compulsory acquisition by the government to allow for development, not only for public purpose (Section 3a of Land acquisition act 1960-Amendment), but also for commercially-oriented purposes (Section 3b of the same act). The only economic setback undermining the MRL is that due to its statutory constraints or market restrictions, MRL is deprived of its highest economic return if put to development compared to non-MRL (ibid.).

Any MRL proposed to be developed should be carefully appraised and evaluated to identify the economic feasibility. By virtue of market restrictions undermining MRL, there should be extensive market study and analyses carried out to determine the occupational demand for the type of development proposed. Avoid any proposal on developing MRL based on hunches and pure speculation. The economics forces of occupational demand and supply of property should not be compromised in the decision-making process of developing MRL.

Each of the conventional financial alternatives on redevelopment exercise has its own merits and demerits. Development by land owners through partnership scheme has been in practice in the development of Malay Reserve Land. But the setback on this financial arrangement is on the question of sharing of equity and risks between the development partners, and also on the question of getting the right and credible partner to be part of the scheme.

The idea of leasing of MRL for development should be considered with an open mind. It is one of the alternative avenues to solve the underlying problems of MRL ripe for development given the financial constraints and lack of expertise on the part of landowners. A proper evaluation of the leasing approach must be done in comparison with other possible alternatives, such as the landowner acting as the developer and entrepreneur himself or the possibility of a partnership and joint venture scheme or build and deferred payment scheme. Where the alternatives considered are on leasing or a joint venture scheme, such must be evaluated carefully from both economic and legal perspectives but with strong participation of the Malays to the development (ibid.).

In principle, leasing of the MRL for development is rather a sub-optimal approach from the economic perspective. As resources such as land is scarce, we should instead leave

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the future of MRL to the market forces. In other words, development of MRL should be in tandem with the overall economic growth of the country and should be looked at within the economic perspective and well-being of the Malays themselves. It should be realised that since the implementation of New Economic Policy (1970-1990), the number of Malay entrepreneurs, financiers, corporate leaders and professionals has increased tremendously, whilst its representatives at the government levels are still intact and relatively strong. Similarly, the real disposable income of the Malay community has also improved over the years due to the overall economic prosperity enjoyed. As such, if we were to combine all these factors within the economic advantage of the Malay community, it is imperative that the Malay community should have first hand advantage of determining and steering the future development of MRL, rather than looking at immediate and short term solutions such as leasing to the nonMalays for development (ibid.). •

The proposal to redevelop the Malay enclave of Kampong Baru, Kuala Lumpur should be carefully appraised and evaluated to identify economic feasibility. By virtue of market restrictions, there should be extensive market study and analyses carried out to determine the occupational demand for the type of development proposed. Avoid any proposal based on hunches and pure speculation. The economics forces of occupational demand and supply of property should not be compromised in the decision-making process of developing Kampong Baru.

It should be strongly emphasised here that leasing of land for development irrespective of whether a MRL or not is not a short term lucrative venture compared to other forms of property investment. It is immaterial whether the leasing scheme is traditional or a participating leasing scheme if the objective is for capital gain and or maximum return; such would certainly not be realised or guaranteed even on reversion of the lease. Although the owner of the site leased for development has been guaranteed ground rent, the amount normally represents a small percentage of return of the overall development value as well as to the site value. Where a comparison is made between the capital value of the site to be developed with the ground rent to be received, even after taking account of both capital and rental appreciation, certainly one may find a vast difference between the two. Such is the case of Kampong Baru, where the value of the land has tremendously appreciated due to its strategic location; the difference between the capital value of the site with potential ground rent is certainly huge enough that a sensible landowner would rather chose to dispose the land for capital gain than leasing for development. On the contrary, leasing would only be appropriate where the landowner lacks expertise and has financial constraint but is willing to compromise on lower economic return without losing the long term interest in the land (although this should not be the case in the present day economy where expertise can be hired and finance can easily be raised if the landowner has a strong determination to be an entrepreneur himself) (ibid.).

To date, there have been serious efforts on the part of some owners of MRL as well as Malay developers to develop MRL in certain locations in the country. Although the development schemes are mainly small due to the inherent characteristics of the MRL being smaller in size, the schemes proved to be successful indeed. Some owners themselves made an effort to convert and subdivide their MRL into saleable residential detached house plots in some of the prominent locations in the country and managed to sell at competitive prices to the Malay buyers.

The ongoing trend of undertaking development on joint venture schemes with nonMalay developers and funders (alternatively termed Ali-Baba practice) should be

International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


ceased since the equity and profit sharing structure is to the disadvantage to the MRL owners. This is not an innovative arrangement that some Malays are likened to, but rather an economic opportunity loss that the MRL owner and the society has been manoeuvred into all these years in the name of economic development. •

The idea of the setting up of property trust that specially manages and develops land banks of MRL representing the various landowners on large scale should be given a serious thought. The trust agency even goes beyond inviting the Malay community to participate in the development of MRL by buying the equity unit trusts as investment, which will provide a ready source of development funds to the trust. Similarly, the idea of setting up a property trust resembling the Amanah Saham Nasional Berhad (ASNB) for MRL as proposed at the 1997 UMNO General Assembly as a means of developing MRL can be considered as economically sound and very much on point as a corporate outlook without jeopardising the Malay sentiments. The Real Estate Investment Trusts (REIT/Islamic REIT) and property unit trusts markets, which had been established in the country, should be alternative models to look at, particularly for large scale development of MRL.

