Jurnal Malay Reserve Land

International Surveying Research Journal (ISrJ)
VOLUME 3 NUMBER 2, 1-28
ARTICLE
Malay Reservation Land – Unleashing

A Century of Trust
Shahrom Md Ariffin
Centre of Study for Estate Management

Faculty of Architecture, Planning & Surveying
Universiti Teknologi MARA
shahromariffin@yahoo.com
ABSTRACT
The law on Malay land reservation was introduced by the British colonial in the Malay States in 1913 to
protect and preserve the Malay property rights and interests. The British realised that the trend of losing land
among the Malay peasants to the immigrants would aggravate further the economies of the Malays and
undermine the political stability. Such an unhealthy situation was considered a threat and insecurity to the
British presence in the Malay States. Hundred years have passed and the country gained her independence 56
years ago. The country has undergone major structural changes politically and economically and has also
transformed into a nation with unique demographic structure with multiple ethnicities, a manifestation of the
country’s long history. During a hundred years of implementation, the law on Malay land reservation has been
subjected to unwarranted public scrutiny and its relevance has been challenged. As MRL is characterised by
multiplicity of constraints which undermine the economies of the stakeholders, the status quo of Malay
Reservation Land (MRL), particularly within the Malay socio-economies agenda in the country, is being
questioned. In addition, the country’s future direction is uncertain. After hunderd years, there must be
concerted efforts from all interested parties and the stakeholders to formulate and enforce amicable strategies
and policies for the better future of MRL in tandem with the national aspiration.
INTRODUCTION
It has been 100 years since the legislation on the Malay land reservation was enacted. The
first ever legislation was introduced in 1913 on Malay Reservation: FMS 1913 Enactments,
for the Federated Malay States (FMS) of Pahang, Perak, Negeri Sembilan and Selangor.
This entrenched law, which was passed during the British colonial era in December 1913
and came into force on January 1914, was designed to protect the sovereign rights and
interests of the Malays, particularly from disposing their lands to non-Malays.
According to history, efforts by the British colonial to enact the law on the Malay
reservation in the Malay States started earlier than 1913. In 1891, W.E. Maxwell, who was
the British Resident of Selangor, had introduced the Selangor Land Code 1891 to provide
a security of land tenure to the Malay peasants. Maxwell created a category of smallholding
customary lands to protect the Malay landowners interest from the consequences of
mortgage default and being ejected from their lands by the Chinese, Chettiars and others.
W.E. Maxwell had also played a significant role in introducing the Torrens system in the
Malay States, which replaced the land tenure system based on Malay custom and Islamic
law.
The rationale behind the law on the Malay land reservation was to control power of land
alienation by the states and to protect the Malay land owners from selling their lands to non-
ISSN 2232-1306 © 2013 Royal Institution of Surveyors Malaysia

2 SHAHROM MD ARIFFIN
Malays. After 20 years in force, the law was further amended as FMS Enactment No. 30 in
1933. The legislation has undergone a series of further amendments and finally amended in
1938 as FMS Cap 142. It is still in force today in the states of Negeri Sembilan, Pahang,
Perak, Selangor and Federal Territory of Kuala Lumpur.
The un-federated Malay States only implemented the law on Malay land reservation from
1930 onwards. There are separate enactments on Malay Reservations for other states (non
FMS): Kelantan (No. 18 of 1930). Kedah (No. 63 of 1931). Perlis (No. 7 0f 1353H/1935).
Johor (No. 1 of 1936) and Terengganu (No. 17 of 1360H/1941). No similar enactments for
Penang and Malacca.
INTERPRETATION
“Malay reservation land” (MRL) refers to a special category of land situated within the
territorial boundaries of each state in Peninsular Malaysia which can only be owned and
held by Malays (Salleh Buang, 2010).
Article 89(6) of the Federal Constitution 1957 defines “Malay reservation” as land reserved
for alienation to Malays or to natives of the state in which it lies. The same provision also
states that “Malay” includes any person who under the law of the state in which he is
resident is treated as a Malay for the purposes of the reservation land. The term “Malay” is
defined differently in the state Malay reserve laws. The definition of Malay” in
Kedah/Perlis enactments recognise those of Arab descent. The enactments for Kedah and
Perlis also allow Siamese in dealings in MRL. The Johor enactment does not recognise
Syed (although it is recognised as“Malay” in the Federal Constitution), whereas Kelantan
specifies special status of “natives of Kelantan” (Salleh Buang, 2005).
HISTORICAL OVERVIEW OF MRL

Chronologically, attempts to introduce the law on Malay land reservation can be traced
prior to 1900. The first attempt to introduce law on reservation of land in the Malay states
was in 1891 by W.E. Maxwell, a British Resident in Selangor. He introduced the Selangor
Land Code 1891 specifically created smallholding customary lands to provide a security of
tenure to the Malays peasants.
Later, on the Conference of the Residents of the four Federated Malay States held in 1908,
the issue on the sale of Malay land was addressed for the first time. Due to poverty, the
Malays sold or leased their lands to non-Malays. The British representatives were alerted
to the drastic increase of land sales initiated by Malay land owners to foreign immigrants.
It was anticipated that such acts would inevitably affect the political power of the Malays
(Nor Asiah Mohamad; Bashiran Begum Mubarak Ali, 2009).
British officials claimed that the declaration of Malay reservation land was aimed at
protecting and preserving the right to land ownership of the Malays in Peninsula Malaysia.
The declaration and reservation was not confined to the Malay reservation land; it also
included several other types of land which could only be owned or dealt over by Malays,
such as the Malay holdings, Sultanate land, Malacca customary land, Malay agricultural
settlements, the customary tenure of Negeri Sembilan and its Lengkongan (ibid.).
The Resident of Perak, Brockman, suggested that Malays land dealings ought to be
restricted to prevent a complete sell-out of Malay land. Brockman was supported by
Campbell, the Resident of Negeri Sembilan, who recommended the creation of Malay
kampong (village) reserves. However, those proposals were deemed impracticable and
rejected (ibid.).

Malay Reservation Land — Unleashing A Century of Trust 3
Another proposal was submitted by R.J.B. Clayton, the district officer of Ulu Langat
(Selangor) in the form of a memorandum to the Resident. This memorandum, known as
“The Absorption by Large Land Owners and Estates of Native (Malay) Holdings,” was
proposed on July 28th, 1910. Clayton argued that only the Malays were likely to form a
permanent agricultural population and labour force in the Federated Malay States, thus their
rights to the land should be protected. If not, it would defeat the main objective of the
British policy to create a permanent agricultural population. Similarly, any sale of these
lands was deemed detrimental to Malay interests, as they would end up being a landless
race and forced to work as land-less labourers in their own country. As a way to resolve the
problem of a sell-out of Malay reservation land caused by poverty and lack of income, the
British initiated a devaluation of the land purchase price (ibid.).
Later, the British Residency introduced a scheme for registration of ancestral land, which
was implemented in July 1911. The scheme restricted the sale of ancestral land to non-
Malays without the permission of the collector. However, many Malays remained ignorant
of the rationale of this scheme and refused to endorse their land with the Malay Ancestral
condition (ibid.).
The issue of Malay ancestral land sales reappeared at the Conference of Residents in
November 1911. The four British Residents, the Chief Secretary and the High
Commissioner unanimously agreed to pass a common enactment applicable to all four
Malay states. The enactment aimed at protecting Malay rights and ensured that they would
not become homeless in their own country (ibid.).
However, the enactment was never enforced, and on December 23rd, 1913 the Malay
Reservation Enactment was passed and came into force on January 1st, 1914.
ISSUES AND CHALLENGES OF MRL

In principle, the law on Malay land reservation was introduced to protect and preserve the
right to land ownership of the Malays in the Malay states. The British colonial justified the
cause based on the increasing trend of eviction and land sales by Malay land owners to
foreign immigrants prior to 1913 due to unhealthy practices among Malay land owners due
to unwarranted debt and expenditures outside their economic means. The spirit of the law
on Malay land reservation was more of protection and preservation of Malay property
rights and interests, which created strong implication and setback on the economy and
political stability.
The British realised that the trend of losing land among the Malay peasants to the
immigrants – Chinese and Chettiars – would aggravate further the economies of the
Malays who were lagging behind. Such an unhealthy situation was considered a threat and
insecurity to the British presence in the Malay states.
Hundred years passed and the country gained her independence 55 years ago. The country
has since undergone major structural changes politically and economically but still enjoys
stability and security. It has also transformed into a country with unique demographic
structure with multiple ethnicityies, a manifestation of the country’s long history. Life for
100 years is a lot to reckon with, and so is the 100-year law which was developed and
enacted under different circumtances and socio-economic environment. Among the many
laws introduced and enacted over the last century, the law on Malay land reservation has
been the most challenging and controversial.
With 100 years of the law on MRL implemented, there are many issues and challenges
facing MRL. Until today, the satus of MRL and Malay socio-economies in the country were
still uncertain and many questions remain unanswered.
ISrJ Vol.3 No.2, 2013

