INSTITUT PENILAIAN NEGARACERTIFICATE IN ESTATE AGENCY (CEA)

FIRST SEMESTER 2011/2012

LAND ECONOMICS

ASSIGNMENT

QUESTION:

CERTIFICATE IN ESTATE AGENCYCOURSEWORK IN LAND ECONOMICS

Elaborate the factors influencing the land use and land rent in a major City/large town Kuala Lumpur city and differentiate the land use and rental pattern with the traditional Land Use and Land Rent Theories.

REQUIREMENTS

a. This assignment shall be undertaken in groups.

b. Provide a literature review on the background and theory of change involved and the field of facilities management.

c. Provide a case study of the city/town where your discussion will be based.

d. Source of references from your literature review should be shown clearly in your report (in the main body of report and at the end of the report as a list of references). Students should attempt to review as many literatures as possible. High marks will be given to efforts given in the review.

e. The aim and objectives of your report should be highlighted at the beginning of your report. Subheadings for each topic should also be stated clearly.

f. Primary data from the case study and interviews etc. shall also constitute the basis of the discussion.

g. Credit will be given to analytical discussion rather than mere presentation of facts.

h. Details of the case study should be stated clearly.

i. The coursework (hard and soft copies) should be submitted in Week 10.

Best wishes.

Prof. Sr. Dr. Hj. Abdul Hadi Hj. Nawawi2 Dec 2011

Introduction

This report indicates Kajang town as its case study. This report shows land use and

land rent pattern of Kajang.

Literature review

Urbanisation and economic growth are strongly integrated. In urban growth processes,

urbanisation is strongly influenced by economic growth and also the economy inequality

within the area. Urban growth triggers the dynamics in the urban system which consists

of a complex subsystem including multiple actors with different patterns of behavior at

various scales (Che’man, 2010). Besides, being it a locality, country, region, continent

and the world as a whole, nature has endowed these areas with natural endowments or

resources. Land is one of these endowments on, in or within are found valuable and

precious diverse creatures such as vegetation of all kinds, different types of soils,

minerals, rivers, lakes, animals and humans.

Since no condition is permanent, to naturally conform to the law of nature or to be in the

state of perpetual equilibrium, these creatures undergo constant evolution unless

otherwise. Besides the occasional natural disasters that sometimes afflict and disturb

their state of equilibrium, the wittingly or unwittingly activities of man, the custodian of

land has had a profound desirable of undesirable impact on this resource. One of the

positive aspects of these activities is that humans are able to use the land resources for

their basic necessities such as food, clothing and shelter while a major negative aspect

is land degradation with its rippling effects (Anuar, 2004).

Today, there is major concern upon the land use in Malaysia. This is because Malaysia

is fast pace in turning our forest into commercializes landed area. Another concern is

agricultural land being actively converted to settlement and industrial estates. These

changes in land use can lead towards inputs in greenhouse emission which contributes

in global budget for sources and sink carbon. A part of that, wrongly planed of land can

brought towards environmental degradation which later create erosion and

sedimentation. According to Foster (1990), the process of development and

urbanization worldwide has shifted from rural to urban areas, and urban population

growth has been uninterrupted and accelerating throughout the 20th century. By the

year 2000, it is predicted that more than 50% (3200 million) of the world's population will

have become urban dwellers, compared with less than 15% (only 200 million) at the

turn of the century.

The increase of urban population has led to further conversion of forest area (or

increase rate of deforestation) to build house, car park, shopping centre, and roads.

Arnell (2002) stated that the removal of forest cover from a watershed can result in

significant hydrologic changes, including:

1. Decreased interception of rainfall by the tree canopy (net precipitation) where tree

canopy can commonly intercept 10 to 20% of incoming precipitation,

2. Decreased evaporation,

3. Decreased rainfall interception by surface litter and

4. Increased runoff volumes (if 20 to 100% of the timber was removed corresponding to

5 to 30% increase of runoff yield).

This is where land use concept is being introduced. Land use can be defined as a form

or way on how the land is to be used. Therefore, land use can be stated as the land

function or activities that were carried out on a piece of land. These activities can be

classified into certain categories such as trade, commercial, industrial and residential

(Ibrahim and Nawawi, 2011). Planning is also important to avoid conflict in land-use. As

all of us aware, in Malaysia the land resources is countless and and all efforts

individually or collectively are in place for the optimum utilization of these resources

sustainably vis a vis the unprecedented economic growth and development the country

is and continues to experience (Anuar, 2004).

