The Urban Renewal Act (URA) has been delayed for further consultation in view of concerns about its impact on the property market and the rights of owners facing possible compulsory purchase of rundown residences.

While many of the concerns are raised by well-meaning experts and involve genuine issues that deserve attention, it is also important to maintain a clear understanding of the wider economic implications of the URA so that its benefits are not lost in the debate.

The opposition aside, the URA is an important and overdue reform for local planning and development.

It will streamline the regulations to redevelop and modernise old, dilapidated and derelict properties which have fallen into disrepair due to bad management. Many properties have deteriorated since they were built, many others have been abandoned either completely or unit by unit.

As the property declines, units became unsaleable, and owners have abandoned them or rented to agents who sub-let to foreign workers often in overcrowded and unsanitary conditions.

In many cases the property management has been taken over by third parties who then exploit their control at the expense of owners to turn the properties into foreign worker hostels or even tourist sub-lets. Since many owners have abandoned the units the property maintenance for lifts, utilities and upkeep falls on existing owners and renters who cannot afford the higher costs.

In other cases, maintenance costs are covered by the management agents who then mismanage the properties purely for financial returns. Some are taken over by squatters or for illegal activities which bring down the neighbourhood and harm other law-abiding residents, many of whom are elderly.

There also are claims that consortia and cartels among management agencies capture large parts of the property market and run the estates for their own interests at the expense of residents. Eventually the properties become derelict which harms the value of surrounding homes and lower living standards for surrounding communities.

This is a well-known classic example of an economic externality taught in all introductory economic courses. The costs of the dereliction of properties caused by irresponsible owners fall on innocent neighbours who pay the price through falling property value and lower living standards.

So there are real concerns about allowing the status quo to continue and reform is essential.

The URA is an important step to revitalise, regenerate and redevelop properties and the communities around them. It will increase the supply of housing especially affordable housing to buy and rent.

It will increase the value of abandoned units and the units around them for sale and rent. It will modernise infrastructure and utilities and it will improve the environment and the quality of life for people in the neighbourhoods affected.

It will also reduce the costs of rehousing people living in derelict housing and make savings at federal and state government levels by avoiding the need for bailouts of failed developments or regeneration of declining communities and local environment standards.

For the private sector it offers a potential gross development value in KL alone of an estimated RM332.5 billion so this is a huge investment opportunity.

Provided people are treated fairly and given the market price where the property is subject to compulsory purchase then this should be beneficial.

Often those opposing reform are not owners but management agents involved in mismanagement of units and properties they don’t actually own. They would lose this business under URA, so their opposition is often self-serving.

The bill itself will be sufficient to tackle the issue of urban renewal without requiring extra government spending or assistance and so it is important to pass it soon.

The views expressed are those of the writer and do not necessarily reflect those of FMT.