The significance of the law on MRL had always being been questioned, but no effort of
“unstrengthening “ the law to suit the demand of the critics has taken place and managed
to go that far to the lawmakers’ level. Instead, amendments have been made to tighten the
law as with what happened in 1933. It was more towards curtailing dealings in MRL
involving non-Malays, such as leasing, charge, lien and power of attorney.
Nevertheless, the issue on dealings between the owners of MRL and non-Malays are still
being practised behind the curtain without much respect to the law and the constitution on
the pretext of economic development. Dealings such as “Ali-Baba” and the equity
partnership of so-called joint-venture are still rampant between owners of MRL and non-
Malays in property development. Despite the fact that the owners of MRL only enjoy a
smaller proportion of equity compared to the non-Malay party to the development, such
arrangement are referred to by some Malays as an innovative way of getting around the
tightening effect of the law on MRL.
The case for owners of MRL resorting to Ali-Baba and on joint-venture schemes with non-
Malays should also be seen as a way out of financial lock-out between the owners and the
banks. Although the law on MRL had somehow been amended to allow MRL access to
credit and financial facilities, the banks are still practising a stringent policy when assessing
and approving loans with MRL as collateral. This issue has been raised by the Association
of Developers of MRL to the Prime Minister (Berita Harian, 12 April, 2011). Under this
circumtances, the owners of MRL are facing two financial predicaments. Apart from the
valuation of the MRL being categorically 20 – 30 per cent lower in terms of market value,
the loan amount approved is also lower, between 50 – 60 per cent of market value.
The critical issue on inefficient economies of MRL was highly debated during the 1996
UMNO General Assembly. There was a strong remark made by the former Premier Tun Dr.
Mahathir Mohamed that the legendary attachment and sentiments of the Malays towards
MRL would eventually turn on them, just like what happened with the economically and
socially deprived natives of the U.S., the American Red Indian (New Sunday Times, 24
November, 1996).
Although the analogy was considered to be rather far off, to some observers, it is timely for
the Malays to seriously take heed on the remark and adopt a positive move towards solving
long and outstanding problems of MRL. As some observers pointed out, his statement came
from mere frustration after the government’s serious attempt to redevelop the Malay
Agricultural Settlement of Kampung Baru turned out to be a futile effort after all.
The National Land Council eventually came up with a proposed formula that said that
owners of MRL should be allowed to lease their land to non-Malays for development.
Although the focus was on MRL with great potential and ripe for development, the idea on
leasing of MRL to non-Malays for development apparently raised strong reaction from the
Malays.
But then in August 2004, the Deputy Prime Minister Datuk Seri Najib Tun Abdul Razak
made a surprise announcement that the government would go ahead with the proposed
amendments to National Land Code (1965) and Malay Reserve Enactment (1913) in its
effort to solve long outstanding problems of MRL. The chorus of the proposed amendment
to the acts was of course to allow leasing of MRL to non-Malays for development (Utusan
Malaysia, 20 August 2004). Although the proposal was to liberalise the long standing
problem undermining the economics of MRL, just like the previous attempts, the proposal
still drew strong public reaction. Many were of the opinion that the government’s proposal
to liberalise the economics of MRL through leasing to non-Malays for development

disregards the long term economic as well as political interests of the Malays. Ironically,
until today, we have yet to hear on the outcome of the proposal.
The significance of the events seems to bewilder many of us, in particular on the purported
idea of amending the acts so as to smoothen the process of developing MRL. The
resentment is not on the whole idea of development, but rather on the idea of leasing to the
non-Malays. Critics are also on the rationale behind the proposed amendment of the acts
after all, as some have pointed out, that the underlying problem of MRL is not so much a
problem of resource allocation that defeats the national economic policies, hence the
economic entities of the Malays, but rather few cases involving those MRL are ripe for
development or redevelopment. Such include those lands in Kuala Lumpur and Selangor,
which are locked from being developed despite the continuing pressure of urbanisation,
that demands a change in its highest and best uses. Generally, the main obstacles to the
development of MRL are the multiple ownership and relatively small property size, which
will require amalgamation and/or consensus from the co-owners.
The classic case is, of course, Kampung Baru Kuala Lumpur. Kampung Baru is quite
distinct from other Malay Reservation areass because it was gazetted as the Malay
Agriculture Settlement (MAS) with the main purpose of alienating land to the landless
Malays in Kuala Lumpur in 1897 as stipulated under Section 6 of the Land Enactments,
1897, much earlier than MRL, which was first gazetted under the Malay Reservation
Enactment 1913. MAS land is not designated as MRL but having similar legal
characteristics to other MRL in term of land dealings which are restricted among the
Malays only. The 110-year-old Kampung Baru Kuala Lumpur area covers seven villages,
is located on 90.2 hectares of land and occupied by about 35,000 people. The villages are
Kampung Periuk, Kampung Masjid, Kampung Atas A, Kampung Atas B, Kampung Hujung
Pasir, Kampung Paya and Kampung Pindah.
The status of Kampung Baru as a Malay Agricultural Settlement is rather incompatible with
the surrounding comprehensive development of Kuala Lumpur. Its redevelopment is long
overdue, whilst the pressure is day-by-day increasing, not only from outside, but also from
within, especially for those interested parties who hope to benefit from the redevelopment
potentials. To many observers, sooner or later, Kampung Baru has no choice but to give
way for redevelopment due to increasing urbanisation pressure, given the right formula of
course.
Efforts to redevelop the centrally-located urban Malay enclave of Kampong Baru Kuala
Lumpur had been on the government’s radar since the early 1990s. But such efforts were
futile because of various underlying issues and problems of the Malay settlement. Even the
ex-Prime Minister Tun Dr. Mahathir Mohamad had to admit that one of his failures during
his 22 years tenure as Prime Minister was his administration’s inability to rehabilitate and
develop Kampung Baru. According to him, after the government announced plans to
develop Kampung Baru, problems arose concerning land ownership and land prices (The
Star, 11 January 2011). The latest effort by the government on proposed redevelopment of
Kampung Baru Kuala Lumpur was the setting up of Kuala Lumpur Development
Corporation (KBDC). The bill, Kampung Baru Development Corporation Act 2011 — for
the 110-year-old settlement, was tabled, debated and passed during the Dewan Rakyat
sitting in October 2011 and thereafter approved at the Dewan Negara in December 2011
(Bernama, 8 December, 2011).
The three most important issues amended in the act were revoking the immunity of the
Kampung Baru Corporation, retaining the Malay Agricultural Society and introducing a
new post of deputy chairman for the Kampung Baru Development Corporation that would

include a landowner. The KBDC would function to implement the policies, directives and
strategies on Kampung Baru's development according to the Structural Plan and Local Plan
as provided under the Federal Territories (Planning) Act. Critics of the law on Malay land
reservation said that such an outdated law of the colonial was unsincere and superficial in
the cause of protecting the Malays rights. Such a law discriminates against the Malays,
who were already economically weak, by locking down the economic potential of their
land. The necessity and uselfulness of Malay reserve land continues to be questioned again
and again over time, particularly during the post-independence era.
The opponents of the law on Malay land reservation also categorise MRL as static asset to
the Malays, which deprive the financial facilities and retard the long term economy of the
Malays. Overall, until today, we can see that most of the critics on the law on Malay land
reservation are fundamentally economic and hinged on the principle of lassez faire, which
rejects any form of barrier and restriction to the economic process. Of course, a critic on
the status of the law on MRL as a 21st century anachronism or branding the MRL as “a
Cinderella piece of property” was deemed to put MRL in the right direction in tandem with
the changing socio-economy of the country (Collector of Land Revenue V. Noor Cahaya
(1979) 1 MLJ 180, Wan Suleiman FJ). But to the opponents who undermine the role of
MRL indiscriminately in term of economic rationale of market mechanism overlooked the
contribution of MRL to the national economy since the law was implemented.
Despite the many restrictions and contraints that undermine the economies of MRL, MRL
has contributed significantly to the national economy over the last 100 years, more so to the
development of public goods and services. During the pre-independent period, since 1940,
the physical size of MRL has been on a decreasing trend due to economic activity of tin
mining, which encroached and consumed MRL. In the 1950s, during the communist
insurgency, Brigg’s idea of setting up new Chinese villages also ecroached into the MRL
area. By 1952, about 400 new villages were created nationwide, most in Perak and Selangor
(Ahmad Nazri Abdullah, 1985).
After the country gained independence, both the political and economic focus of the
country had shifted into a new paradigm. As the country put the agenda of economic
development at the forefront, resources of land became a significant factor that needed to
be mobilised. As the state required more land to meet the physical developent, the law on
compulsory land acquisiton was enacted to accomodate the role of the state to pursue
development for public purposes. In 1960, Land Acquisition Act 1960 was implemented,
which gave the power to the state authority to compulsorily acquire land for public
purposes. To meet the demand for public goods and services, private land had to give way
to compulsory acquisition. MRLs were also affected.
Today, the practice of compulsory acquisition is still going on, and of course by spate of
economic development, pursued by the rule of market mechanism. The size of MRL
involved should be bigger to meet the aspiration of a developing nation. But again, over
these years, despite the many claims that the size of MRL across the country had been
decreasing due to economic development, these claims, however, were not substantiated by
real statistics. Although there had been statistics reported by academic researchers and also
by the land ministry, on comparison, the figures appeared intriguing.
According to reported statistics on the trend of depleting MRL size across the nation in
tandem with national development plans beginning in 1970, the remaining area of MRL
had been reduced to 1,757,884 hectares from a recorded area of 2,432,790 hectares in 1947.
The statistics in 1982 showed that the size of MRL nationwide is 1,752,293 hectares (ibid.).