Large scale farming, industrialization and urbanization that are characterized by

economic improvement has prompted Malaysia to be stricter on the existing and

relevant land resource management legislations and policies while reforming and

consolidating some of to them to meet the present and future challenges of the country

(Anuar,2004). This is where land-use planning comes in. It is the process of organising,

managing, and regulating the use of lands and their resources to meet the socio-

economic development of the country whilst safeguarding the environment. Land-use

planning is used to meet people’s needs in the most efficient and sustainable way while

taking into account the land’s natural capacities. 

In Malaysia, Malaysia’s town and country planning is regulated by the Town and

Country Planning Act, 1976 (Act 172). The Federal Town and Country Planning

Department under the Ministry of Housing and Local Government formulates and

administers policies pertaining to town and country planning nationally while the State

Department of Town and Country Planning serves as an advisory body of the State

Government. Local authorities execute town and country planning functions as directed

in local plans (Awang, 1997). As land is a State matter, thus any urban problems

associated with development such as transportation, flash flood, landslides and siltation,

lack of housing and facilities need to be tackled at the planning authority level. As a

reflection of the practice of sustainable development, and given the importance of

environmental protection, it is imperative that environmental concerns be incorporated

into development planning. Therefore it can be agreed that ‘the quest for sustainable

development means that local authorities have to maintain comfort, convenience,

efficiency, and preserve their built and natural environment’ (Saib, M., 2002).

Land-use planning is essential in physical environmental management and biodiversity

conservation. Impacts due to poor land use are regularly highlighted in the media: river

pollution, conflicts of land use such as the citing of housing projects adjacent to landfills.

As more competing uses for land and its resources arise, conflict often follows. Land-

use planning and management mechanisms that design and incorporates the needs of

various sectors are therefore vital to help reduce land-use conflicts, conserve critical

ecosystems, protect and manage environmentally sensitive habitats, restore degraded

conservation areas, and ultimately, ensure a healthy and safe life for Malaysians.

Planning and monitoring of the urban area are important as it involve the need to

understand and review current development scenarios to predict changes that will

occur, formulate policies and strategies, as well as control the urban development. The

identification of environmental sensitive area (ESA) should become a major concern to

verify the areas that need to be preserved and areas that can be developed while

monitoring of environmental aspect would help improve the urban quality. Hence, the

land use assessment and monitoring is required as the development needs to be

controlled. The assessment needs an exact image and related data of the development

area so that the evaluation of the development scenario can be made fairly (Yaakup,

2004).

Land use is determined by the rent-paying ability of different economic functions in

urban areas, such as retailing, industry and residence. The optimal location,

where accessibility is optimal, is the central business district. Every activities, including

rural, would like to be located there, but they do not have the same capacity to afford

this optimal location. According to Harvey (1996), by using classical economic theory,

one can illustrate the property market through the changes of demand and supply. The

property market acts as indicators, which sends signals to buyers and sellers through

price changes. At equilibrium level price, demand would be equal to supply. As market

is always changing, the increase in price would suggest increase in demand and market

will be at disequilibrium. Increase in supply through construction activities will pull price

down in the course of bringing market back to equilibrium. As construction takes

considerable time, there will be a lag in supply. Hence, the market is always changing

and the process of adjustment is a continuous process of readjusting demand and

supply. Ball et al., (1998) portrays the property market model as an interlinked market

of four main activities. These are the development, investment, use and the land

markets.

A part of this, the user market is measured by rents paid by occupiers for business or

dwellings. As markets move from equilibrium it will cause rents to rise or fall. There are

a number of reasons that could cause a shift in the market equilibrium such as

population increase, economic growth or economic recession (Kamarudin et.al., 2004).

The user market is measured by rents paid by occupiers for business or dwellings. As

markets move from equilibrium it will cause rents to rise or fall. There are a number of

reasons that could cause a shift in the market equilibrium such as population increase,

economic growth or economic recession. Tse. and Love (2000) examined the inherent

attributes of residential property values that are valued by consumers. These attributes

are characterised into structural, physical, neighbourhood and environmental, in which

they construct a model using transaction-based data to evaluate residential property

values. Analysis showed that the view of negative housing attributes are capitalised

into house prices.

