AP/DEC 2018/BSR609

PART A

QUESTION 1 – LECTURER NOTE 1 (CONSIDERATION)

a) Section 26 of the contract act 1950 provides that a contract without consideration is
void. explain the general rules and the exceptions in the context of construction
contract (12 marks)

Provision: Section 26(a) of the Contracts Acts: an agreement made without consideration
is void unless it is expressed in writing and registered under the law (if any) for the time
being in force for the registration of such documents and is made on account of natural
love and affection between parties’ standings in a near relation to each other

General Rules on Consideration in Construction Contracts

• Mutual Obligation – Both parties must provide something of value (e.g., a contractor
provides construction services, while the client provides payment).
• Past Consideration is Not Valid – Consideration must be given at the time of contract
formation or in the future, not for past actions.
• Adequacy of Consideration is Irrelevant – The law only requires that some value is
given, but it does not assess whether the exchange is fair.
• Promise to Perform an Existing Duty is Not Consideration – A contractor who is
already legally bound to complete a project cannot demand additional payment for
the same obligations unless there are new terms agreed upon.

Exceptions to the Rule in Construction Contracts

• Natural Love and Affection (Section 26(a))
o A contract made from natural love and affection between close relatives and
executed in writing is valid.
o Example: A property owner may promise, in writing, to gift a portion of land for
a family member to build a house without requiring payment.
• Compensation for Past Voluntary Services (Section 26(b))
o If a person voluntarily performs work and the recipient later promises to pay, the
contract is valid.
o Example: A subcontractor repairs a structural defect without prior agreement,
and the main contractor later agrees to compensate for the work.
• Promise to Pay a Time-Barred Debt (Section 26(c))
o If a party agrees in writing to pay a debt that is no longer legally recoverable due
to time limitations, the contract is valid.
o Example: A contractor owes a supplier payment for materials, but the claim is
legally time-barred. If the contractor agrees in writing to settle it, the contract is
enforceable.
 AP/DEC 2018/BSR609

PART A

QUESTION 1 LECTURER NOTE 2 (TENDER/ CONTRACT DOCUMENT) PAGE 82

b) Elaborate the tendering process in the construction project (13 marks)

Tendering process will involve pre-tender stage (1), tender advertisement stage (2), closing of
tender (3), tender opening process (4), tender evaluation process (5) and finally tender award (6).

1. Pre-Tender Stage
• At pre-tender stage, when the clients have an idea, client will appoint consultant to
discuss further about the project. Consultant will do their job, advising, managing the
tender and contract, and transfer the idea into the drawing.
• At this stage client and consultants will brainstorming about the scope, time to complete
and budget that client willing to allocate.

2. Tender Advertisement
• Also called tender notice. The tender notice will advertise in local newspaper, government
of private sector website or any portal platform.
• basic requirement should be appearing are, title project, class of contractor, location, site
visit date, submission date, purchasing tender date and submission time of tender.

3. Closing of Tender
• If the contractors fail to submit their bids within specific time and date, it considers the
contractors refuse to bid for the tender.
• Tender validity period is started, and contractors can withdraw back their bids if they are
no more interested to fight for the tender.
• Consultants use this period to make assessment and evaluation each of the offers.

4. Tender Opening & Evaluation Process

• Quantity surveyors usually will handle tender opening process. To preserve the integrity
of the competitive process, it is imperative that the evaluation of proposals is undertaken
objectively, consistently and without bias towards suppliers.
• Tenders are evaluated based on pre-determined criteria, with assessments conducted
promptly after opening. The Quantity Surveyor prepares a report with findings, supported
by tables and graphs, and recommends the most suitable tenderer for the project.