Another study reported that as of February 1983, the MRL area is 3,221,079 hectares
(inclusive of Malay customary land of Malacca) (Ridzuan Awang, 1994). The figures were
quoted from the Ministry of Land and Mines. According to another statistic reported in
2002, the total MRL area in the country is 3,724,852.82 hectares (Tan Sri Kasitah Gaddam,
2002). As reported at the parlimentary session Dewan Negara in 2011, the MRL area as of
2008 is 4,268,537.23 hectares (exclusive of Malacca Customary land), whereas the
Ministry of Land and Mines reported a figure of 4,087,268.47 hectares as of 2009
(inclusive of Malacca Customary land) (refer to Table 1-5 for details).
Table 1 - Malay Reservation Land – 1983 (Hectare)
State Area of State MRL Area

Perlis 79500 34,120
Kedah 942500 654,160.72
Perak 2105000 168,177.12
Selangor 795500 158,372.79
W.Persekutuan 243000 988.29
Negeri Sembilan 664300 220,741.29
Johor 1898600 221,588.48
Pahang 3596500 268,474.20
Terengganu 1295500 107.69
Kelantan 1492000 1,493,765.06
Malacca* NA 4,348.619
Total 13,112,400 3,221,079.48

*Malay Customary Land (MCL)
Source: Pengarah Tanah dan Galian Malaysia (as reported in Ridzuan Awang, Undang-undang Tanah
Islam, DBP, 1994)
Table 2 - Malay Reservation Land – 2002
State Area of State Area of State MRL Area % of MRL

(sq. km) (Hectare) (Hectare)
Perlis 795 79500 37,516.95 47.19
Kedah 9425 942500 86,842.62 9.21
Perak 21050 2105000 880,158.00 41.8
Selangor 7955 795500 174,837.79 21.98
W.Persekutuan 2430 243000 **838.51 3.45
Negeri Sembilan 6643 664300 210,988.46 31.76
Johor 18986 1898600 327,373.46 17.24
Pahang 35964 3596500 436,133.98 12.12
Terengganu 12955 1295500 *78,163.08 6.03
Kelantan 14920 1492000 1,492,000 100
Malacca NA NA NA NA
Total 131,124.00 13,112,400 3,724,852.85 28.4
*Gazetted land only. MRL less than 10 acres are administered under ERM Terengganu
**Exclusive of Kg. Baru area of 89 hectares administered under MAS (KL) Rules 1950
Source: Kasitah Gaddam (2002) Pemilikan & Penguasaan Tanah Oleh Orang Melayu, Jurnal Tanah Vol. 3

Table 3 - Malay Reservation Land (1947 – 2008) (Hectare)

State Area of State 1947* 2008* Percentage
(A) (B) (C) (C/A x 100)
Perlis 79,546.56 37,165 37,322.60 46.92%
Kedah 942,898.78 808,162 868,821.05 92.14%
Kuala Lumpur 24,356.28 - 803.43 3.30%
Negeri Sembilan 664,615.38 237,259 240,741.17 36.22%
Johor 1,899,271.12 49,985 195,262.42 10.28%
Pahang 3,597,991.90 299,393 424,743.83 11.81%
Terengganu 1,296,064.70 - 118.21 0.01%
Kelantan 1,493,765.10 127,785 1,493,130.40 99.96%
Perak 2,101,376.50 737,126 881,366.78 41.94%
Selangor 793,554.65 125,845 126,227.34 15.91%
Pulau Pinang 255,509.84 No MRL 0%
Melaka 165,052.63 0%
Total 13,314,003.44 2,422,720 4,268,537.23 32.0%
*Proceeding paper by Mohd Yusof Kasim dan Zainal Abdin Hasim, UKM as extracted from the Federal
Legislative Council February 1948 – February 1949, page B1
**Statistic from Pejabat-pejabat Tanah dan Galian Negeri-negeri 2008.
Total MRL as of 1947 = 2,422,720 hectares
Total MRL as of 2008 = 4,268,537.23 hectares
Additional MRL as of 2008 = 1,845,817.23 hectares
Source: Parliamentary session (Dewan Negara), March 2011.
Table 4 - Malay Reservation Land - 2008 (Hectare)

State Area Revoked Area acquired Area replaced Area of State
Perlis 17.06 542.69* 533.82 37,322.60
Kedah 2,986.39 - 1,701.58 868,821.05
Kuala Lumpur - 50.50* - 803.43
Negeri Sembilan 96,499.86 - 9,033.16 240,741.17
Johor 195,262.42
Pahang 194.25 194.25 424,743.83
Terengganu 57.57 - 75.43 118.21
Kelantan 18,318.90* 1,493,130.40
Perak 157.25 - 1,365.83 881,366.78
Selangor 5,102.55 126,227.34
Pulau Pinang
No MRL
Melaka
Total 104,820.68 19,106.34 12,904.06 4,268,537.23
Note:
*MRL status retained
Source: Parliamentary session (Dewan Negara), March 2011

Table 5 - Malay Reservation/Customary Land – 2009 (Hectare)
Malay Area of State

States Reservation/Customary
Land
Johor 195,262.42 1,898,688.00
Kedah 868,836.09 942,500.00
Kelantan 1,307,153.40 1,510,462.00
Melaka 187,378.34 165,200.00
Negeri Sembilan 161,982.75 665,709.00
Pahang 438,491.68 3,596,500.00
Perak 763,666.28 2,100,500.00
Perlis 37,348.53 79,500.00
Pulau Pinang 0.00 103,104.00
Selangor 126,227.34 793,020.00
Terengganu 118.21 1,295,514.00
WP Kuala Lumpur 803.43 24,270.00
WP Putrajaya 0.00 4,930.00
Total 4,087,268.47 13,179,897.00
Source: Jabatan Ketua Pengarah Tanah & Galian / Bahagian Tanah Ukur & Pemetaan, 2009
On comparison these reported figures showed marked diferences and were rather intriguing
at each state between the years 1983 and 2009. The question is whether the differences are
due to the rescission of MRL status or addition; such cannot be verified. Until a
comprehensive survey on the latest statistics is carried out, the prevailing status of the
actual area of MRL in the country is yet to be confirmed.
THE ECONOMIC PARADIGM OF MRL

As an economic resource, land exhibits a multiplicity of characteristics which economists
classify as factor constraints to the free flow of the economic process. Factor contraints to
land in today’s economy is more than just geographical and physical; it extends to legal,
institutional, social and political factors which could undermine economic efficiency. Land
and man have established a long relationship since the history of human culture and
civilisation. As a man’s maturity is normally associated with age, hence experience, on the
contrary, 100 years of an economic resource such as MRL exhibits a multiplicity of
characteristics, which to some extent, undermines its economies. The effects of the
constraints can be seen as a wide spectrum, including economic redundancies on the
landowners and the stakeholders of MRL, inequitable distribution of income and wealth,
socio-economic imbalance, jeopardised national policies and prolonged social injustice.
Generally, the opponents of the law on MRL regard it as a stumbling block to economies
of the Malays, outdated law of colonial, discriminative, depriving Malays of credit facilities
and disincentive to the owners.
Despite the complexities of various factors undermining the economics of MRL, it is
unjustifiable to disparagingly classify the MRL as a liabilty or second class asset which all
these years had marginalised the Malay economies from the national development agendas.
It is principally and grossly unfair to equate the diseconomies, problems and inefficiencies
of the Malays with the MRL. After all, MRL is categorically one of the economic resources
that is significant in pursuing the economic process of production, consumption and