The government should be playing a monitoring role on all MRL in the country proposed for development. Apart from providing various policy guidelines on MRL for development, there should be a special executive committee/task force set up at district and state levels comprising administrative and professional experts responsible to identify, monitor, process and evaluate MRL suitable for development. The authorities must also consider as a form of incentive to promote development of MRL rewards of exemptions on taxes, duties, premiums, development charges, subsidies as well as a one-stop centre to cut the bureaucracy and delays in planning and development approvals. Apart from that, it strongly requires support and commitment of the financial sector to readily provide financial advisory as well as financing and funding of the MRL because certainly without the support and commitment of the financial sector, the whole idea of promoting the development of MRL will be in vain.

The government through its GLC and appointed agencies at national level and state levels should also play an active role in developing MRL which have potential and are ripe for development, particularly those MRL located in strategic parts of the urban areas or even at urban fringes. Rather than acquiring those MRL via compulsory purchase as a common practice before using the amended Land Acquisition Act 1960, it should be on a longer term benefit to both the government and landowners to consider a win-win approach on developing MRL just like other privately developed schemes. In view of various financial arrangements available nowadays, it is not impossible that some form of cooperation and participation could be organised between the government and the landowners to develop commercially viable MRL.

The proposal to develop Kampong Baru, Kuala Lumpur using the asset securitisation model viz REIT could be considered, but more as unlisted/private REIT. It is a way out from the various underlying legal and economic constraints for such a very huge size real estate assets. If fully developed comprehensively, it will be among the biggest securitised real estate assets looking at the overall size and its market capitalisation. However, due to its MRL status and the underlying legal and economic constraints, the proposed KBLT will not be an asset class that will perform at par with other REITs listed currently in the stock exchange.

Listed REITs are traded in open market as such benefit in times of active market movements in both the property market and the securities market. By comparison,

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KBLT would only perform according to the property market movement and further restricted within the Malay market. Such a setback would create a significant effect on the prices and yields of KBLT. Hence the interests of the landowners/unit holders and investors. •

The conventional financial solutions explored are not structured according to the norms and ethics of Islamic financial systems. Malaysia has established a prominent Islamic financial market which readily provides Syariah compliant financial products and services, both equity-based and debt-based, that are suitable for real estate development and investment.

The proposal to set up Kampong Baru Land Trust based on an asset securitisation model would be an innovative proposal that specifies the significance of transparency and trust among key factors in developing such a complex and highly controversial Malay enclave. With the innovative development in Islamic finance via asset securitisation vehicles, such as Islamic Real Estate Trust, where Malaysia has pioneered the model and paved the way in the global market, securitising the proposed Kampong Baru development as Islamic Real Estate Trust will be another landmark achievement to our Islamic financial system.

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International Surveying Research Journal (ISrJ)

Malay Reservation Land — Unleashing A Century of Trust


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Shahrom Md. Ariffin (2005), Development of Malay Reserve Land: Financial Perspectives, Colloquium on Malay Reserve Land, Universiti Teknologi Malaysia & Persatuan Juruukur Tanah Bertauliah Malaysia (PEJUTA), Hotel Flamingo, Kuala Lumpur, 14 February. Shahrom Md. Ariffin (2005), REIT of Way, News Straits Times, Property Times, Viewpoint, 9 April. Shahrom Md. Ariffin (2006), A Challenge to Muslims, News Straits Times, Property Times, Viewpoint, 28 January. Shahrom Md. Ariffin (2007), Islamic REIT: New Challenges to Islamic Capital Market, The Surveyor, Third Quarter 2007, pp 21-25. Shahrom Md. Ariffin (2009), Land Redevelopment: Issues On Brownfield Sites (ed.); The Economics of Developing Malay Reserve Land, unpublished work. Shahrom Md. Ariffin (2010), Issues in Kampong Baru Redevelopment: Financial Solutions, International Conference On Urban Development and Management (ICUDM), 26-27 October, PWTC, Kuala Lumpur. Shahrom Md. Ariffin (2011), Malay Reservation Land: Issues & Prospects, 4th Real Estate Research Seminar, organised by Centre for Real Estate Research (CORE), Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, 10 November. Stevenson, Robert; Potts, Keith; Houlton, Lorraine (1994) Joint Venture Vehicles in Property Development, Journal of Property Management, Vol 12 No 2. Tan, Andrew A.L. (1996), Project Management in Malaysia, Synergy Books International, Kuala Lumpur. The Asia Business Forum (2008), Current Trends, Development & Opportunities for REITS Conference, JW Marriot Hotel, Kuala Lumpur, 15-16 September. Wong, S.Y., David (1975) Tenure and Land Dealings in the Malay States, Singapore University Press, Singapore.

International Surveying Research Journal (ISrJ)