GQA1009 Exploring Real Estate

STAKEHOLDE
IN REAL ESTATE
RS

1
Lecture outline
This week’s lecture is going to cover the following:
• Definition of stakeholders.
• The role of the different stakeholders in real estate.

2
Definition of stakeholders
• “Those groups who have a stake in the action of the
corporation” (Freeman & Reed, 1983)
• Stake = interest, share, right, claim.
• Real estate stakeholders are involved in these main
activities:
– Development: The process of building new structures and
modifying existing ones to increase the property's value.
– Consultancy: The provision of data, analysis and advice for real
estate buyers or investors.
– Management: The operation, control, maintenance, and
supervision of real estate and physical property.
– Agency: The process of uniting the buyers and sellers or
landlords and tenants in any sale, tenancy or lease of real estate.
3
 Stakeholders in real estate
• Stakeholders in real estate include:
– Landowners
– Developers: Private, public and PPP
– Planners
– Financial Institutions
– Building Contractors
– Agents
– Professional team

4
Landowners
• Landowners may have either an active or passive role in the
development.
– active landowners normally initiate the development.
– passive landowners can hamper the development.
• Three types of landowners.
– Traditional landowners: state & federal governments, religious
bodies, landed aristocracy (UK), etc. with main motive less on
economic but social, political and ideological imperatives.
– Industrial landowners: own land incidental to their main
purpose, e.g. farmers, manufacturers, extractive industries,
retailers, etc. with complex motives as they are restrained by the
main purpose (their main product), will not necessarily let go of
land even though there is economic benefit of developing.
– Financial landowners: own land as investment and will develop
if return is financially optimal. 5
Landowners (con’t)
• Landowners may act as developers directly,
or in partnership with developers.
• The greater the number of landowners
involved in a development and the smaller
their holdings, the more difficult it is to
assemble a development site.
• Landowners’ readiness to develop may be
constrained by land law
– E.g. Restrictions in interest and Express
conditions in the land title.

6
Private developers
• Can be of different sizes, type and compositions but main
objective is financial profit from the development.
• Either traders (selling the developed properties) or investors
(retain developed properties in their portfolio).
• Type of development may vary by specialising in particular
types (offices/retail/residential) or geographical locations.
– Some developers specialise in a development type but
vary the location nationally or internationally.

7
Private developers
• The company’s policies will vary according to director’s
interest or expertise and perception of market
conditions.
• In Malaysia, developers are controlled by various
legislation, including
– Town and Country Planning Act 1976: planning conditions
and planning gains
– Building laws such as Street, Drainage and Building Act 1974
& Uniform Building By Laws 1984
– Strata Titles Act 1985 and Strata Management Act 2013
– Housing Development Act (Control and Licensing) 1966: for
housing development only, license conditions.
8
Public developers
• In general, the degree of involvement of public sector
developers differs from country to country, depending on
government policy and economic conditions.
• For instance, UK’s central government undertook little direct
development. In contrast, the Malaysian federal government
have directly initiated several mega projects over the years.
• The public sector’s intervention in the development process
occurs
– where market forces failed to bring economic
development in targeted areas through development
agencies such as UDA Holdings Berhad (formerly Urban
Development Agency).
– to facilitate development e.g. IRDA.
9
 Public developers (cont’d)
• On the other hand, both UK and Malaysian local authorities
share similar development undertakings i.e. developments
for their own occupation or community use and
infrastructure provision.
• For local authorities, one objective of promoting economic
development activities is to promote development and
investment.
– Part VII of Local Authority Act 1976 (Public Places) gives
LA the power to construct, control and care for public
places under their LA area.
• Local authorities can act as catalysts to the development
process by supplying land in their area.

10
Public Private Partnerships (PPPs)
• PPPs are long-term joint ventures between a public body
and a private company in delivering public goods and
services.
• Objectives of PPP:
– To deliver significantly improved public services, by
increasing quality and quantity of investment.
– To release the full potential of public sector assets
benefitting taxpayers and the economy.
– To allocate benefits to stakeholders.
• PPPs combines the best of both worlds.
– Public sector’s resources.
– Private sector’s efficiency and expertise.
11
Planners
• Similar to other Commonwealth countries, the Malaysian planning
system is based on UK planning system.
• Main purpose of planning is to ‘encourage development’ and to
prevent ‘undesirable development’.
• Consideration of development applications is guided by statutory
provisions and government policy, which is compressed into
development plans.
– Decisions will be based on development plans, government policy,
previous decisions and nature of application.
– Thus developers need to know the land use, density and design
standards – employ planning consultants.

