Have you heard of the term 'plot ratio caps' and gotten confused? We get it; there’s been a lot of talk of the importance of these ratios with the Kuala Lumpur City Plan 2020.
So what are plot ratios, why do they matter, what is this new cap that everyone's talking about, and why's it being implemented?
Hold onto your caps and questions; we're about to take you on an in-depth ride to try and answer all those questions, and more!
What Is A Plot Ratio?
The plot ratio is an important part of a building’s development plan. It sets out the maximum area of developable space which can be constructed on a specific plot of land.
The higher the plot ratio cap, the more properties that can be built on the same plot of land. A lower plot ratio cap limits the number of units which are permitted to be constructed on that land.
Want to get technical? Sure, let’s do it! Under the Town and Country Planning Act 1976 the plot ratio is defined as:
“The ratio of the total floor area of a building to the area of the building plot as measured between the survey boundary lines or, if there are no survey boundary lines, between the provisional boundary lines.”
Plot Ratio Calculation
Essentially, the plot ratio is the total gross floor area of the building, divided by the size of the area on which that building has been built.
For a simplified example, that means if there's a plot ratio of 1:10, a 1,000 sq ft plot could be developed into 10,000 sq ft of floor space. All good so far?
Now, What Is The Plot Ratio Cap In Malaysia?
Plot ratios are generally laid out in a development plan submitted by a developer prior to approval. The local authority then assesses that plan and compares it to the designated limits before giving a project the go-ahead.
What’s The Deal With The Plot Ratio Cap In KL?
As one of the most important property markets and most densely populated urban centres in Malaysia, Kuala Lumpur is a particularly sensitive area when it comes to new developments and plot ratio caps.
A recent change under the Kuala Lumpur City Plan 2020 (KLCP2020) is set to limit that cap on property ratios to 1:10.
This is part of an initiative designed to control the size of city developments, and control the rapid increase of additional office and residential units into KL’s already-crowded property market.
The new plot ratio cap will apply to both commercial and residential developments. So, there'll be no more sneaking in the development of a mall at the bottom of an apartment block to maximise the potential return for investors, sadly.
What Does KL’s Plot Ratio Cap Mean?
In the simplest possible terms, KL’s new plot ratio cap means that developers will be more limited on the gross floor space they can develop as part of any particular development.
As you might guess, this has caused some significant concern in the property market. People want to build more stuff, so they can sell it to more people, and thus rake in more profit. That’s just basic economics!
With less units permitted to be built on a plot of land, the affordability and profitability of some developments may come into question.
If you’ve paid a premium for a set area to build upon, it’s a bit of a blow when the amount of development you can build, is suddenly reduced.
A number of high-level developments in Kuala Lumpur are already reporting that they might be impacted by the plot ratio cap:
UEM Sunrise Bhd – Angkasaraya land development
Magna Prime Bhd – Lei Meng School redevelopment
Tradewinds – Tradewinds Square, Jalan Ampang
SP Setia Bhd – Federal Hill development
These represent just FOUR of what are certain to be many more developers raising concerns about existing projects. So what does that mean for them?
What Does This Mean For Existing Developments In KL?
It’s a tricky question for existing developments in KL! Projects which received approval in principle under the previous plot ratio caps, will now have to seek renewed approval with Kuala Lumpur City Hall (DBKL).
That means either resubmitting plans over the agreed plot ratio and running the risk of them failing to be approved, OR amending the plans to fit the new rules.
The plot ratio cap is not a hard line, but it remains uncertain how likely a development is to receive planning permission if it breaches this limit. When it comes to big value investments, uncertainty is not a developer’s friend.
Developers will now need to resubmit adjusted plans through a full report, detailing any impacts of the amendment to their development plans.
If all that is approved, DBKL will then present the amendment to public consultation, before any final approval is given.
Property developments which have already been given a development order will not be impacted by this change.
That means if a development order has been approved, the project can go ahead as originally agreed. That’s a whole lot of administration and investor madness avoided at least!
What Is The Benefit Of A Plot Ratio Cap?
One of the big catalysts behind the plot ratio cap is the drive to reduce saturation of unsold property stock in KL. According to some property experts, KL had over 5,000 unsold residential units alone in 2018!
That number becomes even more impressive for office space, with over 136 million sq ft of purpose-built office space in the Klang Valley in 2018!
With the plot ratio cap predicted to impact high-end residential and commercial properties (precisely the area of the market suffering from an overhang), it's expected to help address this challenging situation.
Of course, another benefit is that with downtown KL offering a less lucrative proposition for developers, some exciting new fringe areas of Klang Valley and Greater Kuala Lumpur are likely to see some interesting new developments!
Here’s hoping those new developments mean some exciting new opportunities for residents and investors throughout the area.