exchange that will affect the well being of the society. So, at the end of the day, it is about
how the society manages and utilises the economic resources in an efficient manner without
neglecting the distribution criteria.
In pursuing efficiency in an urban economy, land is a significant factor required apart from
other factors in the on-going economic processes of production, consumption and
exchange. As the supply of land is relatively inelastic, any changes in the underlying
conditions of occupation demand for land would considerably affect both rentals and prices
of land. In the urban area, the market disequilibrium of the urban land persists due to the
continuous pressure of the urbanisation process searching for possible available
geographical and economic space within the thriving urban economies. In the central area
of the city, where land available for development is already limited, the avenue is to
maximise development of existing sites available and or redevelop those sites which are
underutilised and uneconomic in order to meet the increasing demand for urban space
(Shahrom, 1997).
As an asset, generally MRL is, however looked upon as a secondary and of lower economic
value asset because the market is restrictive and limited within the Malay interests only.
Taking a piece of agricultural land under Malay Reservation status located in the same area
with other agricultural land without such restrictions in interest having same acreage,
planted with similar crop and harvesting similar yield, the difference in market value is still
vast. Such a difference in pricings may not be sensibly enumerated using possible pricing
and valuation techniques, but the practice is such a difference that it is merely a reflection
of market restriction affecting the MRL. Of course on a serious note, the market restriction
can be associated with the economic status, wealth and purchasing power of the Malays.
From an investment point of view, as an asset, MRL carries the many disadvantages that
impede the investment potential that a valuable asset should have (ibid.).
In a free market economy, business and wealth are created through debt and a healthy
economy is dependant on the ability of the industry and enterprise to borrow (Fraser, 1984).
Land as an asset is a significant factor that contributes to the fund raising activities of the
entrepreneurs.
Unfortunately, as in the case of MRL, the legendary restriction in interest would instead
lower the market value of the land as a collateral, hence reducing the amount of fund that
could be raised. On top of that, it is also the practice of the lending banks to give the amount
of loan to value ratio (LVR) on lower rate to MRL, normally between 50 – 60 per cent only.
On this count alone, a Malay entrepreneur owning a MRL as an asset would have to accept
such a pathetic discrimination and somehow learn to compete in the open economy but on
an inferior platform (Shahrom, 1997).
Since the main underlying question over these years is on the question of economic
efficiency, despite some other setbacks which impede the optimum use of the MRL, it is
therefore pertinent to suggest possible solutions and agendas that would promote the
economies of MRL. After all, MRL is still a factor-resource that is required to be combined
with other resources of capital, labour and entrepreneurship towards achieving optimum
production efficiency. Over all, it is about how the economic process of production,
consumption and exchange fulfill the efficiency and distribution criteria. But from the
wider perspective of the market economy, the market players play a significant role in a
factor and product market. As the factor-product of MRL is confined and limited to Malay
market players, such normally undermine the efficiency criteria of both the factor and
product market. But the situation prevails not because of the identity of the market players,
but basically because of the level of income and wealth of the Malays until today.

It is interesting to note that despite the various national and affirmative policies directed to
alleviate and improve the economies of the Malays all these years, the Malays are still the
race lagging behind in majority of economic sectors, having wider disparity in income and
wealth compared to other races in the country. Such policies that were directed to bring out
the Malays from the vicious circle of economic inefficiency and poverty have failed and the
underlying problems of the Malay economies is still structural in stature.
Although the policy towards reducing the structural problems of the Malay economies
through human capital development and promoting rural-urban migration took effect,
nevertheless, these have not met the purported objectives but instead end up widening and
diverging the regional imbalance and more of relocating the problems from rural to urban
areas. In other words, the Malays are still a worse off lot in their economies both in rural
and urban habitats. The policy objectives of reducing poverty and restructuring the society
in the New Economic Policy (NEP) ended up to be more of redistribution of problems
without achieving the targetted equity ownership after 30 years of implementation.
Comparatively, urban economies are more challenging and full of pitfalls under the pretext
of market mechanism for the Malays to adapt and compete.
From the economics perspective, the real issues on the economics of MRL principally lies
with the economic structure of the Malays. Despite the fact that there are other undermining
factors, the economic dimension has been grossly misinterpreted within the market
economy.
As a land, MRL is just a factor that needs to be combined with other resources in a
production process in an efficient manner to produce desired factor goods, which in turn
will be used in the main economic sectors. Since the active parties to the economic process
are Malay-biased, so are the market players. Just like the bull and the cart, the strength of
the bull is significant in order to pull the cart. Strong and resilient Malay economies will
determine movement and direction of the MRL.
In other words to put the MRL market at par with non-MRL whether as a factor (pure land)
or a factor-product (developed land) the Malay economies must be at par with the non-
Malays, in term of efficiency, hence distribution of income and wealth. While the Malay
demography is on the majority trend compared to other races, it is imperative that there is
already an established and strong Malay market that can absorb Malay goods and services
but for the purchasing power. Making a comparison with other races such as the Chinese,
they can enter the real estate market openly because they have a strong economy, hence
purchasing power. Looking at the real estate market across the country generally, it is
evident that the presence of non-Malays in the market have contributed to sustainable
growth and value to the real estate assets in the area.
The analogy of a bull and a cart has actually been used in the context of the significance of
the economy to the movement and direction of the real estate market generally. A healthy
and stable real estate market is dependant on a healthy and stable financial market, hence
the national economy generally (ibid.). But of course above all, there must be political
stability in order for a nation to enjoy the fruits of the economy.
With the Malays having the dominant privileges as provided by the constitution and having
main political strength, they should also have the upper hand to steer their economy in the
right direction and become established as prominent market players. With continuous
affirmative policies crafted for the benefits of the Malay-bumiputera for 30 years, the
economic imbalance between the Malays and non-Malays still persist. The bull is not
strong enough and not performing to expectations to pull the cart in the right direction. But,

the question is whether the bull is fed well enough and in a healthy condition in order to
have the strength to do the job, or do we need to reinvent the wheel instead for the cart to
move faster?
The moral of the bull and the cart story is to portray the dilemma of MRL today; it is
basically about the underlying economic structure of the Malays that has been the ongoing
deterrent to the optimum utilisation of MRL, not because of the stigma of being MRL.
UNLEASHING THE ASSET RICH MRL

It is interesting to see that some MRL lands have undergone a restructuring phenomena
over recent years, proof of the significance between the market factors of the Malay
economies.
For instance, a report in a local daily on proposed Kiara View, a high-end residential
development on Malay Reserve Land (MRL) attracted about 95 per cent sale well before
its official launch (Property Times, 30 April 2005).
The report had proven otherwise many of the critics on the MRL, particularly those who
used to brand MRL as a “second-class asset” or “liabilities” that impede development of
the Malay economies (Shahrom, 2005). Kiara View is a fine example of how a MRL could
successfully be developed despite the underlying economics and legal constraints attached
to the land. Above all, its developer had proven that with the “right formula,” even MRL
could be efficiently utilized for optimum return at par with other high-end property
development projects. Such an accomplishment on the part of the developer is a
commendable achievement indeed, not only measured in monetary terms, but also
measured by the satisfaction of being able to turn around the table and prove that the so-
called constraints on the MRL can be overcome or that it’s not relevant in certain cases.
The problem undermining the economics of MRL is literally more about the people and
their very sentiments, not the land (ibid.). As such, it is timely that we change our mindset
about MRL and find ways in putting the land to optimum use. We must regard MRL as a
valuable economic resource that the country had long inherited. MRL had significantly
contributed to our national economy ever since the Malay Reservation Enactment was
introduced 100 years ago. Apart from being privately utilised for agriculture and developed
for housing and commercial use, a greater proportion of MRL had been compulsorily
acquired by the state for public developments.
Those who are familiar with the Sungai Pencala Malay Reservation, where the proposed
development of Kiara View is located, must have noticed that the area has virtually
transformed into Kuala Lumpur major development suburbs. It is the only outlying area
that is yet to be fully developed compared to its surrounding area. Whilst the pressure of
demand for housing in Kuala Lumpur has been on the increase based on the current state
of the property market, the opportunity has come for the area to be eventually developed.
Being the last frontier of KL as well as being ideally located, the pressure for
comprehensive development of the area is inevitable despite being a Malay Reservation. If
we were to dip into the property market of the area, the prevailing market value of MRL in
the Sungai Pencala area suitable for development had shown a marked increase over the
years. As such for a profitable development to take place, the type of suitable development
has to be comprehensive and on the high end category in order to commensurate with the
high land cost. Kiara View is a fine example.
But the intriguing question is… would such a development attract the restricted market of
the Malays, despite the fact that not only it is a MRL development but high priced too? Is