12
Planners (cont’d)
• Prior negotiations with planners can ensure a
successful application
– ‘planning agreement’ in terms of infrastructure or community
facilities.
– Must be ‘reasonably’ related to the development proposed.
• Planning authorities may adopt different policies
towards development.
– Planners in areas with low economic activities will become
less stringent and impose only minimal restrictions.
– Planners in areas with high economic activities will impose
higher standards and also slow down developments.

13
Financial institutions
• There are two types of money needed for development:
– Short term or ‘development finance’ to cover the costs during the
development process.
– Long term or ‘funding’ to cover the cost of holding the completed
development as an investment. (Otherwise, developers can find a
buyer for the completed scheme, repay the short term loan and
realise the profit).
• Financial institutions are normally pension funds, insurance
companies and banks with long term payment obligation to their
clients.
– Their strategy would be to minimise risk and maximise future yields.
– Property provides an opportunity for long-term growth.

14
 Financial institutions (cont’d)
• Financial institutions’ involvement in real estate can be as
– Developer
– Financier
– investor.
• Their real estate portfolio should be a balance of different types and
locations
• Pension funds and insurance companies normally look for buildings with
widest tenant appeal i.e. highest specs
– Can be less sustainable and over specified.
• Bank lending may be in the form of ‘corporate lending’ or lending against
the development project.
– Criteria will be developers’s track record and project’s good location and
viability.

15
Building contractors
• Building contractors are employed to construct the
scheme, although
– a contractor may also be a developer: in this case a larger
return to compensate for higher risk.
– a developer may have in-house construction expertise.
• For ‘normal’ contractors
– the main objective is financial profit which depends on
building cost and length of contract.
– ‘Design and build’ contract means that the contractor also
assumes a design role that increases risk.
– They carry out specialist activity within the development
process

16
Building contractors (cont’d)
• Contractors will commence their activity after
developer’s commitment.
• Thus, developers must ensure the capability and
capacity of contractors
– Balance between lowest tender and quality of performance.
– But not too low so as to cause unreasonably low profit for
contractors.

17
Occupiers
• If the occupier is known early on, occupier’s requirements
should be researched at the beginning of the process.
• The building constructed based on occupier’s requirements can
be very specialised, especially for industrial users – difficult to
dispose.
• Occupiers often see the buildings they occupy as an overhead
incidental to their main business activities
– Normally inadequately plan their property requirements.
– Will react to changes as they happen e.g. technology.
• Developers are taking more account of occupiers’ requirements
– trend towards energy efficient buildings.

18
Professional team
• Each of these professional group are controlled by
guidelines and bylaws from their respective
professional bodies.
• Includes
– Planning consultants -Engineers
– Valuers and estate agents -Project Managers
– Architects -Solicitors
– Quantity Surveyors

19
Roles of professionals
Planning consultants
• Roles include:
– To negotiate with local planning authorities for planning
permission.
– To become expert witness for the developer if planning
application is refused.
– To advise developers on the most appropriate or valuable
use.
• Governed by the Malaysian Institute of Planners.

20
Roles of professionals
• Functions of MIP
– To establish and maintain a Register of members of the
Institute comprising of qualified Professionals in the field of
town planning
– To undertake research, programs and projects and assisting
organizations and individuals, both locally and
internationally in the science and technology of Town and
Regional Planning
– To devise and impose standards of knowledge and skills for
persons seeking membership of the Institute
– To draw up a guideline on the scale of professional charges
to be binding on all works and projects undertaken

