Well, technically that’s possible since we can build high up, I mean very high up. Anyway, to know if we could or could not, we need to understand the plot ratio. So, what is a plot ratio? Well, very briefly, this is what is defined as plot ratio by the Town and Country Planning Act 1976. “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.”
In case you are not even more blur… Briefly, this is just as follows:
Your land size is 1 acre. That’s 44,000 sq ft. Your approved plot ratio by the council is 5. Without taking into account any of the boundary lines, we just use the full 44,000 sq ft and that is 44,000 sq ft (land size) x 5 (approved plot ratio) = 220,000 sq ft.
Build 1,000 units? Yes, we could.
So, just now we were asking if this 1 acre land could be used to build 1,000 units? Well, this is the calculation. 220,000 (approved) divided by 1,000 units = 220 sq ft. So, it meant that if we intend to build 1,000 units, then the size of the units would be on average around 200 sq ft. Yeah, probably small sized SOHO units versus a unit which is suitable for a family.
Build 1,000 sq ft units? Yes, we could.
How about if we intend to build a 1,000 sq ft condo instead of the 220 sq ft SOHO? We could. 220,000 sq ft (approved) divided by 1,000 sq ft = 220 units. So, we could actually build 1,000 sq ft units but the number of units would now only be 220 and not 1,000 units anymore. Now, imagine if the approved plot ratio was 1:10!
Calculation as follows: 44,000 x 10 = 440,000 sq ft. Even if we are to build 1,000 sq ft condos, we could still build up to 440 units! WOW. So, are there lands were the plot ratio is 1:10? Well, there are those which are even higher than 1:10. However, based on the Kuala Lumpur City Plan 2020, the plot ratio is set to a maximum of 1:10.
What happens when the ratio is set too high?
Of course, we would be faced with heavy congestion. Imagine one development within a one acre land and there are 1,000 cars driving out every morning?! What’s so good about such a high ratio then? Of course, it would be the property price. The more units are built, the lower the cost per unit would be. This is because the cost is dependent on the price of land. If we build more units on the same piece of land, the developers could price it lower and still get the same profits.
Why not set the plot ratios as low as possible then?
Ahem… if gross development value (GDV) is RM200 million for that one piece of land, then building 100 units meant that each unit would cost RM2,000,000. I am not sure how many people could afford to buy. If however, 400 units were built, then the price per unit comes down to a more manageable RM500,000. Calculation is RM200 million (GDV) divided by 100 units = super high. Or RM200 million (GDV) divided by 400 units which is now RM500,000 per unit.
Do developers prefer higher or lower number of units then?
If you are a seller and you could sell 100 items and earn RM1 million of profit or you could sell 400 units to earn the same RM1 million, would you prefer to sell 100 units (faster) or sell 400 units (slower, more issues, more potential delays etc…)? The choice is clear, the lower the better but the developer cannot also sell too few units because the price would become too expensive and it becomes unaffordable…
Hope this gives a brief idea to everyone on plot ratio and why it’s not as simple as just deciding. It has to depend on demand, has to depend on need, depend on the area and well also depend on the market. Some times, during a hot market period, maximising number of units and maximising the selling price could happen at the same time. In slow markets, well… It’s the current situation loh. Happy deciding.
Love to be updated of investment news? Sign up for KopiWeekly. (once per week for property, finance, investment news and more)
Next suggested article: Here’s one project 6 metres away from the LRT station