it an indication that there are increasing numbers of rich Malays which enable them to
penetrate such a niche market?
There are reasons behind the good demand for the proposed Kiara View despite being sited
on MRL and a high end development. Being strategically located in established high class
residential suburbs of Kuala Lumpur endowed with higher income population catchments,
excellent highway networks and public amenities, its viability is unquestionable even if the
development is high end and located in Malay Reservation. The unprecedented high take-
up of the proposed Kiara View is already an answer to the question on current purchasing
power of the Malays, particularly in KL and Klang Valley area (ibid.).
In other words, undoubtedly it is already a good sign that there are an increasing number
of wealthy Malays in KL and Klang Valley area that are ready to fulfill the market for such
a high end development. With the lending sector providing competitive funding to house
buyers, even for the high end category, it is not impossible for such development to attract
certain Malay populace. Above all, the developer of the Kiara View must have the edge
when it was decided to go ahead with the proposal, despite the underlying constraints on
MRL. But again, property development is about making the right decision taking account
of the underlying risks and uncertainties. The philosophy of “choosing the right location,
building the right property types, for the right buyers and at the right price” still applies,
even if the development is on MRL. To the question on why some developments failed to
attract Bumiputra buyers on the allocated 30 per cent, even with the discount, perhaps the
philosophy is the answer. Comparatively, developers of MRL are normally cautious
because generally they realise their limitations, particularly on the fund and market share.
As such, the size of development is normally small compared to the main market players
(ibid.).
Apart from the success of the above high-end housing development on MRL, to date there
are many other successful developments on the MRL taking place across the peninsular
states, even in some secondary and remote locations. Unfortunately, many people are
unaware of these pockets of developments, probably due to the factors of location, scale
and market information. It has also been a trend for developing MRL on joint-venture
between the landowner and the developer. It has been considered one of the innovative
ways to unlock the economics of the MRL, despite the underlying risks and pitfalls to the
landowners. However, the schemes are also prone to malpractice like “Ali-Baba”
arrangements, which involve a non-Malay party. As such, whether such a joint venture
scheme should be considered as an innovative approach or just a way of manouvering with
the law is very much questionable here.
A lack of research and statistics on the successful developments on MRL is one of the
factors that prolonged the ignorance and negative mind-set of the public about the status of
MRL today. In actual fact, there are statistics and information pertinent to MRL that have
not been recorded, updated and reported by relevant authorities for benefit of the public.
It is time that the success story of MRL utilisation and development be highlighted for the
public awareness. It is time to create role models among the successful MRL owners and
developers. This is one way forward to unleash and promote the MRL and market potentials
for aspiring landowners and various stakeholders. At the same time, it is also one way out
to detach the stigma of negative perception to MRL which degrades the economics and the
real asset values.
As an economic resource, MRL needs to be efficiently combined with factors of capital,
labour and enterpreneurship in the process of production of factor products. As mentioned

earlier, the issue raised by the Association of Developers of MRL to the Prime Minister, one
of the major obstacles of developing MRL, is to raise adequate capital from the lending
institution (Berita Harian, 12 April 2011). Although the law on MRL had somehow been
amended to allow MRL access to credit and financial facilities, the banks are still practising
a stringent policy when assessing and approving loans with MRL as collateral.
For this reason, some landowners and developers tend to seek recourse to out-venture with
non-Malay parties. This senario will persist as long as the banks continue practising this
discriminatory exercise of lower valuation on MRL developments on the ground of market
restrictions. To the bankers, the risks associated to MRL developments are much higher
compared to others, and therefore, justify a lower valuation instead. It is well understood
within the literature of real estate development, that it is generally a highly risky economic
venture and full of pitfalls. But to assess and to rate MRL development inferior to other
developments is unjustifiable and premature before assessing the proposal on individual
merits, taking into account various underlying factors of each development. It appears as
though the bankers have resorted to more of a perceptive approach to the evaluation
exercise rather than adopting a qualitative and quantitatve assessment on MRL
developments. Perhaps it is time that a national research should be conducted to compile
the statistics on all MRL developments to date. The research should identify the actual
number of successful MRL projects as well as those that ended up with problems,
particularly those that come under the list of abandoned projects and overhang. These
figures should be compared to the figures of non-MRL developments which face the same
problems. Such information is necessary for the industry and market players to assess level
of exposure of risks and faults of developments that can be used in financial evaluation and
decision making.
DEVELOPING MRL
In todays economy, there are ways and means of getting resources to pursue an economic
venture. An entrepreneur has access to the economic resources of land, labour and capital
within a wider market. The owner of MRL can be an entrepreneur-developer by engaging
expertise available in the consultancy market to develop MRL.
With the development of financial markets today, potential MRL developers can raise
bridging finance through conventional or Islamic financing sources, which can be either
debt or equity based.
EXPLORING THE EQUITY SHARING & PARTNERSHIP SCHEME

This type of financial arrangement has been used for centuries for large development
projects in the 18th and 19th centuries in the west. It enabled a wide variety of developers
to undertake development on long building leases, thereby ensuring that the freehold
owners retained control over the form and content of development with an annual income
and eventual reversion (Darlow, 1982).
The alternative term of this arrangement is joint venture. A joint venture may be established
for a specific project or for several projects which satisfy stated criteria.
In the classic property joint venture, one party will provide the land and another (or others)
will provide the finance and development expertise. The classic forms of joint venture are
joint venture company; or partnership and limited partnership; or the “contractual” joint
venture (Stevenson, Potts and Houlton, 1994).
There are several statutory provisions governing the equity sharing and partnership scheme
which normally involve leasing exercises between the parties in the development. For

redevelopment of Kampong Baru or even other Malay reserve lands and customary lands
in the country, there are provisions or additional statutes that have to be referred to for
structuring the leases. The relevant statutes are as follows:
• National Land Code (Act 56 of 1965): Section 221 – 228A
• Land Enactments 1897
• MAS Land Rules 1950 (Amended 1954)
• Malay Reserve Enactment 1913: Section 17
• Customary land rights e.g. Malacca Lands Customary Rights Ordinance.
This equity participation involves the development team – landowner, funder and property
developer (refer Figure 1). This financial arrangement involves the landowner, who agrees
to enter a deal with a funder and a development company to share in the return from the
completed development project.
The landowner will retain the site, but the funder will finance all development costs and on
completion of the project, the landowner will lease the property to the funder and developer
as joint tenants on a long lease subject to regular rent revisions. The developer and the
funder as joint tenants will sublease the property to the occupying tenants. The landowner
will be guaranteed an initial ground rent and the funder and the developer will receive their
share based on a percentage of development costs and rental income on completion,
respectively (Darlow, 1982; Fraser, 1993).
Lease Sub-Lease Real Estate

Funder
Landowner Tenants
Guaranteed
Developer Market Rent
Ground Rent
Figure 1: Equity Sharing & Partnership Scheme
EXPLORING OPPORTUNITIES IN ISLAMIC FINANCE

The role of the financial industry in providing capital to the real estate sector is very
significant, whatmore to the developers of MRL. The normal arrangement of traditional
bridging finance has been the practice between the banks and the MRL developers.
Nevetheless, in view of the development in the financial industry today, in particular with
the increasing prominence of the Islamic financial market and the wider choice of
instruments made available today, real estate developers have a wider choice of shifting to
other financing methods for real estate developments.
Norms of Ethics in Islamic Financial System (Mohammed Obaidullah, 2005):
• Freedom of Contract
• Freedom from Al Riba

• Freedom from Al Gharar (uncertainty)

• Freedom from Al Qimar (gambling) and Al Maysir (unearned income)
• Freedom from price control and manipulation
• Entitlement to transact at fair prices
• Entitlement to equal, adequate and accurate information
• Freedom from Darar (detriment)
• Mutual cooperation and solidarity
• Maslahah Mursalah (unrestricted public interest)
Some common Islamic financing products for real estate development and investment
(Ibid.):
• Trustee Partnership (Mudaraba) Facility (equity-based)
• Joint Venture/Equity participation (Musharaka) Facility (equity-based)
• Leasing (Ijara) Facility (debt-based)
Islamic financing instruments, such as the Mudarabah and Musyarakah, are based on the
principles of sharing equity and risks between the financier and the entrepreneur; these are
a better way out from the traditional one-sided risk taker practised conventionally. The
beauty of the Islamic financial arrangement is not only is it free from the forbidden usury
(riba’) and uncertainties (gharar), but it also promotes and emphasises the active roles and
contribution of the parties’ common interest in a project. Since the traditional bridging
finance exerts financial liability heavily on the part of the developer of MRL as a higher
risk taker, in contrast, Islamic financial arrangement promotes equity and risk sharing and
therefore should be a suitable mode of financing MRL developments instead.
MUDARABA TRUSTEE PARTNERSHIP

• Trustee partnership based on Mudaraba is a mode of financing through which the
funder provides capital finance for a specific project indicated by the customer.
• The funder is the owner of capital and the customer is responsible for the management
of the project.
• Profit is shared according to a pre-agreed ratio. Losses, if any, are entirely absorbed by
the capital provider.
JOINT VENTURE (MUSHARAKA) FACILITY

• A joint venture based on Mushraka involves a partnership in which both the funder and
its customer contribute to entrepreneurship and capital.
• Both parties agree to combine financial resources to undertake the project and manage
the same according to the terms of agreement.
• Profits are shared between the parties in the pre-agreed ratio. Losses are shared strictly
in proportion to their capital contributions.
LEASING (IJARA) FACILITY

Ijara means a lease contract or hiring contract of physical assets. In the context of Islamic
finance, it is a lease contract under which the financial institution leases its particular asset
to its client against payment of pre-determined rentals. The Ijara financing structure could

take the form of operating lease, financial lease or sale and leaseback model. In real estate
development and investment, Ijara is a fundamental element in structuring equity
partnership ventures and also in asset securitisation exercises such as real estate investment
trusts, which involves leasing and leaseback arrangements.
ASSET SECURITISATION – CONVENTIONAL VS. ISLAMIC INSTRUMENTS

