A Case for Individual Land Titles

[seliong ak wau]

A Case for Individual Land titles

Introduction

Chile, South America, fought insurgency for years. When peace returned in the 80’s, a village just across a prosperous town remained in derelicts and the inhabitants hired themselves out to the most prosperous neighbour. Economists were baffled. The river dividing the two places were less than 50 metres wide, but their economic difference could be years apart.

Investigations later revealed the village was sitting on “government land” while their prosperous neighbour was also sitting on “government land” but were issued individual titles less than 10 years back. The prosperous neighbour can build their homes without fear, repaired and painted the houses and some enterprising few used the title to secure small loans with the banks.

This became a very convincing argument for General Pinochet in his land reforms.

West versus East

Malaysia offers another unique situation that could baffled even the most read economist. Except for the gazetted government land, individual titles are issued for individual landowners. Cheap agriculture land may be hours drive passable through the use of all-terrain scramblers or trekking on foot. A few public companies took this opportunity to purchase some of these lands and turned them into oil palm smallholdings cum homesteads. Lion Land turned acres of unused land in Johore into homesteads planted with orchards and used the slogan “Money grows on trees.” Country Height Bhd turned unutilised rural land in Kelantan into valuable assets when they subdivided the land for oil palm and homes.

While rural land in W Malaysia received investment fund and enjoyed comparatively higher real estate value, the same cannot be said of rural land in Sarawak and Sabah.

Japan & Taiwan

W Malaysian land ownership is not different from cases in Japan. After the war (1945), Japan undertook land reforms where owners of forest land were allowed to retain their ownership. Soon, before the like of Sam Walton (Walt Mart), Buffett and Gates, the richest people on the planet were these Japanese land owners. The land they had turned into valuable real estates.

Taiwan offers another unique lesson in ownership. When communist China drove the Kuomintang, they transformed the coastal swamps into parcels of agriculture land. Families farmed these lands with their homes nearby. In the backyard, another revolution started. Many well-know manufacturing families started from these backyards. The agriculture land became industrial land.

The push for industrialisation were so strong in both Japan and Taiwan that farmers protested that famers and fishermen this revolution. The history of Narita Airport Japan includes fights and conflicts between farmers and the airport authorities. Similarly protests by fishermen were common in the 80’s.

W Malaysia, Japan & Taiwan

Land ownership is the common denominator for these three places. (We leave out the land reforms as practised in Japan and Taiwan.)

In 1994 realising the shortage of land, the Federal government approved the utilisation of Tanah Melayu for industrial and other commercial development with the conditions. The proposed development must be owned by Melayu, and if a joint-venture was proposed, the ownership structure of the joint venture must have Malayu Majority. This released a huge potential for development of Tanah Melayu.

Tanah Melayu in Johore, Malacca, Selangor and Penang immediately appreciated in value. An acre of Tanah Melalyu in Selangor can be transacted at RM600,000. From Klang to Tanjung Karang, an hour drive along the wide coastal road, major developments are taking place in all the Tanah Melayu areas. Where once were rubber and oil palm, new factories and residential houses sprung.

Case: Mak Chik Tipah & sister

Mak Chik Tipah, age 78, comes from a large family – 8 brothers and sisters. Two sisters were given a 3-acre piece in Jalan Chong Heng after a coffee factory at the end of the dirt road. To get to the land, you either walk of use a bicycle.

After the war, that path was upgraded to lateritic road and officially changed to Jalan Kopi. Today Mak Chik Tipah lives on the rental of RM2,500 from a wharehouse that a businessman built on her property.

But it was her sister that suddenly became a “millionaire.” Her piece was annexed by the municipal council and she was not around. Her husband had move back to Indonesia, she followed, living a life a poor farmer. It took the brothers a full year to trace her. When they sold the property, it was “only RM280,000,” but when they brothers handed that money to her, she cried uncontrollably. (This was related to me by En Saharuddin, her brother).

The story of Mak Chik Tipah may take a full 70 years, but that is that rate of progress where a useless piece of agriculture land can be valuable town property. Her story is just one of the many in W Malaysia. Another Pak Chik Utusan (he worked as an Utusan journalist before) inherited a huge piece of Tanah Melayu in Kapar (on the way to Kuala Selangor). Then the government built a huge power station just next to his land (Jalan Haji Sirat). His belukar is now a prime property.

Private sector is the main thrust

At end of 2006, factory operators in Selangor received a new directive. It was proposed that factories set up illegally were to submit specific documentations. The documentation was to legalise their operation. It was estimated that around 3,000 operators in Selangor were “illegal.”

That derivative included the realignment of the municipal boundary. At that time I was operating a small building materials warehouse in Tanah Melayu. My business was immediately labelled as “illegal.” Yet I was unperturbed.