5. Tender Award
• The evaluation team assesses each tender to determine the best value for money. After
awarding the contract, all tenderers are notified. The tender administrator then issues a
formal results notification to all participants.
 AP/DEC 2018/BSR609

PART A

QUESTION 2

a) With assumption, explain the Investment Method of Valuation (7 marks)

Investment Method of Valuation calculates the value of income-generating properties by

capitalizing their expected future income. Usually, this method is used on commercial
buildings, apartments, and offices.
Example: Assuming commercial office building is being valued:

1. Rental Income Assumption

- The property generates a stable annual rental income (example 500,000/ year)
- The income may increase over time due to market demand and inflation.
2. Operation Expenses Assumption
- There are expenses such as maintenance, management fees, and property taxes.
- Assume these total RM 50,000 per year, resulting in a net income of RM 450,000.
3. Capitalization Rate Assumption
- A capitalization rate (yield or return expected by investors) is applied.
- Assume a market-based capitalization rate of 5% (0.05).
4. Valuation Calculation
- The capital value of the property is calculated using:

-This means the property is valued at RM 9 million based on its income potential.
5. Risk and Time Assumption
- Future income projections are based on stable tenancy and economic conditions.
- If vacancy rates increase or rental demand declines, the valuation may decrease.
 AP/DEC 2018/BSR609

PART A

QUESTION 2 – LECTURER NOTE E2 (LEASEHOLD) PAGE 39

b) Explain two (2) main factors that could influence the market value of leasehold property.
(8 marks)

In Malaysia, leasehold property ownership is granted for a specific period, usually 30, 60,
99, or in rare cases, 999 years. Once the lease expires, the ownership reverts to the State
Authority, unless the lease is renewed. The two main factors influencing leasehold
property values are:
1. Lease Expiry and Reversion to the State
• Leasehold land automatically reverts to the State upon expiry unless the owner
successfully applies for renewal.
• Properties with a long remaining lease (e.g., 99 years left) retain higher value since
buyers and banks see them as stable investments.
• Properties with short remaining leases (below 30 years) have lower market value
because, banks are less willing to offer financing, or buyers may avoid purchasing
due to uncertainty about renewal.
• In Malaysia, leasehold properties are categorized under Pajakan Negeri (State
Leasehold) or Pajakan Mukim (District Leasehold), where the renewal process and
costs depend on state policies.
• Example: A 99-year leasehold apartment in Kuala Lumpur may sell at a price close
to a freehold unit, but if only 20 years remain, the value drops due to financing
difficulties and lease renewal uncertainties.

2. Lease Conditions and Land Use Restrictions

• Leasehold lands in Malaysia are subject to specific restrictions imposed by the State
regarding land use, development, and activities.
• Lease conditions may limit property usage, affecting demand and investment
potential.
• Land cultivation, industrial use, or redevelopment may be restricted by
environmental laws or town planning regulations.
• If the lease does not allow certain modifications or commercial activities, the
property may be less attractive to buyers.
• Any change in land use requires State approval and often involves additional
payments, making it costlier for owners.
• Example: If a leasehold land is designated only for agricultural purposes, but an
investor wants to build commercial shops, they will have to apply for a land use
conversion and pay a premium fee. This can reduce the land’s desirability compared
to a freehold property with fewer restrictions.
 AP/DEC 2018/BSR609

PART A

QUESTION 2 LECTURER NOTE E2 (FREEHOLD & LEASEHOLD) PAGE 35-41

c) Elaborate five differences between freehold and leasehold properties (10 marks)

NO FREEHOLD PROPERTY LEASEHOLD PROPERTY

Limited to a fixed term

(e.g., 30, 60, 99, or 999
Ownership
1 Perpetually owned. years). Reverts to the State
Duration
upon expiry.

More restrictions on
Transfer & Fewer restrictions in transfer and land use due
2
Restrictions transferring ownership. to lease conditions.

Owner has the right to

Owner has the right to
subdivide and allocate
Subdivision & subdivide and allocate land,
3 land, subject to town
Development subject to town planning
planning controls.
controls.
The land automatically
The State cannot claim the
reverts to the State upon
Government land if no development takes
4 lease expiry unless
Acquisition place, except under the Land
renewed.
Acquisition Act 1976.
Renewal fees must be paid
to extend the lease before
o renewal fees: only quit rent
Cost & expiry, and the process is
5 and assessment payments
Renewability subject to approval by the
required.
State authority.
 AP/DEC 2018/BSR609

PART B

QUESTION 1 LECTURER NOTE C6 (DISPUTE RESOLUTION)

a) Interpret the selection of dispute resolution methods available for construction project.
(12 marks)

Disputes in construction projects are common due to contractual disagreements, delays, payment
issues, and variations in project scope. Resolving disputes efficiently is crucial to prevent project
delays and additional costs. There are two main methods of dispute resolution: litigation (court
process) and alternative dispute resolution (ADR).

