Valuation approaches and methodologies for stratum title in Malaysia

Abstract

Underground concept is considerably new, which was introduced in National Land Code (Amendment) 1990 (Act A752/1990) and has been gazetted on 22nd February 1990. Prior to the above amendment, the use of underground land by the owner did not have any restrictions in terms of usage or depth. The amendment enables the state authorities to issue stratum title for underground land. Stratum Title can be separated from land titles issued for surface land. The appraisal of real estate with regard to underground development with many utilities involves some unusual circumstances. Ordinary appraisal is concerned with a total bundle of rights referred to as fee simple interests and it is generally assumed that the use of real property rights are related to the surface of the land. However, there are several below-surface uses of land that require a real estate appraisal. The first objective of this research is to examine underground land use rights and legislation in Malaysia and underground development in other countries. The second objective is to analyse the valuation approaches and methodologies of Stratum Title in the Malaysian context. In achieving the first objective, qualitative analysis was employed to identify the differences of Stratum Title in Malaysia and other countries in terms of practices and legislation. Content analysis was carried out by using of Nvivo software. The primary data of expert interviews were analysed and used to establish the valuation approaches and methodologies for Stratum Title in Malaysia. There are several suggestions of valuation approaches for Stratum Title in the context of Malaysia such as the Shadow Approach, Residual Method, Cost Method and Comparison Method. Residual Method by extension of the Discounted Cash Flow Method and finally Comparison Method with a mixture of other principles are considered more appropriate approaches to value the Stratum Title in Malaysia.