By Professor Dr Ismail Omar & Dr Sr Fauziah Raji
Sir Robert Maxwell, a Selangor Resident under the British Colonial introduced Enactment Malay Reserved (EMR) back in 1913 to protect the land belonging to poor Malays from changing hands to rich non-Malays in most urban areas in Malaya.
The law came with restrictions in the interests of MRL that prohibit dealings between Malay landowners and non-Malays, be it individuals, developers and investors. This resulted in the smaller size of potential players in the market place and hence, lowered the value of MRL.
The rule of law originated from the late Professor R. Denman (the first professor in land economy) who taught property valuation theory at University of Cambridge, England in the 1960s.
With a smaller market for MRL, the marketability of the land for development and investment initiatives is vastly reduced.
Since the degree of transferability is less, the value of MRL is often less as compared to similar adjacent lands without restriction in interests.
This is the root of the problem that MRL rights had created a high degree of uncertainty. As a result, the cost of dealing with MRL tends to be higher and that pushes the level of risk to the land developer and investor. In the end, it dampened the economic performances of such land rights.
Such “transaction costs” are a form of the land supply constraints that adversely affect the potential economic development of MRL. Consequently, MRL is less attractive in the market and is normally not the first choice land for development.
Hence, in a way or another, the very nature of land tenure and restriction in interests of MRL equates with the indigenous, aboriginal, customary and related lands worldwide.
Interestingly, there are cases whereby MRL was capable of attracting potential developers and buyers and thus, create high demand in the market particularly within the Klang Valley such as Keramat, Subang, Penchala and so on.
There are also MRL that attract high demand for residential and commercial development like in Sepang, Semenyih, Ipoh and Johor Bahru. To what extent, however, have these cases been taken into account in dealing with the valuation of MRL?
What are the characteristics of Malay Reservation Lands?
The Malay Reservation Enactment (EMR) is a set of special land legislation for the Malays with the purpose of protecting their interest in land. There are 3 categories of ‘persons’ (both natural and legal persons) who could lawfully participate in the EMR, namely, the definitive Malay, the Policy Malay and Non-Malay.
Persons coming within the category of ‘Policy Malay and Non-Malay’ are able to participate in the MRE in different capacities enunciated therein. The differences among them are due to the disparity in power exercised by the State authority. Each State exercises the power independently and differently from each other and hence muddles the implementation of the EMR.
Therefore, there exist avenues and opportunities for standard rules in the form of an improvement of the Malaysian Valuation Standard (MVS) or even a new Act of Parliament on MRL to be regulated in the country.
The regulation is a way out of the issues on MRL and is timely for the sake of development of the country, especially, in consideration of the huge acreage of idle MRL and limited potential land available for development purposes.
The following are the essential criteria which are common and applicable to MRL in all States in Peninsular Malaysia.
i. Restrictions against alienation
This is a restriction imposed against the State Authority. Although Section 43 National Land Code 1965 gives power to the State Authority to alienate land to five categories of people, bodies or corporations, however, this provision cannot be used on MRL.
The State Authority has to refer to the EMR to determine who can receive land under this situation. This means that MRL ownership only to the Malays and not to the gentiles. Other Non-Malays attempt to have the status of MRL will automatically void.
ii. Restrictions against dealing
The land which has been alienated, allows the owner to conduct dealings (transfer, charge, lease/tenancy and easement) as prescribed by the NLC. In MRL this power is limited whereby dealings are only allowed among the Malays. All forms of business such as ownership, disposal or sale of land to non-Malays MRL are strictly prohibited.
However, leasing and renting to Non-Malays is allowed albeit with time limitations.
iii. Built-in device
All EMR contains provisions which list financial institutions deemed to be ‘Malays’ , hence enabling these financial institutions to charge MRL as security.
iv. Room for revocation
The Ruler in Council possesses the power to (1) alter boundaries of any MRL or (2) revoke the declaration of a Malay reservation either whole or any part thereof or (3) include any land in a Malay reservation.
v. Other general restrictions
Apart from the principal restrictions, other general restrictions such as the creation of a trust in favour of Non-Malays, dealings by Non-Malay attorneys, attachments in execution, vesting in Official Assignee and lodge of caveats by Non-Malay is not allowed.
vi. Sanctions for infringement
Sections 340 NLC will be inoperative when dealings with Malay reserve land as being conducted with non-Malays whereby the non-Malay cannot claim indefeasibility of title. While in Kedah & Perlis forfeiture proceedings may be exercised should dealings with non-Malays be affected. This is clearly against S46 NLC and the Federal Constitution.
Professor Dr Ismail Omar PPERT is the president of the Professionals Land Association of Malaysia (PERTAMA) since 2014 and lecturer in real estate management at Universiti Tun Hussein Onn Malaysia.
Dr Sr Fauziah Raji is a retiree from Universiti Teknologi Malaysia Science (UTM), Technology and Innovation Policy (STI). She is also a registered valuer.
* This is the first article in a 4 part series on Malay Reservation Land (MRL). The first part is about the history and the nature of the economic values of MRL. The second part is about the valuation of MRL. The third part is on the values as applied by different property valuers and part four is about views from bankers, land developers and the way forward to improve MRL in the country.