Introduction
Property owners may occasionally come across a valuation report stating that a property has been assessed on a Redevelopment Basis. What exactly does this mean?
A redevelopment basis of valuation recognises that a property’s Market Value may not be derived solely from its existing use, but rather from its potential to be redeveloped into a more intensive and economically productive use. In such cases, the valuer considers the property’s highest and best use, taking into account planning controls, development potential, market demand, and financial feasibility.
Property redevelopment generally involves the acquisition of existing units or buildings, obtaining the necessary planning approvals, demolishing obsolete structures, and constructing a new development that better reflects present-day market requirements and maximises the potential of the underlying land.
What is Highest and Best Use?
The Malaysian Valuation Standards (MVS) provide that Market Value should reflect a property’s highest and best use. Highest and best use refers to the use of a property that is:
Physically possible
Legally permissible
Financially feasible
In practical terms, this means that a property’s Market Value should generally reflect the use that generates the highest value, provided all of the above criteria are satisfied.
For example, consider a 20,000 square foot parcel of land located within the KLCC area and occupied by an ageing detached house. Although the existing house may have a value of approximately RM10.6 million, the land itself may be designated under the DBKL Local Plan 2040 for commercial development with a permissible plot ratio of 1:10. In such circumstances, the Market Value should be assessed based on its redevelopment potential rather than its existing residential use.
Consequently, the land may command a value of approximately RM4,000 per square foot, translating into an estimated Market Value of RM80 million, substantially exceeding the value of the existing house.
What are the Factors Considered in Adopting a Redevelopment Basis of Valuation?
When determining whether a redevelopment basis should be adopted, valuers consider several key factors:
Land Use Category and Title Conditions – The existing category of land use and any express conditions in the title may affect development potential and the requirement for conversion premiums.
Planning Zoning – The zoning designation under the relevant Local Plan determines the permissible uses of the property.
Density and Plot Ratio – Permitted density and plot ratio directly influence the potential gross development value of the proposed development.
Development Costs – Construction costs, infrastructure contributions, financing costs, professional fees, and other development expenditures determine whether redevelopment is financially feasible.
Market Demand and Supply – The proposed redevelopment must be supported by sufficient market demand for the intended product type.
Physical Characteristics of the Land – Land shape, terrain, accessibility, and site constraints influence whether redevelopment is physically achievable.
How Can I Determine Whether My Property Has Redevelopment Potential?
A simplified preliminary assessment can be made by comparing the value of the property in its existing use against the value of the land based on its redevelopment potential.
A general rule of thumb is:
Existing Land Value + Existing Building Value < Potential Redevelopment Land Value
Using the KLCC example:
Description | Value |
Existing Land Value (20,000 sf × RM500 psf) | RM10,000,000 |
Existing Building Value (3,000 sf × RM200 psf) | RM600,000 |
Total Existing Use Value | RM10,600,000 |
Potential Redevelopment Land Value | RM80,000,000 |
Since the redevelopment value substantially exceeds the existing use value, a redevelopment basis of valuation is justified.
While this is only a preliminary indication, a detailed professional valuation is necessary to confirm redevelopment potential.
Why Developers Seek Redevelopment Opportunities?
Developers are often attracted to properties with redevelopment potential for several reasons.
Strategic Location – Many ageing properties occupy highly desirable locations within established city centres where land is scarce.
Unlocking Hidden Value – While existing owners may focus on current rental income or existing use value, developers often focus on the value that can be unlocked through redevelopment.
Enhanced Planning Potential – Over time, planning policies may evolve to permit higher densities, more intensive uses, or mixed-use developments, thereby increasing land value significantly.
Higher Development Returns – Increased density and larger development scale generally result in higher gross development values and potentially greater profitability.
Why Redevelopment Can Create Value for Multiple Stakeholders?
When properly planned, regulated, and implemented, redevelopment can generate significant benefits for developers, existing owners, government authorities, society, and the broader economy. A successful redevelopment project should strive to create value for all stakeholders involved, particularly the existing owners.
How Developers Benefit
Redevelopment provides developers with the opportunity to acquire strategically located sites, often within established urban areas where land is scarce and demand remains strong. These sites may possess untapped development potential through higher permissible densities, improved land use zoning, or more efficient site utilisation.
The combination of prime location and increased development intensity can result in a higher gross development value (GDV), thereby improving the project’s overall profitability. In addition, local authorities may provide incentives such as reductions in development charges, conversion premiums, infrastructure contributions, or other statutory charges to encourage urban renewal and redevelopment initiatives.
