When you proposed a development on your land and in the event that there is change in land use, density or floor area, you may be levied with a Development Charge by the local planning authority who is also the local council. In such event, you may be required to submit a valuation report to the authority to ascertain the enhanced land value (Increase In Land Value) which will eventually be adopted in the Development Charge calculation. Let us share with you the concept of Development Charge and how Agility Valuers (hereinafter called Development Charge Valuer) could assist you in the assessment and particularly minimize the payment of Development Charge.
Pursuant to paragraph 22(4)(b) of the Town and Country Planning Act 1976, the local planning authority shall not grant planning permission before the Development Charge in respect of the development has been paid, or before approval has been obtained from the local planning authority to pay the Development Charge by instalments.
What is Development Charge and Its Purpose?
Development Charge is a statutory payment imposed by the respective local planning authority in exercising the powers conferred by Section 35 of the Town and Country Planning Act 1976 [Act 172], the State Authority makes Development Charge Rules, for example Development Charge Rules (State of Pahang) 2019. These Rules shall apply to all areas under the jurisdiction of local planning authorities in the State of Pahang. Subject to subsection 32(1) of the Act, the local planning authority may impose a Development Charge on any development application. For this purpose, the local planning authority shall ensure that a Local Plan for its area has been gazetted and contains information on proposed land use, density, or floor area.
The principle of Development Charge is sharing of a portion of gains as a result of change in landuse or density or floor area with the society. It is capturing the additional land value created by a granted planning permission (not the effort of landowner). The Development Charge collected will be utilised for the benefits of society as a whole, examples, for provision of better infrastructure, facilities, amenities and services. It is also ensuring fairness so that the “durian runtuh” (windfall) be shared with society as a whole. When a granted planning permission or Development Order has resulted in increase in land value as a result of change in land use (e.g., from residential use to commercial use) or increase in density / plot ratio (e.g., from plot ratio 1:3 to 1:5), Development Charge will be imposed by the authority based a formula as specified in the Development Charge Rules. This is when Development Charge Valuer will come in to assist you in justifying a lower chargeable amount.
How Does It Works?
Agility Valuers & Property Consultants would like to share an overview of how Development Charges are computed.
Generally, Development Charge is levied based on a percentage of enhanced land value enjoyed by landowners or developers when planning approval is granted. Different planning authority will have their respective percentages to be imposed on the enhanced land value.
How will enhancement in land value occurs? What is basis to be adopted. Your Development Charge Valuer will assist you in finding out the basis.
Generally (such as state of Pahang), the enhanced land value is calculated as follows:-
Current land value based on the proposed development as per Local Plan (say for a residential development with the value of RM2,000,000/-)
Minus
Land value based on the land use stated in the title at the time the Local Plan was gazetted (say, category of landuse “Agriculture” with the value of RM1,500,000/-).
Increase In Land Value is RM500,000/-.
If the Development Charge rate is 20%, the payable Development Charge will be RM500,000/- x 20% = RM100,000/-.
The Development Charge rates may differ from states and local authority territory. For the state of Pahang, the rates are as follows:-
Majlis Bandaraya (City Council) – 20%
Majlis Perbandaran (Town Council) – 15%
Majlis Daerah (District Council) – 10%
How does Dewan Bandaraya Kuala Lumpur (DBKL) impose Development Charges?
The pioneer, Kuala Lumpur federal territory has a more unique way of assessment. In accordance with the City of Kuala Lumpur (Planning) (Development Charge) (Amendment) (No. 2) Rules 1982, the “original landuse” is not based on the titled category of landuse / Express Conditions like other states do, instead it is based on the landuse as provided in the Kuala Lumpur Federal Territory Comprehensive Development Plans (Year 1970), Plan No. 1039 (Central Business / Commercial Area), Plan No. 1040 (Density Zoning) and Plan No. 1041 (Land-Use Zoning). The land use and density zoning for lands located within these plans are quoted accordingly. However, as these plans covered the original boundary of Kuala Lumpur prior to its extension. The extended areas of Kuala Lumpur are deemed zoned for residential use at a permissible population density of 60 persons per acre.
For example, a plot of land located in Old Klang Road is now permissible for commercial development at a plot ratio of 1:6 as per the lately gazetted Kuala Lumpur Local Plan 2040. The possible Development Charge is computed as follows:-
Land value based on commercial development at a plot ratio of 1:6 (say RM50,000,000/-).
Land value based on residential zoning at a permissible population density of 60 persons per acres (say RM30,000,000/-).
Increase In Land Value is RM20,000,000/-.
Development Charge will be RM20,000,000/- x 30% = RM6,000,000/-.
How Development Charge Valuer Helps?
The payable Development Charge is subject to a percentage on the Increase In Land Value (or the enhanced land value). As a trusted Development Charge Valuer, our duty is to ascertain Before and After values to determine the Increase In Land Value. It is obvious that the closer the gap of value, the lesser the Development Charge.
As an experienced Development Charge Valuer, Agility Valuers & Property Consultants leverage our market knowledge and practical experience to help clients narrowing the gap of value. The appropriate methods of valuation will be Comparison method and Residual method. We conduct site inspections, collect market evidence, review transaction data, conducting title search, making enquiry with the authorities, and analyse comparable sales or income streams, provide detailed insights into developed units pricing, factoring in market trends, property condition, marketability factors, and location-specific demand. All the values must be justifiable and data cum evidence back.
Should you require a dependable Development Charge Valuer for your Development Charge assessment, Agility Valuers & Property Consultants team is ready to assist. Feel free to connect with us to discuss your property or asset, and we will propose ideas specifically tailored to you. We don’t just offer professional valuations; we provide solutions that are most suitable for your property journey at every stage.
A crucial consideration when acquiring land is the potential Development Charge that may be imposed when the land is being developed. The amount can be substantial and may significantly affect your total development cost and profit. Ceteris paribus, land with more favourable landuse and higher density zoning will generally subject to a lower Development Charge. In our experience, many purchasers either overlook this aspect or are simply unaware that Development Charge exists.”
Frequently Asked Questions
What is a Development Charge and why is it imposed?
A Development Charge is a statutory payment required by the local planning authority when a development results in an increase in land value due to a change in land use, density, or floor area. Its purpose is to share part of the “windfall gain” from planning approval with society, and the funds are used to improve public infrastructure, facilities, and services.
When is a Development Charge payable?
A Development Charge is payable before planning permission is granted. This is in accordance with the Town and Country Planning Act 1976, which requires the charge to be settled as part of the development approval process.
How is the Development Charge calculated?
The charge is calculated as a percentage of the increase in land value (also called the enhanced land value). This is determined by comparing:
The land value based on the proposed development under the local plan, and
The land value based on the original land use or zoning. The difference between these two values is multiplied by the applicable rate set by the local planning authority.
Do Development Charge rates differ by location?
Yes. Rates vary between states and local authorities. For example, in some states, City Councils may impose higher rates than Town or District Councils. Kuala Lumpur uses a unique method based on historical zoning plans rather than the land use stated in the title, which can result in different calculations compared to other states.
How can a Development Charge Valuer help reduce the payable amount?
A Development Charge Valuer determines the “before” and “after” land values using recognised valuation methods such as the Comparison and Residual methods. By providing well-supported market evidence, site inspections, title searches, and data-backed analysis, the valuer can justify realistic values and help narrow the gap between the two, which may reduce the overall Development Charge payable.
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