The finance market analyses the role of property as an investment assets.

Performances of properties are distinguished through the analysis of yields or returns

on property. The capitalisation rates are analysed through prices and rental

movements. The two main ways in which capitalisation factors are determined are

through the valuation rules and economic evaluation (Ball et al., 1998). The valuation

rules rely on the professional valuation to determine the property market. In the

economic evaluation, the annual rental flow is capitalised into net present value taking

into account depreciation and rental growth (Kamarudin et.al., 2004).

Theories of Land Use and Land Rent

There are several theories in determining the land use and land rent. The first and

foremost according to Skole et. al. (2000) is The Von Thunen Theory. This is the most

famous theory spatial equilibrium. It first was published in 1826. which describes the

equilibrium pattern of land rents surrounding a market town. The model also predicts the

area devoted to particular land uses. In the context of land cover change, the von

Thunen model predicts the equilibrium ratio of forest to total area (more accurately, the

ratio of cultivated to total land, forest land being a residual). Von Thunen main theory

shows that the difference of land use with increasing distance of the market. The basis

of the Von Thunen model is the notion that land will be devoted to its highest-valued

use. The model assumes that land at distance will be devoted to be used for which net

profits (rents) are the highest. It only applicable if one assumes that the cost of

transporting goods to market increases with distance. The Von Thunen model also

predicts that heavier crops (crops that weigh more per hectare) will be grown closer to

markets than lighter ones. The net profit per acre should, moreover, decline as distance

from market increases.

Then, Alonso made some extended explanation from the Von Thunen’s Theory and

develop Bid Rent Concept. Below shows the economic theory of bid rent in general.

By overlapping the bid rent curves of all the urban economic activities a concentric land

use pattern is created with retailing in the CBD, industry/commercial on the next ring,

apartments farther on and then single houses. This representation considers

an isotropic space. In the real world a set of physiographic, historical and social

attributes will influence bid rent curves.

When a city grows, more remote locations are being used, making the rent of most

accessible places increase, inducing higher densities and productivity. This generally

occurs by "expulsing" some activities outside and by attracting more productive

activities. Density and rent are closely related.

Land Rent Theory and Rent Curve

Three concepts are at the core of the land rent theory:

Rent is surplus profit resulting from some advantage such as capitalization and

accessibility. The rent is the highest for retail because this activity is closely

related to accessibility.

Rent gradient. A representation of the decline in rent with distance from a center.

This gradient is related to the marginal cost of distance for each activity, which is

how distance influences its bidding rent. The friction of distance has an important

impact on the rent gradient because with no friction all locations would be perfect

locations. Retailing is the activity having the highest marginal cost, while single

family housing have the lowest marginal cost.

Bid rent curve function. A set of combinations of land prices and distances

among which the individual (or firm) is indifferent. It describes prices that the

household (firm) would be willing to pay at varying locations in order to achieve a

given level of satisfaction (utility/ profits). The activity having the highest bid rent

at one point is theoretically the activity that will occupy this location.

The above figure illustrates the basic principles of the land rent theory. It assumes a

center which represents a desirable location with a high level of accessibility. The

closest area, within a radius of 1 km, has about 3.14 square kilometers of surface

(S=πD2). Under such circumstances, the rent is a function of the availability of land,

which can be expressed in a simple fashion as 1/S. As we move away from the center

the rent drops substantially since the amount of available land increases exponentially.

Above is the modification to the land rent theory. In this modification theory indicates as

follow :

The downtown area is not necessarily to most accessible location. The rapid

extension of metropolitan areas involves new locations far from the CBD, notably

in suburbia (E). This has favored the emergence of sub-centers (D) having a

concentration of retailing, commercial, distribution and industrial activities, mainly

aimed at servicing a growing population.

Improvements in transportation and telecommunications have made several

activities far more tolerant to distance, but still dependent on accessibility. The

urban land use pattern thus tends to be far less coherent, more specialized and

dispersed.