Today, there has been a phenomenal development in the global financial markets to cater
to the needs of major as well as developing economies, whereby structured financial
instruments have been innovatively created and adopted in both conventional and Islamic
financial markets. As the development economics continuously seek funding sources, the
traditional funding is not suitable, whatmore when the capital projects are large scale and
with long term view. Large public projects are now turning to privately funded capital from
the global capital markets. Similarly, private developments such as real estate are now
sourcing funds from both the conventional and Islamic capital markets. Issuing traded
bonds and sukuk (Islamic bond) in the international capital markets has been a phenomenal
practise to raise fund both by the government and private corporations today. Other
significant development in the capital markets today include the growth in the securitisation
industry for real estate investment. Real Estate Investment Trusts (REITs) have made a
global impact, which have made a paradigm shift in the real estate investment market today,
innovatively creating structured financial vehicles in the real estate industry.
With the development in the financial market today, certainly somehow such will provide
wider choice and avenues for financing, as well as funding real estate projects. Of course
some of these financing methods are not suitable for smaller projects that require a smaller
capital outlay. But for major development and redevelopment exercises involving MRL, the
concept of real estate development or investment trust should be suitable, whatmore if it
involves multiple landownerships and stakeholders.
PROPOSED REDEVELOPMENT OF KAMPUNG BARU KUALA LUMPUR VIA

SECURITISATION VEHICLE
The idea of undertaking comprehensive redevelopment and rehabilitation of a prominent
Malay enclave of Kampong Baru Kuala Lumpur by using the concept of land trust was
mooted when the government attempted a proposed plan for redevelopment in 2010.
The Kampong Baru Malay settlement is located adjacent to the Central Business District of
Kuala Lumpur. It is one of the biggest Malay enclaves of land in Kuala Lumpur with a total
land area of 378.93 acres, of which 225.89 acres were under MAS and the remaining
153.04 acres are on non-MAS land. There are about 4,300 lot owners on both the MAS and
non-MAS land, spread over seven villages.
The Malay Agriculture Settlement (MAS) areas were introduced in Kampung Baru Kuala
Lumpur on alienation of agricultural land to the landless Malays in 1897. MAS land is not
designated as Malay Reserved Land (MRL), which was introduced in 1913 via Malay
Reservation Enactment. But both lands carry similar restriction in interests, which prohibit
transfer or occupation by non-Malays.
The existing development is generally varied in character, comprised of traditional
kampong dwellings interspersed with semi permanent and some low rise permanent
buildings. Generally, the overall physical landscape of Kampong Baru is in contrast to the
surrounding vicinity characterized with obsolete buildings, narrow roads and some vacant
lands which signify obstacles in development exercises.

The immediate surroundings of the Kampung Baru Malay enclave is overshadowed by

many prominent city landmarks, such as KLCC and Petronas Twin Tower and other high-
rise notable commercial buildings of the central business area.
In view of the various constraints mentioned above, there are several key factors that must
be strongly adopted by the government-proposer before the proposed redevelopment of
Kampong Baru could be implemented.
Since the proposal is government driven, it requires a strong political will dealing with such
a huge number of land owners, their representatives and other interested parties. The
government- proposer must be transparent and all details of the proposal must be spelled
out to the parties involved. The landowners must play a participating role at the plan
formulation and the decision making process should work on unanimity rule; otherwise
majority consensus should be adopted in order to uphold social justice in the whole
exercise.
Looking at the whole structure of the proposal, the stakeholders of the proposed
development will comprise the following:
• Land owners
• MAS Board /representatives
• Kampong Baru Development Corporation (KBDC) (to be established as development
agency)
• Government linked companies (GLC) viz Lembaga Urusan Tabung Haji (LUTH),
Permodalan Hartanah Berhad (PHB) and Permodalan Nasional Berhad (PNB) as
funding institutions (Media reports, August 2010).
The proposal is first to set up a corporate governing body called the Kampong Baru
Development Corporation, which will serve as the planning and governing body for
development activities in Kampong Baru. The proposal also sees the involvement of
government-linked companies and institutions such as Permodalan Hartanah Berhad
(PHB), Lembaga Tabung Haji (LTH) and the Permodalan Nasional Berhad (PHB) to be
active equity partners/funders in the development. The government also proposed to set up
a trust, namely Kampong Baru Land Trust, a securitisation vehicle ala Real Estate
Investment Trusts (REIT) to foster equity participation and safeguard interests of the land
owners in the proposed development. The securitisation can be via conventional or Islamic
vehicle.
The structure of the securitisation vehicles as proposed by the writer are as in Fig. 2 and
Fig. 3 (Shahrom, 2010).
PROSPECTS OF REPEAL/AMEND/ENACT THE LAWS RELATING TO MRL –

THE FEDERAL CONSTITUTION, MALAY RESERVE ENACTMENTS,
NATIONAL LAND CODES, LAND ACQUISITION ACT, ETC.
Today, it has been 100 years since ERM was enacted. It is a law that has seen much
controversies, but it is entrenched so as to safeguard the long term interest of Malay land
ownership in the country. Despite the complexity of various constraints undermining MRL,
we have to accept the fact that the Malay Reservation Enactments had played significant
roles to protect and prolong the ownership interest in land of the Malays. After 100 years,
the law still remains intact, despite some efforts to amend the law by the ruling government.
The last effort was a proposed amendment of the law on Malay land reservations is to allow
leasing of MRL to the non-Malays for development made in 2004. Until today, the idea did

Landowners/
Unit holders
Investment Returns
Business Safeguards
Decision LO interest
KBLT
KBLT Trustee
Manager
Fees Fees
Manages Net
property Ownership Income Lease
Property
KBLT Properes Tenants
Manager
Fees Rentals
Fig. 2 – Proposed Conventional Model of Kampung Baru Land Trust (KBLT)
Landowners/
Shariah Unit holders
Commiee Shariah
Advisors
Business Investment Returns

Safeguards
Decision LO interest
Manager I-RET Trustee
Fees Fees
Manages Net
property Ownership Income Lease
Property
Properes Tenants
Manager
Fees Rentals
Fig. 3 – Proposed Model of Islamic Real Estate Trust for Kampung Baru Development
not go through. Apart from political opposition, even from within the ruling party members
and the Malays, inevitably, the government realised that it has to undergo a very complex
process of the law as provided by the constitution. Furthermore, the proposed amendment
is further complicated by a requirement to amend other related laws such as the national
land codes.
Article 89(1) of the Federal Constitution emphasizes that any act of excision, revocation,
acquisition or alteration of the size of Malay reservation land can only be made by the
legislature of the state. It has to enact a new Malay Reservation Enactment that is passed
by the legislative assembly and approved by each house of Parliament. In the legislative
assembly, it is passed by the majority vote of all members of the assembly, whether present

or not, with votes of not less than two-thirds of the members present. Subsequently, the
enactment has to be approved by resolution in each house of Parliament based on similar
proceedings.
The law that is applicable in the revocation of Malay reservation land that has been declared
as Malay reservation prior to Independence is Article 89(1) of the Federal Constitution, and
not section 4(i)(b) of the Malay Reservation Enactment 1933.
Article 89(3) envisages that if any Malay reservation land is acquired or revoked, the state
authority shall replace it with another piece of state land. There are three conditions which
need to be adhered to for replacement:
a. It has to be similar in character;
b. An area not exceeding the area revoked;
c. The replacement should be exercised immediately.
On the contrary, instead of going for repeal and amending the laws relating to MRL, the
government should instead strengthen the existing laws and other laws on security of title,
which has created injustice to land owners due to fraud and forgery in land transfer (Adorna
Properties Sdn. Bhd. v. Boonsom Boonyanit @ Sun Yok Eng , 2001).
ROLE OF GOVERNMENT, INSTITUTIONS AND AGENCIES

Perhaps it is time that the government through its appointed agencies at national level and
state levels play an active role in developing MRL, which have potentials and are ripe for
development, particularly those MRL located in strategic parts of the urban areas or even
at urban fringes. Rather than acquiring those MRL via compulsory purchase as a common
practice before using the amended Land Acquisition Act 1960, it should be on a longer term
benefit to both the government and landowners to consider a win-win approach on
developing MRL just like other privately developed schemes. In view of various financial
arrangements available nowadays, it is not impossible that some form of cooperation and
participation could be organised between the government and the landowners to develop
commercially viable MRL. As to date, there are government arms and agencies such as
state development corporations, Urban Development Authority (UDA) and the newly
established Yayasan Amanah Hartanah Bumiputera (YAHB) and its management company,
Pelaburan Hartanah Berhad (PHB), that could play positive roles in identifying the
development opportunities available for those MRL suitable to be developed that will
benefit not only the landowners, but also the Malays in general. Developing MRL
particularly in a town or city or even at the urban fringe should be looked at as a long term
effort to urbanise the Malays and to spur their economic participation, as well as to increase
their political share in urban areas.
It is interesting to note a major move by the government a few years back in pursuing the
bumiputera agenda to increase their participation as well as ownership in commercial
properties in major locations of urban areas.
Apart from the setting up of YAHB and its management company, PHB, to develop its
property assets, the government had also recently through its investment arm Khazanah
Nasional Berhad (Khazanah) had undertaken a major corporate takeover exercise of UDA
Holdings Berhad (UDA), a public listed company, to be wholly owned by Khazanah.
Although the takeover of UDA has no connection with the setting up of YAHB and PHBB,
the objective of getting back UDA is also to fulfill the government agenda of increasing
bumiputera equity in the urban economy.

