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Financing Guide

Financing Guide

Buying Properties in Malaysia

A Guide for Locals

Malaysian citizens above the age of twenty are allowed to buy and own properties. They can buy and own any types of properties except the following:

  • Malay reserve land and any structures that are built on it are reserved for Malay buyers only
  • Low and medium cost houses are only open to those who are eligible, generally lower income group
  • Properties that are allocated or gazetted as bumiputera units.

A property can be leasehold or freehold depending on the type of development. Freehold means you own the structure and the land forever while a leasehold development is developed on the piece of land that is leased, usually 99 years. At the end of the 99 years, the land may be returned to the owner or the lease may be extended. Additional payment to the land owner is required for the extension of the lease.

National Land Code 1965 provides same legal status to either individual title and strata title properties. In the simplest layman terms, strata titles are for multiple buyers sharing one plot of land like apartments, condominiums and gated community where the local council treats as though the land owned by one single owner even though there are many distinct buyers and owners of the properties. This is due to the fact that there are facilities shared by the owners of the properties on the land and it is a master title for the land. For individual titles, the land and the structures belong to the owner(s) indicated on the title deed. Example of properties with individual titles are houses, villas, land or bungalows that are owned by a single owner (or jointly own by a few individuals). There are, of course, many legal differences between strata-title and individual titles but it is beyond the scope of this article.

The process of buying a property is transparent in Malaysia and practically all the documents are in English. You can buy an unlimited number of properties. There are no restrictions on selling (although you may be subjected to Real Property Gains tax and some states may impose a three-year selling ban) and you can do so at your own free will in the free market. You can do bulk purchase (i.e. ten units at one go) or single units. Buyers can participate in auctions.

For low cost or medium cost properties as gazetted by the local state government, restriction applies and they vary from state to state. Generally, the buyer must register with the authorities and must be of a certain income group (lower income). If the demand is more than supply, then balloting may be carried to determine who the buyers are. When it comes selling (in future), there are restrictions as to whom you can sell you and the price of the unit. Please check with the local solicitor or state authorities for the latest updates on purchasing low/medium cost housing.

Financing

Mortgages are available to qualified buyers. Please read up the section on financing. However, for Malaysian, there is an additional program, My First Home Scheme, for first time home buyers. It is only open to first time buyers of residential properties with 100% loan margin. There are many qualifying criteria and it can be found here: http://www.srp.com.my/en/

A Guide for Foreigners

  • Foreigners must buy properties that are above the minimum purchase price set by the state government.
  • Foreigners are not restricted to buy condominiums only. They can purchase properties with land or land
  • Some types of properties are not available to foreigners (even with a local spouse):
    • Malay reserve land and any structures that are built on it
    • Low and medium cost houses. These properties are way below the minimum purchase price anyway.
    • Properties that are already allocated to bumiputeras or as determined by state authorities.
    • Land that are gazetted as agricultural land.
  • The property is registered under the buyer's name. There is no need to set up any companies to buy properties. You don't need to have a local spouse to buy any properties
  • Purchasing and seller is straightforward and you need to a solicitor to help you as the solicitor will represent your interest if you have a legal issue.
  • RPGT (Real Property Gain Tax is applicable to all buyers.
  • You can buy or sell properties in the free market.
  • You can own an unlimited number of properties.
  • State consent is required for the purchase of property but the solicitor will arrange that for you.
  • There is no statutory limit on the number of years that you own the property. If the property is freehold, you own the property forever. If it is a leasehold property, then all buyers, local or foreigners are holding the property for the same limit of time.
  • Foreigners and locals have the same rights and claims towards the property.
  • All the documents are in English.
  • Mortgage is available to qualified buyers. Banks have the final say on the approval of the loan.
  • All buyers have to pay stamp duty.
  • The buying process is transparent and the process is clearly articulated. There are no "special" process or grey area.
  • The property can be passed on to those listed in the will should be owner pass away.

The purchase process for a Pre-existing property

  • Select the property that you want to buy
  • Pay an earnest deposit of 1-3% and sign the offer or acceptance letter.
  • Investigate financing options and also select a solicitor to represent you in the sale
  • Sign the sales and purchase agreement and pay up 10% of the total purchase price (including the earnest deposit).
  • For locals, once the approval from Land Office (for change of name) is obtained, you have three months to pay up the remaining 90%. You can get a mortgage.
  • For foreigners, the solicitor will lodge an application for state consent. It may take up to six months to get the state consent.
  • If you get a mortgage, you need to sign the mortgage agreement with the bank.
  • Payment must be done through solicitors so that the interest of the buyer is protected.
  • Once the payment is done, the solicitor will execute the process to physically transfer the name to the purchaser.
  • The sales is complete when the solicitor completes all the required process.

The purchase process for a property still under construction

You may purchase a residential property from a developer while the property is still under development. The process is slightly different from the process stated above.

  • Select a property from a reputable developer.
  • Pay the deposit required by the developer.
  • Investigate financing options and also select a solicitor to represent you in the sale
  • Sign the sales and purchase agreement and pay up 10% of the total purchase price (including the earnest deposit).
  • Sign the mortgage agreement with the bank.
  • Solicitor will coordinate to get the title (or deed of assignment) transferred to you and get the state consent if you are a foreigner. The legal procedures will be transparent to the buyer.
  • The developer will request for the progressive payments once the construction has hit that stage. If the total progressive payment exceeds the amount where the buyer is paying cash, then the home mortgage starts. The bank will pay for the progressive payment and the buyer will start paying for the home mortgage.
  • Once the building is completed, the buyer takes Vacant Possession (VP) of the unit and may install basic utilities like water and electricity. Since 2015, strata title is expected to be delivery together with VP.
  • Buyer can start to do on-site defect inspection. Payment of sinking fund, maintenance fee, assessment and quit rent will start once VP is obtained.
  • The buyer is now the official owner of the property.