A significant share of the land, notably nearby central areas, is captured and not

available on the real estate markets. Governments, institutions, parks, industries

and transport infrastructures occupy a large part of most central areas and this

ownership can last for several decades (if not several centuries for historical

landmarks). This caused an imbalance in the price fixing mechanism in central

areas with less land available (thus higher prices) that has favored urban sprawl.

Apart of these two theories, there is also David Recardo Land Use Model or also known

as Rent Different Theory. According to Ricardo, the rate of soil fertility is different. Thus

it should be the main factor in determining land use and land rent. Ricardo also

assumed that the market price of agricultural goods is higher than the cost. Surplus over

production cost eventually will lead towards profits.

Case Study : Land Use Kajang Town

Above shown is Kajang Development Planning which representing the district land

uses. Kajang town lies within the longitude of 02°59'N and latitudes of 101°48'E. Kajang

is a mukim in Hulu Langat district. It is also include in Klang-Langat River Basin, which

known for its important role in the heart of Selangor. Klang-Langat River Basin or also

known as Klang Valley is the so called golden triangle of Selangor. Kajang is being

ruled by Majlis Daerah Kajang. The Klang-Langat River Basin is located in the central

region on the West Coast of Peninsular Malaysia. The basin covers six administrative

districts of the state of Selangor and the Federal Territory of Kuala Lumpur. This river

basin represents the most highly urbanised region of the country. The region is a mix of

agricultural, forest, settlement/urban/industrial, and water bodies. It has a total area of

13

about 4,300 sq.kms and a total population of about 3.14 million people (Skole et. al.,

2000). Kajang itself has population for 539,561.

Land use can be defined using different classification criteria such as residential,

commercial, industrial, agriculture, forest, water and transportation. Land use indicates

the socioeconomic function of a territory. In general, according to Skole et. al. (2000),

the dominant trend of land use in this area is for agricultural purposes. This pattern had

been studied since year 1985. This agricultural purpose occupied about 48% of the

area. While 38% is forest and only 9% is for residential purposes. Other land usages

such as grassland, bareland and water bodies only covered in a small percentage. This

trend is continuing in 1990. However, in the year 1994, agriculture and residential area

show significant increasing but forest area show significant decreasing in hectarage.

Study consult in 1994 shows that forest area had been decreased and only covered

28% of the study area. Skole et. al. (2000) suggest that two factors had influence such

pattern. They were socio-economic factor and government policy factor.

Rental Value (per month) According Type Of Land Use in Kajang

Commercial ComplexPlaza Metro – RM 118 – RM 167 p.s.mKompleks Metro Point – RM 38 – RM 86 p.s.m.

Office

Wisma Metro Kajang – RM 29.96 – RM 45.21 p.s.m.

Residential

Double story terraceTaman Taming Emas – RM 700 – RM 750Taman Impian Putra – RM 600 Saujana Impian – RM 600 – RM 700

Low Cost FlatTaman Bukit Kenangan – RM 300 – RM 350

Medium Cost FlatTaman Kajang Sentral – RM 430 – RM 500

14

Taman Damai Mewah – RM 500 – RM 600

Apartment Taman Sepakat Indah – RM 700 – RM 1300 Taman Kajang Utama – RM 450 – RM 500 Source : Property Market Report Jan-Jun 2011

Factors influencing the land use and land rent in Kajang Town

There are a few factors that influence the land use and land rent in Kajang town.

First is the specific land use are that had been set by local government. Nowadays

development usually carried out by cluster. The land had being segregate into

residential, commercial, office and for agriculture purposes. By clustering the land

purpose for development, it is easier to control the development itself. It is like a trend

here in Malaysia to develop area accordingly. A specific land will develop for residential

then another piece of land for agriculture and commercial purposes.

Second factor is skilled worker. This is due to lots of university and college in Kajang. It

is normal for people who studied in certain area to settle down in the place that they

familiar with. Near Kajang there are numerous higher education institutions. Some of

them are Universiti Kebangsaan Malaysia, Kuala Lumpur Infrastructure University

College, Universiti Tenaga National, and German Malaysian Institute.

The third factor is easy access. Kajang fortunately has easy access to Kuala Lumpur,

Shah Alam, Putrajaya and Seremban. There is lots of access of highways in Kajang.