The rationale for the government in buying UDA is to bring back its former role and
function as agent for development and investment for bumiputera property assets in urban
areas. The government realised that since UDA was listed in 1999, the organisation had
taken a different route just like other companies. It became profit oriented in its
development activities and failed in its social responsibility to uplift the bumiputera
economy in urban areas. But of course the more the reason that the government chose to
have UDA back is the two valuable assets that it has acquired for all these years – its vast
experiences in property development and investment and property assets that it had already
accumulated in prime urban locations.
So, by having YAHB and UDA, the bumiputeras now have two vehicles specially designed
and built to generate their economies in urban areas generally via property development
and investment activities. With enormous size of assets in place for YAHB and UDA,
collectively it would create a significant impact on the urban property market, the capital
market and urban economy. Certainly, it will require due diligence, good corporate
governance and full responsibility on the part of YAHB and UDA in managing the assets
so as to meet the underlying objectives – achieving economic efficiency and social justice.
After all, these are not merely assets, but more of the trusts for the rakyat and generations
to come.
In fact the government should also go beyond that by entrusting the state development
corporations, YAHB and UDA, as the main vehicles to solve the long overdue Malay
agenda of developing Malay Reserve Land (MRL) located in some parts of the towns and
cities which are ripe for development. The urbanization process over the years has turned
some Malay reserve areas into prime area of the towns and cities, but due to some legal and
economic constraints, these areas were not developed. These are valuable pieces of land
that need to be developed and turned into high value assets that do require some
organisational and institutional involvement due to economic, financial and legal
constraints. They should consider the various alternative financial formulas in realising the
development of MRL, such as through conventional joint venture or equity sharing or using
the alternative Islamic route of Mudaraba or Musyarakah or using special purpose vehicles
such as REIT/Islamic REIT to model the development of MRL.
As such, the way forward for MRL is for the government and its related institutions and
agencies to be instrumental by playing an active role to promote efficient utilisation and
development of MRL via the followings:
• formulation of economic policies, planning and development, land readjustment, land
rehabilitation and consolidation, asset securitisation, real estate trusts.
• establish entrepreneurship programmes, education, training, advisory, consultancy as
ways to solve the structural problems undermining the eonomies of the land owners and
interested parties.
• provide financial support, grants, subsidies, incentives, tax exemptions.
• create awareness campaigns, social integration programmes, community development
programmes to the Malay community.
• government and institutions to be more sensitive and avoid practice of revocation and
compulsory acquisition of MRL. It must replace the MRL if revoked or compulsorily
acquired as required by the constitution.
• promote a land readjustment system as alternative to land acquisition.

• promote concepts of equity participation and real estate trust in development projects
involving MRL rather than by compulsory acquisition.
• Involvement of government linked companies (GLC) in developing MRL.
PROPOSED SET-UP OF INSTITUTION OF MRL AND MALAY CUSTOMARY

LANDS
In view of the many underlying issues and critics undermining the MRL as of today, it is in
our opinion, that an institution should play a leading role in providing both academic and
professional services to the good and betterment of MRL, hence the various stakeholders.
Quoting the esteem words of the late Director of Institut Teknologi MARA (ITM),
Professor Datuk Dr. Nik Abdul Rashid Nik Abdul Majid... “The Malay Reservation
Enactment is nothing but small token of love from our grandfather handed down to us with
a trust that we shall hand it down to our children and their children. Malay Reservation
Land is a land under a trust. We are the trustees of the Malay Reservation Land” (Nik
Abdul Rashid,1993), therefore, it is timely for the country to move forward as the trustee
to the MRL which constitute about 30 per cent of the land resources of the country, to
promote and enrich the MRL and other customary lands.
To fulfill the role and objectives, it is in the opinion of the writer that MRL and customary
lands (MCL) should be institutionalised nationwide i.e. the need to set up Institute of Malay
Reservation Land. The proposed institute can be set up under the land ministry or any
public university. The proposed idea of the institutiton is modelled after some of the land
institution that had been established in other countries with indigeneous communities such
as on the USA, Canada, New Zealand and Australia.
The proposed institute acts as an institution that brings research, consultancy, teaching,
outreach and engagement activities in the area of MRL, customary land and resource
management together under one umbrella unit.
The mission of the institute is to work with MRL and customary landowners, the
stakeholders, the government and related agencies to realise a more prosperous future
through optimal land and resource management practices. The institute will provide the
professional consultancy services to the MRL owners on land administration and land
development exercises.
VIEWPOINTS AND CONCLUSION

• It has been 100 years since the law on Malay land reservation was enacted. The society
must accept the fact that the law will be entrenched as one of the Malays’ special rights
as enshrined within the Federal Constitution. Despite the ongoing issues and challenges,
MRL is an inherited trust that the stakeholders must protect, preserve and utilise
efficiently. It is long overdue that the various interested parties and stakeholders should
come out with amicable solutions and strategies to overcome the various impending
constraints on MRL. There must be a comprehensive plan on MRL as part of the overall
local, regional and national plan that will promote and steer the future development of
MRL in the country. As the statistics show, overall about 30 per cent of the country is
under gazetted Malay reservation area, and in some states, the gazetted area exceeds 30
per cent. The State of Kelantan is the highest, with more than 95 per cent of the state
gazetted as MRL. With such a size, MRL is a significant factor to reckon with; hence if
utilised and developed efficiently, it will contribute to a sustainable local and national
economy.

• As land is scarce and is a highly valuable economic resource, we should instead leave
the future of MRL with potential or to be ripe for development to be determined by
market forces of supply and demand. Since interest in land normally signifies
nationalism, political as well as economic interest of a community. For the long term
benefit of the Malays, it is imperative that the Malay community should have the
privilege of steering the development of MRL within their own agenda without
compromising the economics, Malay sentiments and their political aspiration
(Shahrom, 1995).
• It is undisputable that the majority of the Malays would like to see that MRL be utilised
economically in tandem with the country’s economic growth; however, the ownership
interest in land must still be in the hands of the Malays in perpetuity. We have to accept
that the Malay legendary sentiment on the MRL is there forever, despite all the statutory
and economic restrictions and constraints affecting the land. After all MRL is not a
problem of misallocation of resources in economics which dampens the national
economic objectives. MRL has largely contributed to the economy, particularly in
agriculture as well as in public goods and commercially oriented developments, despite
the underlying market constraints. It is a fact that the number of MRL had tremendously
been reduced in size from state to state due to continuing compulsory acquisition by the
government to allow for development, not only for public purpose (Section 3a of Land
acquisition act 1960-Amendment), but also for commercially-oriented purposes
(Section 3b of the same act). The only economic setback undermining the MRL is that
due to its statutory constraints or market restrictions, MRL is deprived of its highest
economic return if put to development compared to non-MRL (ibid.).
• Any MRL proposed to be developed should be carefully appraised and evaluated to
identify the economic feasibility. By virtue of market restrictions undermining MRL,
there should be extensive market study and analyses carried out to determine the
occupational demand for the type of development proposed. Avoid any proposal on
developing MRL based on hunches and pure speculation. The economics forces of
occupational demand and supply of property should not be compromised in the
decision-making process of developing MRL.
• Each of the conventional financial alternatives on redevelopment exercise has its own
merits and demerits. Development by land owners through partnership scheme has been
in practice in the development of Malay Reserve Land. But the setback on this financial
arrangement is on the question of sharing of equity and risks between the development
partners, and also on the question of getting the right and credible partner to be part of
the scheme.
• The idea of leasing of MRL for development should be considered with an open mind.
It is one of the alternative avenues to solve the underlying problems of MRL ripe for
development given the financial constraints and lack of expertise on the part of
landowners. A proper evaluation of the leasing approach must be done in comparison
with other possible alternatives, such as the landowner acting as the developer and
entrepreneur himself or the possibility of a partnership and joint venture scheme or
build and deferred payment scheme. Where the alternatives considered are on leasing
or a joint venture scheme, such must be evaluated carefully from both economic and
legal perspectives but with strong participation of the Malays to the development
(ibid.).
• In principle, leasing of the MRL for development is rather a sub-optimal approach from
the economic perspective. As resources such as land is scarce, we should instead leave