1. The litigation (court)

• It is the process of resolving a legal dispute in court. It is the final tier of dispute resolution.
• Litigation begins with the plaintiff issuing a writ on the defendant (by lodging a written
claim in the appropriate court).
• Unless the matter is settled, the case proceeds through trial procedures which involve
oral argument, discovery, examination of witnesses, after which judgment is given by the
court.
• The use of the courts for settling disputes is expensive, uncertain and time-consuming. It
is also very public (lack of confidentiality).
• Relevant factors unfavouring litigation include, there are substantial legal issues, the
proceedings are multi-party, The proceedings are likely to be difficult to control, there are
allegations of dishonesty and One-party refuses to acknowledge that a compromise may
be necessary and wants a court ruling totally in its favour.

2. The alternative dispute resolution (ADR)

• ADR provides a faster and cost-effective way to resolve disputes without going to court,
cost-effective, faster process and more flexible allows creative solutions. It involves a
neutral third party and is classified into informal and formal methods:
• Informal ADR
o Negotiation – A direct discussion between parties to reach a mutual agreement.
o Mediation – A neutral third party facilitates the discussion to help parties reach a
non-binding settlement.
o Example: In Malaysia, mediation is required before arbitration in Construction
Industry Development Board (CIDB) cases.
• Formal ADR
o Arbitration – A binding process where an independent arbitrator decides based on
evidence.
o Adjudication – A faster method used in construction disputes, especially for payment
issues.
o Example: Under the Construction Industry Payment and Adjudication Act 2012
(CIPAA) in Malaysia, adjudication is required before court litigation.
 AP/DEC 2018/BSR609

PART B

QUESTION 1 LECTURER NOTE C3 (FORM OF CONTRACT)

b) Show the differences between three (3) construction contracts available in the
Malaysian construction sector. (13 marks)

1. PUBLIC WORKS DEPARTMENT (PWD STANDARD FORM) – GOVERNMENT SECTOR

• The PWD Standard Form is primarily used for government-related construction projects.
It is a highly detailed and formal contract that ensures compliance with government
procurement policies.
• Typically used for public sector projects such as government buildings, schools, hospitals,
and other infrastructure.
• Type of contract generally follows a lump sum or re-measurement contract approach
• Designed to ensure transparency, accountability, and fairness in government projects.
Emphasis on strict quality control and time schedules.
• The contract is usually publicly tendered through the government procurement system.
• Dispute Resolution: The PWD form typically includes a dispute resolution clause involving
arbitration or other legal processes.
• The advantages are clear guidelines for both contractor and client also comply with
government regulations, budget control, and quality standards.
• The disadvantages can be rigid and bureaucratic also, less flexibility for contractors in
negotiating terms.

2. CIDB FORMS – CONSTRUCTION INDUSTRY DEVELOPMENT BOARD

• The CIDB Forms are used for various construction projects in Malaysia, and they are
developed by the CIDB. These contracts are designed to address the needs of both public
and private sector projects.
• Suitable for both public and private sector projects, ranging from residential buildings to
infrastructure and commercial developments.
• Can include lump sum, cost-plus, or design and build contracts. The forms cater to a wide
range of construction scenarios.
• Developed to ensure better governance and quality control in the industry.
• The CIDB forms are flexible and designed to meet the needs of various stakeholders,
including contractors, subcontractors, and suppliers.
• Safety and Health compliance is emphasized in the contracts, ensuring construction
projects meet necessary regulations.
• CIDB-certified contractors are usually required.
• The advantages are clear risk allocation between parties, ensuring fairness and flexible
enough for different types of construction work.
• The disadvantages the terms and conditions may still be complex and time-consuming to
negotiate.
 AP/DEC 2018/BSR609