They are  Kajang Dispersal Link Expressway as a ring road of Kajang, Cheras-Kajang

Expressway (CKE), North-South Expressway with Kajang exit and Kajang-Seremban

Expressway (LEKAS). These large towns offer lots of jobs due to their title as capital of

Malaysian state. A part of that, Kajang also provided with numerous bus and taxi stand.

Kajang also has station for Komuter. Thus, public transport is not an issue to travel in

Kajang.

15

Besides, Kajang also known as a business centre that have modern facilities. Kajang is

famous with its boutique and bridal shops. Man Kajang and Dzul de Classique were two

of the famous boutique in Malaysia. A part of that, Kajang also offer lots of shopping

complex. They were  Metro Plaza Kajang, Metro Point, Winnie Plaza and Kompleks

Kota Kajang. The latest shopping complex that offer high end element is Metro Avenue.

Even though Kajang is near to city centre, Kajang does offer lots of services. One of

them is hospitals. Besides government hospital (Hospital Kajang), Kajang does has lots

of private hospitals. Some of the hospitals are Kajang Medical Centre, KPJ Kajang

Specialist Hospital and Kajang Specialist Maternity and Surgery. Besides that, Kajang

has lots of schools to offer. Overall, Kajang offer 15 primary schools and 12 secondary

schools. Besides of numerous schools, Kajang also near to an international school

called Tanahrata International School that offer primary and secondary syllabus. Kajang

is also famous for its sat , a form of skewered barbecued meat. Informally, Kajang is

known as the "Satay Town", and is famous among tourists and locals alike. The most

famous place to eat satay is Haji Samuri as well as Restoran Malaysia.

Different Between Kajang Land Use and Land Rent Pattern with

Traditional Land Use and Land Rent Theories.

The major different between Kajang land use and rental pattern with traditional land use

and land rent theories is agriculture. All traditional theories such as Von Thunen’s

Theory, David Ricardo Land Use Model and William Alonso’s Theory do proposed by

agricultural need. Von Thunen’s Theory emphasised on the importance of transportation

cost and location of agricultural land uses. Whereas, Ricardo proposed that land need

to be value according to the soil fertility. In Kajang case, most of the land is being used

as commercial and developed area. Research has shown that percentage of agricultural

land is decreasing and industrial land is increasing. This is due to modernization of

Malaysia itself.

16

As Alonso suggested that the further the land the value becomes much lower is not

applicable in Kajang especially for residential area. This is because most of the high-

end residential project is slightly out of the city centre. This is maybe due to the pollution

matter. Area that slightly remote of city centre tend to has more fresh air and less

pollution.

In Kajang, besides high-end residential area, land use and rent is higher at the heart of

indudstrial place, easy access to roads and public transport and also near to amenities.

17

References

Anuar, A., R. (2004), Land Reform And Consolidation: A Comparison Between Malaysia And Some Selected European Countries, Seminar Pentadbir Tanah Semenanjung Malaysia, Institut Tanah dan Ukur Negara

Arnell N. (2002). Hydrology and global environment. Harlow, England: Prentice Hall.

Awang, A. (1997), Land Conversion, Subdivision, and Amalgamation, Universiti Teknologi Malaysia

Che’man, N. and Timmermans, H. (2010), Urban Land Use and Economic Growth Modelling, Eindhoven University of Technology

Foster S., S. (1990). Impacts of urbanization on groundwater, Proceedings of the Hydrology, Wallingford, United Kingdom

Harvey, J. (1996). Land Economics:The Economics of Real Property. Houndmills, Basingstoke, Hampshire and London, McMillan Publications

Ibrahim, S. and Nawawi, A., H. (2010), An Introduction to Land Economic, Universiti Teknologi Mara

Kamaruddin, et. al. (2004). Modelling Of The Property Market: The Malaysian Experience, Universiti Teknologi Malaysia

Mar Iman, A., H. (2008), Modelling Locational Factors Using Geographic Information System Generated Value Response Surface Techniques To Explain And Predict Residential Property Values, Universiti Teknologi Malaysia

Saib M. (2002). A Vision of Local Government in the 21st Century, Seminar on Urban Management: Good Urban Governance, Cyberjaya

Yaakup, A., et. al. (2004), Integrated Land Use Assessment (ILA) For Sustainable Metropolitan Development, Universiti Teknologi Malaysia

18