To remove 3,000 “illegal business” would remove at least 20,000 jobs. The main danger however was the loss of entrepreneurs. Many of these entrepreneurs started as backyard operators, renting Tanah Melayu, and over the years became household names in the Malaysian manufacturing fraternity. Along the way, these Tanah Melayu were submitted for conversion to industrial land, enriching many of these landowners.

(I am not at liberty to name these companies. If you have any interest to know their names, you can email me at: seliongpersonalfin@gmail.com.)

Why is Tanah Melayu popular in W Malaysia?

I met a district officer once. I wanted to buy 1.2 acres (measurement used here is relong). The transferred was declined. I may be a “bumiputera” but “Encik, saya minta maaf. Encik bukan Melayu. Ini tanah Melayu.”

But why is Tanah Melayu popular?

Why are large corporations submitting applications for joint-ventures with land owners utilising Tanah Melayu? I asked the Melayu themselves for answers. According to them:

1. Cepat oooii. Apa apa project kitai minta, sekejap aja dia orang lepas. The use of Tanah Melayu follows certain conditions and a separate body under the District Officer monitors its usage. Once an application for development or joint venture is received, the officers checked the merits and approved or reject the application within weeks.
The rationale is simple. If the terms and conditions have been met, there is no reason to delay it further by submitting the application to more committees and bodies. After all, its the welfare of the people that come first.

2. Murah aja. The JV avoids outright buying. Agriculture land within the vicinity of civilisation could be transacted at RM10 per square foot (RM10 x 43,230 = RM432,300/acre). A factory could take 3 acres and the RM1.2 m could be used instead as development, machineries and material costs.

Rental for such land could be about RM10,000 per month or RM120,000 per year. For a company to borrow RM1.2 million, repayment at 9% for 15 years is RM12,171 per month. Of course after 15 years, the land belongs to the company and land appreciation compensates for the interest incurred. But in reality a factory has to relocate after 15-20 years. In fact whatever so-called gain in appreciation (which is equivalent to inflation), is spent on municipal tax (assessment and quit rent).

3. Facilities. Tanah Melayu avoids all the costly conversion. Amenities are connected within time. In most cases, the authority helps in providing better infrastructure to the JV (with Tanah Melayu).

Beside the cost, JV operators felt the JV had other unseen benefits. They can be assured to uninterrupted business for the next 15 – 20 years. Factories in industrial land may enjoy uninterrupted operation but the land cost could be prohibitively expensive. In the Tanah Melayu, JV operators felt the “protection” by privilege. Small factories are also spared the inconvenience of “protection money” common to small operators.

Tanah Melayu – a bit of history

All the JVs and developments on Tanah Melayu are made possible as these lands have individual titles.

In W Malaysia, all titles, at least in Selangor, started with Geran Tanah Melayu. Other races were allowed to register their land directly from the State Land, or ownerships were registered before independence. Many plantation lands were registered before independence.

The state government may earmark areas for development. This could involve state land, or Tanah Melayu (as in the case of PKTZ). Land was annexed and sale cost and premium were paid.

Once the land use changed, other community are allowed to purchase these lands.

The other bit of information is TOL land. Temporary Occupying licence, are government land where a licence (usually a few ringgit per year) is issued to the occupier of that land.

These lands in Selangor:
1. Tanah Melayu (locally known as geran hijau)
2. Estate land transferrable (geran puteh)
3. Commercial land (factory, houses).
4. TOL land
5. Government land.

Would a JV be possible on a non-titled land?

It is a FLAT no. Would a bank lend out on the basis of mudharabah (profit sharing) musharakah (joint) or murabahah (cost plus)? (Note: I am also a qualified IFP – Islamic Financial Planner). The answer is another FLAT no. Conventional banking, of course does not recognise ownership without relevant documents.

Documents, that is the answer; would anyone want to JV any enterprise utilising land that has no document? The answer is again a big no.

All land without documents in Selangor is government land, and before any factory can be set there, the occupier insisted on a TOL before hand. (Note: Lately, many TOL have been issued with leasehold titles).

What lies ahead for Dayak land in Sarawak?

Land belonging to Dayaks would remain undeveloped or underdeveloped as long as proper document to its ownership is unavailable.
(Land plantations that occupied Dayak Land are also provided with parameter surveys map, a form of TOL. Would theses large plantation cultivate on these lands without the paramenter survey? Not likely.)

Land within the vicinity of the rivers, roads and longhouses need to be provided with relevant documents to make it usable for development. The way forward is to set up a different department or body that handles Dayak Land, more or less a replica of the department that handles Tanah Melayu in W Malaysia. Our failure to do likewise is ignoring the biggest asset available to us in the state.

Like its counterpart Tanah Melalyu in W Malaysia, such asset, if properly utilised can be potentially productive, a source of employment and tax revenue.