DAMAGE CONTROL: We spoke to Dr Sr Rosli Said, Senior Lecturer from University Malaya’s Department of Estate Management, for his expert opinion on the phenomenon of undesirable or “stigmatised” properties
Anything with a stigma usually has negative connotations — just like a disease. The subject of stigmatised properties is very complex and not commonly grasped by the average man or woman, yet it is getting more prevalent. As populations and cities grow at breakneck pace, so does the potential for conflict between the demands of modern living and the well-being of its citizens.
In Malaysia, we often cite cases of landslides, floods and pollution related to overcrowding and overbuilding as typical examples.
Apart from the infamous Highland Towers collapse in 1993, there were also several occasions of landslide occurrences such as the Taman Hillview bungalow collapse (2002), the landslide at the bypass to Genting Highlands (2006), the collapse of indigenous settlements in Cameron Highlands (2011) and the landslide at an orphanage in Ulu Klang (2011). Among the contributing factors to landslides at hillslopes are generally rainfall, steep hills and soil types.
Yet there is no set list of what constitutes a stigma, because it could be anything that affects the value of the property. Stigmas could vary from one location to the other. For obvious reasons, not many property owners or brokers would want to disclose these stigmas to potential customers or buyers, for fear of driving them away.
Although negative events and history like the Highland Towers may jeopardise a property‘s marketability, real estate consultants and agents should advise and disclose as much as they can to potential clients about the likely risks attached to such properties if they proceed to invest in the area. For example, if a house is potentially exposed to toxic or radioactive elements, it would be unethical for an agent not to disclose this fact, as it involves health and safety issues.
To improve the public‘s understanding of this delicate topic, we talked to Dr Sr Rosli from Universiti Malaya who has worked on several projects related to stigmatised or undesirable properties — both local and overseas. In Vietnam, he was requested to assess the development potential of a site in Ho Chi Minh City which was located in a flood-prone area.
In Malaysia, he has worked on several research consultancy projects in Ulu Klang and Puchong, areas famous for landslide and brownfield (land that has become vacant, derelict or contaminated such as ex-mining land) issues. He has also conducted research work on valuing contaminated properties and was an examiner for a PhD thesis on the effect of flooding on house prices in Malaysia.
RED: Can you explain, in layman’s terms, what “stigmatised” properties are?
ROSLI: The term “stigmatised” is highly technical and can usually be understood only by those involved in property-related disciplines. To put it simply, as long as any negative public perception adversely affects a project’s marketability and value, we may consider this a stigma.
Stigmatised properties can be divided into several categories:
Physical stigma relates to a tangible physical asset defect associated with a property caused by disasters such as floods, earthquakes and hurricanes.
Non-physical stigma relates to an intangible physical asset defect associated with a property such as proximity to noise sources, electromagnetic radiation and intrusive light.
Physiological/emotional stigma is non-related to any physical or environmental defects; instead, the property is tainted by previous extraordinary events occurring at the premises, such as murder, suicide, ‘hauntings’ or simply a rumour of any of these.
For example, underground water contaminants or high-tension wires may force potential buyers to shy away. This will eventually diminish demand for the properties concerned and consequently, the price decreases. Therefore, subject to the sort of stigma we are dealing with, the best layman‘s terms for stigmatised properties could be ‘distressed properties’, ‘complex properties’, ‘riskier properties’ or ‘specialised properties’.
In dealing with stigmatised properties, the term ‘risk’ is very important to consider. For example, brownfield sites (contaminated and derelict buildings) are usually found at locations such as industrial sites with underground storage tanks, old petrol stations, waste disposal sites, landfills and ex-mining land. In order to redevelop or expand these kinds of properties, the main risks attached to the sites are basically the remediation costs, time and uncertainty.
In my experience, these are the most difficult factors to be quantified. The redevelopment costs involved are definitely high and sometimes the risks outweigh the potential returns. However, certain stigmatised properties could get away from its marketing quandaries, especially those located in attractive locations. In my observation, the Mines City Resort and Bandar Sunway are two successful projects located on ex-mining lands that can be considered “stigmatised” properties (previously).
For property buyers and investors, their favourite mantra is often “location, location and location”. For stigmatised properties, it could well be “history, history and history”, which may turn their dream properties into a nightmare. Historical factors attached to the properties may actually depress their values.