How Existing Owners Benefit
Existing owners can potentially be among the greatest beneficiaries (if properly regulated, and implemented) of a successful redevelopment exercise. Subject to the financial feasibility of the project, developers may offer attractive compensation packages that exceed prevailing market values. In certain cases, buy-back offers may range from 1.5 to 2.0 times the existing market value of the property.
Additional benefits may include:
Compensation for relocation and removal expenses;
Rental assistance for temporary accommodation during the construction period;
Preferential rights (Call Option) to purchase units in the new development at discounted prices;
Options or priority allocations to acquire replacement units within the redeveloped project;
Assistance with maintenance charges for new units during the initial years following completion.
Beyond financial incentives, existing owners may also benefit from improved living conditions by relocating from ageing and deteriorating buildings into modern developments with enhanced facilities, better security, improved accessibility, and more efficient building management systems.
How Society Benefits
Redevelopment contributes significantly to urban renewal by replacing obsolete, dilapidated, or unsafe buildings with modern developments that better serve current community needs.
Key societal benefits include:
Enhanced cityscape and urban environment;
Improved public safety and building standards;
Increased housing supply in sought-after locations;
Better utilisation of scarce urban land resources;
Upgraded infrastructure, utilities, and public amenities;
Improved environmental sustainability and energy efficiency.
Redevelopment also helps accommodate population growth within existing urban areas, reducing the need for urban sprawl and preserving undeveloped land on the urban fringe.
How Government Benefits
Although governments may provide various incentives to facilitate redevelopment, successful projects can generate substantial long-term economic and fiscal benefits.
These benefits may include:
Increased assessment and quit rent revenues;
Higher stamp duty collections;
Additional Real Property Gains Tax (RPGT) revenue;
Increased corporate and income tax collections arising from expanded economic activity;
Improved utilisation of existing public infrastructure.
The additional revenue generated can be reinvested into public services, transportation networks, community facilities, and other infrastructure improvements.
How the Overall Economy Benefits
Redevelopment projects stimulate economic activity across numerous sectors and create significant multiplier effects throughout the economy.
These projects generate employment opportunities in:
Construction and engineering;
Architecture and urban planning;
Property valuation and consultancy;
Legal and financial services;
Project management and building maintenance.
Furthermore, newly completed residential, retail, office, and mixed-use developments create additional business opportunities, attract investment, and contribute to the long-term growth and competitiveness of the local economy.
Examples of Redevelopment Cases
Example 1 – A 9-acre commercial site located in Damansara Heights. The site was originally developed in the 1980s with a series of 6 to 7 storey office and retail buildings. Following a comprehensive redevelopment exercise, the property was transformed into a modern mixed-use development comprising a shopping mall, serviced apartments, and office towers. Prior to redevelopment, the majority of the development was owned by the developer, with only approximately 30 office and retail units having been sold to individual owners. These privately owned units represented roughly 2% of the total net lettable area of the development. To facilitate the redevelopment, the developer successfully acquired the remaining strata units through an attractive compensation package. Existing owners were offered buy-back prices of almost twice the prevailing market value of their units. In addition, compensation was provided for relocation, renovation, and associated moving expenses. Furthermore, the developer offered existing owners the opportunity to purchase new office units within the redeveloped project on a one-for-one floor area basis, at a heavily discounted price exceeding 50% of the prevailing market value. This arrangement enabled existing owners to continue participating in the future growth and success of the redeveloped project while receiving substantial financial benefits from the redevelopment exercise. At the conclusion of the redevelopment exercise, existing owners not only received substantial cash compensation but also benefited from significantly improved rental returns. The new office units are currently generating net rental rates (after deducting maintenance charges) of approximately RM6.00 per square foot, compared to about RM2.50 per square foot achieved by the old office units.
Example 2 – The redevelopment of 1 Razak Mansion is frequently cited as a successful urban renewal project. Originally constructed in the early 1960s as a public housing scheme, the development was eventually transformed into 1 Razak Mansion. Existing residents were offered replacement units on a one-for-one basis, enabling them to continue living within the same community while benefiting from significantly improved housing conditions.
Example 3 – Another notable potential redevelopment example is the acquisition of the former Corus Hotel site by Mah Sing Group Berhad in 2025. The property comprises a prime freehold site measuring approximately 1.485 acres and was previously improved with a 13-storey, four-star international hotel. Strategically located within walking distance of the prestigious KLCC precinct, the site presents significant redevelopment potential. According to the developer’s announcement, the property is proposed to be redeveloped into a premium serviced apartment development with an estimated gross development value of approximately RM1.28 billion. The acquisition highlights the strong demand for redevelopment opportunities in prime city-centre locations, where ageing developments can be transformed into higher-value projects that better reflect current market demand and optimise land utilisation.
What are the Challenges in Securing Suitable Redevelopment Sites?