the future of MRL to the market forces. In other words, development of MRL should be
in tandem with the overall economic growth of the country and should be looked at
within the economic perspective and well-being of the Malays themselves. It should be
realised that since the implementation of New Economic Policy (1970-1990), the
number of Malay entrepreneurs, financiers, corporate leaders and professionals has
increased tremendously, whilst its representatives at the government levels are still
intact and relatively strong. Similarly, the real disposable income of the Malay
community has also improved over the years due to the overall economic prosperity
enjoyed. As such, if we were to combine all these factors within the economic
advantage of the Malay community, it is imperative that the Malay community should
have first hand advantage of determining and steering the future development of MRL,
rather than looking at immediate and short term solutions such as leasing to the non-
Malays for development (ibid.).
• The proposal to redevelop the Malay enclave of Kampong Baru, Kuala Lumpur should
be carefully appraised and evaluated to identify economic feasibility. By virtue of
market restrictions, there should be extensive market study and analyses carried out to
determine the occupational demand for the type of development proposed. Avoid any
proposal based on hunches and pure speculation. The economics forces of occupational
demand and supply of property should not be compromised in the decision-making
process of developing Kampong Baru.
• It should be strongly emphasised here that leasing of land for development irrespective
of whether a MRL or not is not a short term lucrative venture compared to other forms
of property investment. It is immaterial whether the leasing scheme is traditional or a
participating leasing scheme if the objective is for capital gain and or maximum return;
such would certainly not be realised or guaranteed even on reversion of the lease.
Although the owner of the site leased for development has been guaranteed ground rent,
the amount normally represents a small percentage of return of the overall development
value as well as to the site value. Where a comparison is made between the capital value
of the site to be developed with the ground rent to be received, even after taking account
of both capital and rental appreciation, certainly one may find a vast difference between
the two. Such is the case of Kampong Baru, where the value of the land has
tremendously appreciated due to its strategic location; the difference between the capital
value of the site with potential ground rent is certainly huge enough that a sensible
landowner would rather chose to dispose the land for capital gain than leasing for
development. On the contrary, leasing would only be appropriate where the landowner
lacks expertise and has financial constraint but is willing to compromise on lower
economic return without losing the long term interest in the land (although this should
not be the case in the present day economy where expertise can be hired and finance can
easily be raised if the landowner has a strong determination to be an entrepreneur
himself) (ibid.).
• To date, there have been serious efforts on the part of some owners of MRL as well as
Malay developers to develop MRL in certain locations in the country. Although the
development schemes are mainly small due to the inherent characteristics of the MRL
being smaller in size, the schemes proved to be successful indeed. Some owners
themselves made an effort to convert and subdivide their MRL into saleable residential
detached house plots in some of the prominent locations in the country and managed to
sell at competitive prices to the Malay buyers.
• The ongoing trend of undertaking development on joint venture schemes with non-
Malay developers and funders (alternatively termed Ali-Baba practice) should be

ceased since the equity and profit sharing structure is to the disadvantage to the MRL
owners. This is not an innovative arrangement that some Malays are likened to, but
rather an economic opportunity loss that the MRL owner and the society has been
manoeuvred into all these years in the name of economic development.
• The idea of the setting up of property trust that specially manages and develops land
banks of MRL representing the various landowners on large scale should be given a
serious thought. The trust agency even goes beyond inviting the Malay community to
participate in the development of MRL by buying the equity unit trusts as investment,
which will provide a ready source of development funds to the trust. Similarly, the idea
of setting up a property trust resembling the Amanah Saham Nasional Berhad (ASNB)
for MRL as proposed at the 1997 UMNO General Assembly as a means of developing
MRL can be considered as economically sound and very much on point as a corporate
outlook without jeopardising the Malay sentiments. The Real Estate Investment Trusts
(REIT/Islamic REIT) and property unit trusts markets, which had been established in
the country, should be alternative models to look at, particularly for large scale
development of MRL.
• The government should be playing a monitoring role on all MRL in the country
proposed for development. Apart from providing various policy guidelines on MRL for
development, there should be a special executive committee/task force set up at district
and state levels comprising administrative and professional experts responsible to
identify, monitor, process and evaluate MRL suitable for development. The authorities
must also consider as a form of incentive to promote development of MRL rewards of
exemptions on taxes, duties, premiums, development charges, subsidies as well as a
one-stop centre to cut the bureaucracy and delays in planning and development
approvals. Apart from that, it strongly requires support and commitment of the financial
sector to readily provide financial advisory as well as financing and funding of the MRL
because certainly without the support and commitment of the financial sector, the whole
idea of promoting the development of MRL will be in vain.
• The government through its GLC and appointed agencies at national level and state
levels should also play an active role in developing MRL which have potential and are
ripe for development, particularly those MRL located in strategic parts of the urban
areas or even at urban fringes. Rather than acquiring those MRL via compulsory
purchase as a common practice before using the amended Land Acquisition Act 1960,
it should be on a longer term benefit to both the government and landowners to consider
a win-win approach on developing MRL just like other privately developed schemes. In
view of various financial arrangements available nowadays, it is not impossible that
some form of cooperation and participation could be organised between the government
and the landowners to develop commercially viable MRL.
• The proposal to develop Kampong Baru, Kuala Lumpur using the asset securitisation
model viz REIT could be considered, but more as unlisted/private REIT. It is a way out
from the various underlying legal and economic constraints for such a very huge size
real estate assets. If fully developed comprehensively, it will be among the biggest
securitised real estate assets looking at the overall size and its market capitalisation.
However, due to its MRL status and the underlying legal and economic constraints, the
proposed KBLT will not be an asset class that will perform at par with other REITs
listed currently in the stock exchange.
• Listed REITs are traded in open market as such benefit in times of active market
movements in both the property market and the securities market. By comparison,

KBLT would only perform according to the property market movement and further
restricted within the Malay market. Such a setback would create a significant effect on
the prices and yields of KBLT. Hence the interests of the landowners/unit holders and
investors.
• The conventional financial solutions explored are not structured according to the norms
and ethics of Islamic financial systems. Malaysia has established a prominent Islamic
financial market which readily provides Syariah compliant financial products and
services, both equity-based and debt-based, that are suitable for real estate development
and investment.
• The proposal to set up Kampong Baru Land Trust based on an asset securitisation model
would be an innovative proposal that specifies the significance of transparency and trust
among key factors in developing such a complex and highly controversial Malay
enclave. With the innovative development in Islamic finance via asset securitisation
vehicles, such as Islamic Real Estate Trust, where Malaysia has pioneered the model
and paved the way in the global market, securitising the proposed Kampong Baru
development as Islamic Real Estate Trust will be another landmark achievement to our
Islamic financial system.
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International Surveying Research Journal (ISrJ)

VOLUME 3 NUMBER 2, 1-28

Malay Reservation Land – Unleashing

Centre of Study for Estate Management

ISSN 2232-1306 © 2013 Royal Institution of Surveyors Malaysia

HISTORICAL OVERVIEW OF MRL

International Surveying Research Journal (ISrJ)

ISSUES AND CHALLENGES OF MRL

ISrJ Vol.3 No.2, 2013

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International Surveying Research Journal (ISrJ)

Table 1 - Malay Reservation Land – 1983 (Hectare)

State Area of State MRL Area

Total 13,112,400 3,221,079.48

Table 2 - Malay Reservation Land – 2002

State Area of State Area of State MRL Area % of MRL

ISrJ Vol.3 No.2, 2013

Table 3 - Malay Reservation Land (1947 – 2008) (Hectare)

Table 4 - Malay Reservation Land - 2008 (Hectare)

International Surveying Research Journal (ISrJ)

Table 5 - Malay Reservation/Customary Land – 2009 (Hectare)

Malay Area of State

THE ECONOMIC PARADIGM OF MRL

ISrJ Vol.3 No.2, 2013

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ISrJ Vol.3 No.2, 2013

UNLEASHING THE ASSET RICH MRL

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ISrJ Vol.3 No.2, 2013

EXPLORING THE EQUITY SHARING & PARTNERSHIP SCHEME

International Surveying Research Journal (ISrJ)

Lease Sub-Lease Real Estate

Figure 1: Equity Sharing & Partnership Scheme

EXPLORING OPPORTUNITIES IN ISLAMIC FINANCE

ISrJ Vol.3 No.2, 2013

• Freedom from Al Gharar (uncertainty)

MUDARABA TRUSTEE PARTNERSHIP

JOINT VENTURE (MUSHARAKA) FACILITY

LEASING (IJARA) FACILITY

International Surveying Research Journal (ISrJ)

ASSET SECURITISATION – CONVENTIONAL VS. ISLAMIC INSTRUMENTS

PROPOSED REDEVELOPMENT OF KAMPUNG BARU KUALA LUMPUR VIA

ISrJ Vol.3 No.2, 2013

The immediate surroundings of the Kampung Baru Malay enclave is overshadowed by

PROSPECTS OF REPEAL/AMEND/ENACT THE LAWS RELATING TO MRL –

International Surveying Research Journal (ISrJ)

Fig. 2 – Proposed Conventional Model of Kampung Baru Land Trust (KBLT)

Business Investment Returns

Manager I-RET Trustee

ISrJ Vol.3 No.2, 2013

ROLE OF GOVERNMENT, INSTITUTIONS AND AGENCIES

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ISrJ Vol.3 No.2, 2013

PROPOSED SET-UP OF INSTITUTION OF MRL AND MALAY CUSTOMARY

VIEWPOINTS AND CONCLUSION

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ISrJ Vol.3 No.2, 2013

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ISrJ Vol.3 No.2, 2013

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Ismail Omar (2004), Redevelopment of Kampong Baru, 5 October, Professional Talk,