Private Lease Scheme offers ‘no proprietary rights’ for the buyers

By Chang Kim Loong

Private Lease Scheme (PLS), which would allow private corporations to ‘lease’ out freehold land that they own for housing development. was first mooted in 2012 by Iskandar Investment Bhd, a strategic developer of Medini, Johor. At that time, there were no such law regulating PLS.

Iin 2018, the Director-General of Department of Lands & Mines, Putrajaya intended to introduce PLS to our National Land Code (NLC).

The purpose of introducing the PLS is to allow the freehold land owner (lessor) an opportunity to develop land which they otherwise wouldn’t or couldn’t have develop; without parting with the ownership of the land.

This is of particular benefit to private landowners who need to retain ownership of their land and make it available for development, without being actively involved in the maintenance of the building.

The National House Buyers Association (HBA) does not support the introduction of PLS as it offers no proprietary rights for the buyers.

The current NLC does not allow for leases to be created for more than one person – the PLS will be able to counter this provision.

The PLS will also result in land ownership in perpetuity as private landowners will now have a monopoly on merely ‘leasing aka renting’ out their land where condominiums or apartments are built or even landed houses.

They will have the absolute right, after 66 years or 99 years, not to renew or continue with the lease.

Property owners especially house owners (inclusive of strata property owners) under PLS will be renters in perpetuity.

PLS will also contribute towards an ever increase in house prices which is against Dasar Perumahan Negara 2.0 to ensure affordability to Malaysians and not merely profits for housing developers and ability to own houses by foreigners.

There are some adverse effects that the proposed PLS could bring. Firstly, it could potentially create a generation of homeless people.

This is because when the lease expires after 66 or 99 years with no reasonable expectation to have the lease tenure extended, house owners will live at the whims and fancy of the developer/ land proprietors.

Unlike the government, the private developers/proprietors are not accountable and may not have much consideration for the welfare of the people.

This prevents wealth from being passed on from one generation to another. Housing developers, in joint ventures with land proprietors, being lessee is incapable of passing any ownership in the land itself to purchasers who are deemed sub lessee.

PLS could also be confusing to the public as they could have difficulties in distinguishing between leasehold and private lease. Most are naïve and don’t know the differences.

According to Section 40 of the NLC, 1965, all state land belongs to the state authority.

When state land is disposed of by the State authority to an individual in perpetuity for an indefinite period, this land is now granted as freehold title.

When the state land is disposed of by the State authority to an individual for a term of years, by virtual of law, not exceeding 99 years, this land is now granted as leasehold title.

Upon expiry of the period of the lease, the land should be reverted to the state authority. The owner will then have to either apply for a renewal of the lease before its expiry or apply for a fresh alienation if the lease has expired.

These will involve the payment of a premium which would be close to buying the land all over again or perhaps, with political intervention, at nominal fee as in the case of PJ old town Section 1 leasehold lands that had expired but were renewed for a new tenure of 99 years at a fee of RM1,000 with certain conditions attached.

We also have to bear in mind that the value as collateral in comparison with leasehold/ freehold lands.

Why introduce PLS?

The introduction of the PLS appears to be motivated by the effort to prevent foreigners from possessing too much land in Johor.

However, if the PLS concept is introduced in the NLC, it would then apply throughout Peninsula Malaysia and universally to the public regardless of residents or citizenship status.

According to research, if the PLS becomes a trend, it will reduce the supply of property ownership in the market and thereafter push up the already unaffordable house prices even further. Then there will be a mad rush by the rich to buy land with freehold status.

Do you not know that the entire property landscape will be changed forever from ‘sale of property with titled ownership to that of a long term rental or ‘lease’ of property for a tenure? Freehold land will then become the most sort after commodity.

Scarcity of lands in Hong Kong and Singapore

Land leasing with relatively short lease periods is popular in countries facing shortage of land such as Hong Kong and Singapore. But Malaysia has abundant land.

The government should not paddle to the need of Medini, Iskandar and those in Johor and must consider the overall ramification on Malaysia. PLS will create lots of confusion to the Commissioner Of Buildings (COB), banks and property market.

Since a lease has no sense of ownership and security, house buyers will continue to be hoodwinked into buying leases.

We have to bear in mind that the values of lease will diminish with each expiring lease tenure. PLS property depreciates and becomes worthless in the long run.

The house buyers lose everything and become homeless after struggling to pay off full market price with interest and risk.

If the common properties and facilities are not maintained in serviceable conditions, market prices will drop exponentially after the 60th year and become zero at the end of the 99 years lease whilst land proprietors gain everything with enhanced land value and do nothing.

Example of properties that are affected are those that are currently up for resale, public auction and refinancing cases.

PLS is a disadvantage to our future generation of house buyers

This PLS issue may open up a ‘new can of worms’ as owners of ‘freehold’ land status will now hold on to their ownership forever for the benefit of their future generations, like the feudal system of land ownership and under the colonial days where lands are granted by lease and license to cultivate.

Should we not be moving away from our colonised days? If PLS turns into a reality, cash rich land barons and property developers will quickly snap up all freehold lands and adopt the same ‘modus operandi’ whereupon the prices will escalate and house prices will continue to remain as tenants in perpetuity rather than home owners.

Naïve and innocent buyers will not know the repercussions. There is no ownership security anymore for our next generation of buyers. Our current generation cannot allow the creation of a ‘monster’ that will affect our children and their future.

The way forward

Unfortunately, the die has been cast for certain developments in Johor which had used PLS even though the laws are not in place.

To minimise the damages done, there should be special legislation for certain gazetted economic zones like Medini, Johor with proper safeguards for the buyers with its land ownership restrictions. It cannot be allowed to be applied nationwide as it would ‘open the flood gates of rampage’.

This article is written by Datuk Chang Kim Loong, Hon. Sec-Gen of the National House Buyers Association (HBA), a non-governmental and not-for-profit organization.

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