Fees

Stamp Duty

Stamp duty is payable to the Land Office upon the issuance of the title

Purchase Price Rate
First RM100,000 1.00%
 Next RM400,000 2.00%
Remainder 3.00%

Source: http://www.jpph.gov.my/V2/kira_dutisetem.php?versi=1

Legal Fees

Legal fees for the solicitor doing the conveyancing work for the buyer and seller

Purchase Price Rate
First RM150,000 1.0%
Next RM850,000 0.7%
  Next RM2,000,000 0.6%
  Next RM2,000,000 0.5%
  Next RM2,500,000 0.4%

Where the consideration or adjudicated value is in excess of RM7,500,000 - Negotiable on the excess (but shall not exceed 0.4% of such excess)

State Consent / Approval Fee
Penang foreign state consent / approval fee
RM10,000 (individual) or RM20,000 (company) plus 3% approval fee

Source: http://www.penangbar.org/files/2014/cpc-2014-1.pdf

Johor foreign state consent fee
RM20,000 or 2% of the price listed in SPA, whichever is higher

Source: http://ptj.johor.gov.my/images/Pekeliling/ptg%202014-bil%202.pdf (circular, in Malay)

The approval or state consent fee for other states like Selangor, Federal Territories (Kuala Lumpur) and Malacca are negligible (usually less than RM500) and does not add to the cost of property purchase.

Disbursement Fees

Disbursements will include stamp duty on the documents, actual amount spent on search fees (Land Office, Official Assignee, Companies Commission Malaysia, etc), registration fees, travelling expenses, other itemised expenses and miscellaneous expenses.

Source: http://www.malaysianbar.org.my/others/faqs_for_conveyancing_transactions.html

Agency Fees

In Kuala Lumpur / Selangor, the seller has to pay the full agency fees

In Penang, it is split equally between the buyer and the seller. It is also applicable for rental where the real estate agent takes the "disbursement fee" from the tenant/buyer and "agency fee" from the landlord/seller.

Sale and purchase of property, Fees for other services such as joint venture, sale of company, property swaps, etc. - Maximum 3%

Chattels including Plant and Machinery - 10 % of the proceeds

Source: http://miea.com.my/faq/estate-agency-fees
http://www.lppeh.gov.my/fees.html

Financing Option

Mortgages for residential properties are different from commercial or industrial properties loans. The article below describes home financing on residential properties only. Home financing is tightly regulated in Malaysia and thus, the features of the loans are basically almost the same across all banks.

Payment for the property purchased can either be cash or by mortgage through a local bank. Loan origination are from the banks and the banks will hold the loans until it matures. It will be held at the branch of the bank. The banks do not package the loans and sell it to third parties, thus the banks are very careful when it comes to loans and mortgages. They try to minimize bad loans or defaults. The banks will check with Central Credit Reference Information System (CCRIS) before the loan is approved. Any warning signs from CCRIS will weigh heavily on the approval of the mortgage or loans. The decision for a mortgage or a loan depends on many criteria and can be summarized as follows:

  • CCRIS showing that you have missed a payment (for at least more than six months)
  • Bankruptcy - if you are bankrupt, you cannot get any loans, mortgages or refinancing.
  • High debt service ratio. If you have too many financial commitments, banks will refuse your loan. Each bank has its own upper limit of the debt service ratio.
  • Incorrect documentation, insufficient monthly income or inappropriate income documentation.
  • Low application score, credit score and unable to meet credit rules. Computerized system will filter out any applicants who may not meet the criteria set by the bank. Inputs include customer profiles, marital status, misuse of credit card services, overspending, late repayments and irregular repayment patterns.
  • Wrong banks - some banks are stricter on loans and mortgages or they have higher requirements.
  • Employment - consistent income from a stable employment for at least 6-12 months.

Mortgages are "term loans" in which the tenure is set to a maximum of 35 years or until the borrower is 65 years old. Generally, mortgages are taken out on a 30-year period and most banks allow "payment into principal" and this will reduce the tenure of the loans. It is common for people to complete the repayment of the mortgage in ten years.

There is only one type of loan available in Malaysia and that is the standard mortgage where the monthly instalment includes payment to the interest and principal. There is no "interest only" mortgage in Malaysia. Every mortgage is customized, thus, it cannot be compared with other borrowers. You can only compare your own mortgage from different banks.

Here are some points to take note when discussing with the banks on mortgages:

  • Margin of financing can be as high as 90% of the value of the property. However, the banks may request valuation to be done of the said property if the mortgage requested is significantly higher than the "market value".
  • Foreigners may be able to borrow up to 70-80%. However, some banks may require MM2H visa as one of the criteria for residential mortgages.
  • The rate of home mortgages will be based on Malaysia's base lending rate (BLR). Rates for home mortgages may be slightly higher or lower than BLR and it depends on the banks. They may have a tiered rate where the first three years may be lower than BLR and the rest more than BLR. The banks will set their own rates for home mortgages.
  • Some banks will have a "lock in" period where you cannot switch banks. This is to discourage people from "hopping around for the best mortgage deals". If you switch banks, there will be a financial penalty.
  • Some banks or mortgage plans do not allow you to pre-pay into your principal unless prior approval is obtained.
  • Some banks do not allow you to shorten the repayment period, i.e. from 30 years to 10 years unless you have a strong reason and they approve it.
  • In order to attract customers, some banks will provide free fire insurance, free overdraft, instant cash or renovation loans.
  • Mortgages are generally customized, thus, you can negotiate with the bank on the rates, terms and conditions.