RED: In Malaysia, are these “undesirable” or “stigmatised” properties usually found in urban, sub-urban or rural areas, and what are the reasons?
ROSLI: Again, subject to the type of stigmatised properties we are dealing with, these properties can be found anywhere either in urban, sub-urban or rural areas. In urban areas, for example, hillslope developments due to the scarcity of land in Kuala Lumpur and Penang can be considered “stigmatised”.
Demand for property in urban areas is normally higher compared to other areas. In sub-urban areas, ex-mining land, for example, can be found in the states of Perak and Selangor. Examples of redevelopment of such stigmatised properties are Bandar Sri Iskandar and Clearwater Sanctuary Golf course in Perak. These stigmatised properties have successfully been converted into housing and infrastructure projects.
Their stigmatised status is derived by virtue of their being located on former mining lands. But redevelopment can transform these brownfields into popular or prosperous developments.
RED: In Malaysia, we always hear about major landslides at hillslopes. What measures should be taken to prevent them from happening?
ROSLI: Several measures have been introduced and imposed by the Department of Environment in relation to the Environmental Impact Assessment (EIA). There will usually be a team of consultants involved to monitor developments at these risky areas — geologists, hydrologists, toxicologists and engineers. In addition, real estate development consultants such as architects, quantity surveyors, land surveyors and town planners could also be involved in developments such as hillslopes or flood-prone areas.
The Department of Environment has produced Contaminated Land Management and Control Guidelines with several key criteria used to determine contaminated land area, remediation measures and its targets. In addition, the requirements of an EIA for hillslope development when it reaches a certain gradient should be followed.
In the longer term, a comprehensive hillside master plan for example, will promote transparency and provide adequate information to industries and the public at large on all hillside development in Malaysia.
If the pertinent laws associated with these problems are followed, the risks associated to these areas could be reduced.
RED: How important is raising awareness and educating the public on these issues?
ROSLI: Property stigmas can be emotional issues and therefore need careful and considered handling. To reduce the risks associated with these problems, the public should be made aware of these issues.
By understanding the effects of purchasing units categorised as stigmatised property, the public can prepare themselves to face any eventualities and additional costs involved. For example, they may consider purchasing relevant insurance policies, as well as having additional capital ready should the lending institutions decide to reduce the loan-to-value ratio (LVR) for projects in these areas.
RED: Property prices have skyrocketed in recent years and developers are rushing to capitalise by launching more residential and commercial projects. Is overdevelopment a root cause to the proliferation of “undesirable” elements?
ROSLI: The answer is “No”. It is a simple matter of economics — supply and demand.
If there is demand, new properties will continue to be sold, as long as they meet the needs of their target market.
Overdevelopment is not really the root cause. Instead, we should look at public attitudes, lifestyle preferences, affordability issues, economic performances, employment rates, inflation and availability of mortgage loans as among the critical factors that contribute to the demand for residential units. I believe that these factors are more likely to contribute directly to the proliferation of undesirable elements.
RED: Are residents in these stigmatised areas sufficiently protected by the law?
ROSLI: As far as development on stigmatised properties is concerned, the national Environmental Quality Act 1974 is the backbone of the Malaysian environmental law. Environmental planning tools such as EIA and Strategic Environmental Assessment (SEA) have been applied in evaluating and mitigating environmental impacts of development activities. In other words, all these requirements need to be fulfilled for any development to proceed in these “stigmatised” areas.
However, there is still a question mark on whether residents in stigmatised areas are sufficiently protected by the law. The answer is “No”. Take the issue of strata titles for Highland Towers which is still pending! The present laws protect potential buyers during the course of development until the issuance of certificate of fitness. Additional period is given to buyers to claim from the developer for any defects on the property which is known as the defect liability period. If anything happens during the development period, the purchasers will likely be covered by the existing laws.
However, once the purchaser becomes a resident in these stigmatised areas, there are no existing laws to protect them. I am unable to comment further due to the sensitivities attached to the issues of these stigmatised areas. The experience of Highland Towers should be considered and evaluated to answer this question.
(All views expressed in this article are the individual‘s own personal opinions, and do not represent in any way those of his various affiliations.)