21
Roles of professionals
• Functions of MIP (cont’d)
– To disseminate information pertaining to Town Planning
and to publish such materials as may be appropriate
– To establish courses and undertake training programmes
that are accredited, in the technology of Town and Regional
Planning
– To assist and advise Government, local authorities, public or
private bodies in the science of Town and Country
Planning, in the best interest of the community
– To provide facilities for communication and interchange
with other professional associations and educational and
scientific bodies on matters relating to the practice of Asset
Management
– To carry out any other activity incidental to its function and
objectives 22
Roles of professionals (cont’d)
Valuers and estate agents
• The roles of valuers include
– To provide a detailed analysis of the demand and supply
conditions during evaluation stage.
– To provide supporting documents when obtaining finance facilities.
– To provide funding criteria and policy.
• The roles of agents include
– To bring together some of main actors, thus initiating the
development.
– To link developer and occupier, advising developer about
occupier’s requirements (needs to be reinforced with a market
study).
– To assist developers in securing finance due to their knowledge of
the financing requirements.
23
Roles of professionals (cont’d)
• Importance of valuers and estate agents in real estate:
– Detailed knowledge of the property market (demand & current
rent/price)
– Network of important actors (developers, occupiers, financial
institutions and landowners).
• Governed by the Board of Valuers, Appraisers and Estate Agents.
• Functions of the BoVAEA:
– To approve and reject applications for registration.
– To hold disciplinary proceedings.
– To conduct examinations.
– To prescribe Scale of Fees.
– To regulate the professional Conduct/Ethics of Valuers, Appraisers
and Estate Agents.
– To award scholarships

24
Roles of professionals (cont’d)
Architects
• Roles include
– To design the appearance and construction of new
buildings/refurbishment of new buildings.
– Certify completion of building work.
– Landscaping (for larger and more complex projects done by
landscape architects)
• Paid on fee basis.
• Selection criteria include previous experience, reputation,
resources and track record.
• Good communication between developer and architect is
essential from the beginning to ensure design that is cost-
effective and workable .

25
Architects (cont’d)
• Governed by the Board of Architects Malaysia (LAM) and Malaysian
Institute of Architects (PAM).
• Controlled by the Architects Act 1967.
• The functions of the Board are provided under the Section 4(1) of the
aforesaid Act which includes the following :
– Registration of Professional Architects, Architects and Building
Draughtsmen;
– Registration of architectural consultancy practices;
– Regulation of their conduct and ethics;
– Conducting examinations for admission to the profession;
– Accreditation of architectural programmes;
– Development and Promotion of the profession;
– Representing the architectural profession in any matter at local and
international levels.
26
Quantity Surveyors
• i.e. ‘building accountants’.
• Roles include
– To prepare cost estimations on the designs produced by architects.
– To administer the building contract tender.
– To advise on the most appropriate form of building contract
(procurement)
– To advise developer cost-effective ideas as alternatives to those
proposed by architects.
– To monitor the construction
– To approve stage payment to contractors
• Fees will be based on scope of work.
• Selection criteria are experience, reputation and good working
relationship with other members of professional team.
27
Engineers
• Structural and civil engineers work with architect and
QS on design of building’s structural elements.
– Foundations and building stability
– Steel or concrete frames
– Road layout and services
– If development concerns existing building, undertake
detailed survey of the structure,
• Paid based on % of their element of the building
contract.

28
Engineers (cont’d)
• Governed by the Board of Engineers Malaysia.
• Functions of BEM,
– To enforce the implementation of Continuing Professional
Development (CPD).
– To add more functions and advise the Government & Public.
– To strengthen the penalty in the REA 1967.
– To strengthen the suspension period.
– Introduction of new Part that deals with the establishment, powers
& conduct of proceedings of a Disciplinary Committee.
– Action on submitting engineer related to CCC or others.
– Impose additional conditions to ensure engineers follow latest
developments.

29
Project managers
• Manage the professional team and building contract on behalf of
developer.
• From built environment background (architect, QS or civil engineer).
• Normally appointed first so can advise on other members of
professional team.
• Paid based on % of building contract.

30
Solicitors
• Needed at various stages throughout development
process.
– Site acquisition
– Legal agreement for funding arrangements and professional
teams.
– Appeal on planning application (if needed)
– Leases and contracts of sale.
• Governed by the Malaysian Bar.
– Legal Profession Act 1976

31
Conclusion
• Real estate activities comprise development, consultancy,
management and agency.
• Each real estate stakeholder has their own roles to play and
rights to protect.
• Often, interaction with other stakeholders are normal and
necessary.
• The power relations vary from one pair of stakeholders to
another, depending on the real estate activity as well as the size
and nature of the project.
• Professionals in property development are governed by their
respective professional bodies and statutes.

32
 References
• Wilkinson, S. and Reed, R. (2008) Property
Development, 5th Ed. Routledge: Oxon, pp10-31
• Syms, P. (2002) Land, Development and Design,
Blackwell Publishing: Oxford, pp68-74
• Websites of various professional bodies

THANK YOU
33