3. PAM FORM – PRIVATE SECTOR

• The PAM Form (Pertubuhan Arkitek Malaysia) is specifically designed for private sector
construction projects. It is commonly used in residential, commercial, and mixed-use
developments in Malaysia.
• Primarily used for private-sector projects, such as residential buildings, office blocks, and
commercial establishments.
• Usually, a lump sum contract or design and build contract.
• More client-driven, with flexible terms that allow for customization based on the client’s
needs and objectives.
• The contract typically includes provisions for design, allowing the contractor to take part
in the creative and technical aspects of the project.
• Dispute Resolution is often through mediation, arbitration, or litigation, depending on the
parties' preferences.
• The PAM contract tends to emphasize progress payments based on the stages of the
construction.
• Designed with the architectural profession in mind, as it integrates closely with architects
and designers.
• The advantages are more flexibility compared to government contracts, allowing for a
more tailored approach.
• The disadvantages are not as standardized as PWD or CIDB forms, which might lead to
ambiguity in some cases.
 AP/DEC 2018/BSR609

PART B

QUESTION 3 LECTURER NOTE E2 (VALUATION) PAGE 34

a) Identify five (5) factors that can affect the value of residential properties. (10 marks)

1. LOCATION
• The location of a property is one of the most crucial factors affecting its value.
• Proximity to amenities such as schools, healthcare, shopping centers, and
transportation hubs can significantly increase the property's desirability and,
consequently, its market value.

2. SUPPLY & DEMAND FACTORS

• The balance between the availability of properties (supply) and the number of
buyers or renters (demand) directly influences property values.
• A high demand with limited supply often drives up prices, whereas oversupply in
the market can lead to price reductions.

3. BUILDING COSTS
• Fluctuations in the cost of building materials and labour can impact the value of
residential properties.
• If building costs increase, developers may raise prices to maintain profit margins,
leading to higher property values.

4. INFRASTRUCTURE AVAILABILITY
• The development of nearby infrastructure, such as roads, public transport, and
utilities, plays a key role in determining property value.
• Easy access to well-maintained infrastructure increases the property's
attractiveness, improving its value over time.

5. DEVELOPMENT POTENTIAL
• Properties with the potential for future development, expansion, or rezoning (e.g.,
from residential to mixed-use or commercial) tend to have higher value.
• Buyers are often willing to pay more for properties that present future growth
opportunities or improvements.
 AP/DEC 2018/BSR609

PART B

QUESTION 3 LECTURER NOTE E1 (PROPERTY MARKET & INVESTMENT) PAGE 6

b) Determine three (3) advantages of the property investment as compared to other types
of investment. (15 marks)

1. CAPITAL INCOME
• Residential properties tend to appreciate over time, which means their selling price may
increase as the years go by.
• Capital income arises when the investor sells the property for more than the purchase
price, thus earning a profit.
• Unlike other investments like stocks or bonds, where the market can experience volatility,
real estate typically has a more gradual, long-term appreciation, especially in high-
demand areas.
• For instance, purchasing property in an up-and-coming neighbourhood or in a city with
strong economic growth can result in significant appreciation, leading to a large capital
gain when sold.

2. RENTAL INCOME
• The main reasons for investing in property is the potential for rental income, which
provides consistent cash flow.
• Rental income can be used to cover mortgage payments, property taxes, and other
expenses, with any remaining amount becoming profit.
• Rental income can be more stable than dividends from stocks or interest from bonds, if
the property is well-maintained and located in an area with high rental demand.
• Example a property investor renting out an apartment in a metropolitan area may earn a
monthly rental income that covers the mortgage while still generating surplus income.
Rental income can provide a consistent, reliable source of cash flow that other
investments may not always guarantee.

3. SECURED INVESTMENT
• Real estate is a physical asset, which means its value is backed by tangible property.
• It a more secure investment compared to intangible investments like stocks, which can
lose value rapidly in economic downturns.
• While property values can fluctuate, real estate generally doesn’t experience the same
level of volatility as other asset classes. In the worst-case scenario, even if property values
decrease, the investor still owns the land or building, which can provide value in the long
term through development or sale.
• Property investments are often leveraged with mortgage loans, meaning that the investor
can control a high-value asset with relatively low capital upfront.
• Example, if the housing market dips, a property investor may not lose the entire value of
their investment. If the property is maintained and the investor does not sell during a low
market cycle, the investment can rebound as the market recovers.