Despite its benefits, redevelopment presents several challenges.
Obtaining Consent from Existing Owners – Acquiring all units within an existing development can be complex and time-consuming. Differences in expectations regarding compensation and replacement arrangements often create obstacles.
Relocation of Occupants – Residents and businesses may require temporary accommodation or relocation arrangements during construction.
Heritage and Conservation Requirements – Properties with historical, cultural, or architectural significance may face restrictions or opposition from conservation groups and regulatory authorities.
Stakeholder Management – Redevelopment projects involve multiple stakeholders, including owners, tenants, developers, local authorities, investors, and surrounding communities. Balancing these interests is often challenging.
Financial Feasibility – Even where redevelopment potential exists, high acquisition costs, construction costs, financing costs, and market risks may affect project viability.
Conclusion
Property redevelopment plays an important role in urban renewal by transforming ageing and obsolete developments into modern, efficient and economically productive assets. From a valuation perspective, redevelopment potential is closely linked to the concept of highest and best use, whereby a property’s Market Value may be significantly enhanced if its redevelopment potential exceeds its existing use value.
When properly planned and implemented, redevelopment can create substantial benefits for all stakeholders. Developers gain access to strategic sites with greater development potential, existing owners may receive attractive compensation packages and improved housing opportunities, local authorities benefit from urban regeneration and increased revenue sources, while society enjoys better infrastructure, improved living environments and enhanced city landscapes.
Nevertheless, redevelopment should not be pursued solely on the basis of profitability. The rights, interests and welfare of existing property owners and occupants must be adequately protected throughout the process. Fair compensation, transparent engagement, appropriate relocation arrangements and equitable participation in the redevelopment benefits are essential elements of a successful redevelopment exercise. We hope that redevelopment can serve as a “Once a life time Durian Runtuh” for the existing property owners.
As Malaysia’s urban areas continue to mature and land becomes increasingly scarce, more ageing developments are expected to become suitable candidates for redevelopment. With proper regulatory oversight, careful planning and fair treatment of stakeholders, redevelopment can serve as an effective tool for urban renewal, economic growth and long-term value creation for property owners and the wider community.
Frequently Asked Questions (FAQs)
What is a Redevelopment Basis of Valuation?
A Redevelopment Basis of Valuation assesses a property’s Market Value based on its redevelopment potential rather than solely on its existing use. It takes into account the property’s highest and best use, planning controls, permissible density, market demand, development costs, and overall financial feasibility.
Does Market Value Always Reflect Redevelopment Potential?
Not necessarily. Under the Malaysian Valuation Standards (MVS), Market Value should reflect the property’s highest and best use. If the highest and best use is the current use, redevelopment potential may not be relevant. However, where redevelopment is physically possible, legally permissible, and financially feasible, the Market Value may reflect the property’s redevelopment potential.
How Can I Tell Whether My Property Has Redevelopment Potential?
A simple preliminary assessment is to compare the existing use value against the potential redevelopment value. Generally, redevelopment potential may exist when the potential land value under a new development significantly exceeds the combined value of the existing land and building. Nevertheless, a professional valuation is required to properly assess redevelopment potential.
Will Existing Owners Benefit from Redevelopment?
When properly structured and regulated, redevelopment can provide substantial benefits to existing owners. These may include compensation above market value, relocation assistance, rental support during construction, preferential rights to purchase units in the new development, and improved living or investment opportunities upon completion.
What Are the Biggest Challenges in Redevelopment Projects?
Common challenges include obtaining consent from existing owners, managing relocation arrangements, addressing heritage or conservation requirements, balancing the interests of multiple stakeholders, and ensuring the overall financial feasibility of the project. Successful redevelopment requires careful planning, adequate funding, and fair treatment of all parties involved.
Why Do Developers Pay a Premium for Redevelopment Sites?
Developers may be willing to pay a premium for redevelopment sites because they are buying the future development potential of the land, not just the existing building. Many older properties are located in prime locations where land is scarce. If the site can be redeveloped into a higher-density or more valuable development, the future value of the completed project may be substantially higher than the current value of the existing property. As a result, developers may offer prices above market value to secure the site.
Can Ageing Strata Developments Be Redeveloped in Malaysia?
Yes. Ageing strata developments can be redeveloped in Malaysia, subject to the relevant laws, approvals, and owner consent requirements. The redevelopment process typically involves acquiring the existing units, obtaining approvals from the authorities, and compensating existing owners fairly. While the process can be challenging, successful redevelopment can provide owners with better compensation, improved living conditions, and access to modern developments with enhanced facilities.
Please feel free to contact Agility Valuers & Property Consultants should you require any further clarification or assistance regarding valuation matters.
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