Back in April we posted about the Malaysia Property Time Train. In this article we mentioned the possibilities of an economic stalemate, affected by outside forces more or less. Crude oil prices, interest rate hikes and other factors could well influence the market as it was.
Well, fast forward a little bit over two months later and the Malaysian property market looks unaffected. Hailed as one of the strongest markets in the world right now, Malaysia is still attracting an influx of developers and investors looking for the property mekka.
With an expected appreciation of around 15% over the next two years, current buyers seem to be in the right position for future growth.
Therefore we thought it a great idea to showcase a property buyers guide to Malaysia, helping you to understand what needs to be considered when buying into Malaysian real estate.
If you browse through any of the thousands of real estate listing in Malaysia you will soon see that many of them offer still tremendous value. Buyers will find a good range of properties including apartments, terraced houses, condominiums and bungalows.
However, some areas (Malay reserved land) are restricted to buyers and sellers from Malaysia only. Those include the Bumiputera people which are Malays and other indigenous ethnic groups.
Foreign purchasers are subject to the approval of the Foreign Investment Committee (FIC) of the Economic Planning Unit of the Prime Minister’s Department. Those approvals are based on the FIC “Guidelines on the Acquisition of Properties in Malaysia by Foreign Interests”.
Two title categories
In Malaysia there are two title categories determining how ownership takes place. These two categories are:
- Freehold: gives the owner perpetual ownership.
- Leasehold: allows the owner to take possession for a specified period. At the end of the specified period, ownership reverts back to the authority which issued the title in the first place.
Usually, a house is issued a title for the piece of land on which the house is erected. Apartments are issued a strata title for the specific area on the specific floor of the building in which the apartment or condominium is located.
If buyers want to determine whether a title is encumbered, they can issue a search, done at the relevant land offices or registries. If a title has not been issued, a search can be done on the master title on which the whole or part of the housing project is erected.
If purchases are made directly from developers, then the Schedule G has to be used for purchases of houses and the Schedule H for purchases of apartments. Both these schedules are based on the Housing Developers Control and Licensing Act 1996.
Payment of the purchase price on the said Schedules G and H is made by progression, based on completion of work as certified by the architects. Payment of the last 5% of the purchase price will be held by a firm of solicitors as stakeholders for the defect liability period, which is currently 18 months from the delivery of vacant possession.
If purchases are made from existing house owners, there are no fixed rules on the form of agreement. This is called a sub sale.
In common practice 10% of the purchase price is usually paid top the seller upon signing of the sale and purchase agreement. The purchaser is also given 3 months to pay the balance of the purchase price with an extension of 1 month if he fails to do so within the first 3 months’ period.
Interest at the rate of 10% per annual are calculated on a daily basis and normally charged for the extension period. Payment of the balance of purchase price is usually made to the solicitors acting for the seller as stakeholders to ensure redemption of the house (if the same is still charged or assigned to a bank or financial institution at the time of sale) and payment of real property gains tax by the seller.
Further to the sale and purchase agreement, a memorandum of transfer (form 14A of the National Land Code 1965), must be completed to transfer the title from the seller to the buyer. In instances where the title has not been issued, then if the purchase is from a developer, the developer will undertake in the sale and purchase agreement to transfer the title when the same is issued. On the other hand, if the purchase is made through a sub sale, the transfer will be through an assignment of the sale and purchase agreement between the developer and the seller (Principal SPA) to enable the buyer to take benefit of the developer’s undertaking to transfer the title contained in Principal SPA.
Financing the investment
Mortgages can be approved by banks and financial institutions. Loans up to 60% of the purchase price are normally approved to foreigners on the proviso that the property value is RM 250,000 and above. Loans are available to a period of 20 years.
Other than financing from a bank or financial institution, the Employees Provident Fund (EPF) currently provides two schemes of withdrawal for its depositors prior to attaining the age of 50:
- for the purpose of buying or building a house or a shop house (consisting of a residential unit), depositors can withdraw the difference between the purchase price and the loan obtained, plus 10% of the purchase price. Or else 30% of the total amount deposited in the EPF whichever is lower.
- for the purpose of reducing or setting housing loans, depositors can withdraw 30% of the total amount deposited in the EPF. Or else the amount of the housing loan remaining outstanding, whichever is lower.
Stamp duty costs
Stamp duty is levied on the document of transfer (i.e. the memorandum of transfer if the title has been issued, or the deed of assignment of Principal SPA if the title has not been issued) based on the purchase price as follows:
a. 1% on the first RM100,000.00
b. 2% on the next RM400,000.00
c. 3% on the nest RM1,500,000.00 and
d. 4% on the remainder
(item 32 [a] of the Stamp Act 1949)
Legal fees extras
According to the first Schedule of the Solicitors Remuneration Order 1991, the fees are set out to be collected by lawyers for work done in handling the sale or purchase of house based on the purchase price as follows:
- 1% on the first RM100,000.00
- 0.5% on the next RM4,900,000.00
- 0.25% on the remainder
An important aspect to note is that solicitors can only collect fees based on the above scale from either the seller or the purchaser and not from both of them for each sale.