INTRODUCTION
The purpose of this article is to provide some basic legal guidelines on buying properties in Malaysia. The present system of land tenure and dealing in property is governed under National Land Code 1965 (NLC) which adopts the Australian Torrens System whereby all dealings in land can be effected only through registration at the relevant land registry.
Each state will have the relevant Land Office which maintains a Registry Document of Title for each title issued where all the particulars pertaining to the title are recorded. This record can be inspected by anyone with a minimal payment to the respective Land Registry.
However, there are properties being sold where individual titles have not been issued such as sale of condominiums by developers even before they are being built. As such, care and caution must be exercised to ensure that the buyer gets the vacant possession and the title to the properties once individual/strata title is issued. Potential buyers are therefore advised to consider the following factors before making a decision to buy.
- DOES THE PROPERTY COME WITH / WITHOUT TITLE?
With title’ means that the property has an individual document of title. Whereas, ‘without title’ means there is no individual document of title for the property and the property together with neighbouring properties are held under a main title known as a ‘master title’. Examples of these are condominiums, apartment and town-houses. When the individual titles are issued, they are called ‘strata titles’.
(B) TYPES OF SALE AND PURCHASE AGREEMENT
Generally, there are two (2) types of sale and purchase agreements (SPA) i.e. statutory (with housing developers) and non-statutory.
(i) Sale By Developer
Sale by Developers may be divided into: –
1 a) housing developers who develops ‘housing accommodation’ and governed by, inter alia, the Housing Development (Control and Licensing) Act 1966 (HDA) and Housing Development (Control and Licensing) Regulations 1989 (HDR) unless the ‘housing accommodation’ to be constructed is less than five (5) unit. The terms of SPA are statutory prescribed in the HDR to safeguard the interest of the purchasers. There are 4 standard agreements in HDR namely Schedule G (landed property), Schedule H (building or land intended for subdivision into parcels), Schedule I (completed individual title properties) and Schedule J (completed houses in strata title properties).
1 b) Non-housing developers of commercial and industrial properties. No specific form of SPA or legislation which controls the activities of this category of developers. The SPA terms are negotiated between the parties, however the non-housing developer usually has the stronger bargaining position.
(ii) Sale By Non-developers
This SPA transaction is usually known as ‘subsale’ which means ‘subsequent sale’ in the subsidiary or secondary market by the vendor. This type of transaction is not governed under the HDR.
The form of a SPA in a subsale is usually structured based on whether the property is with or without an individual title and it is usually sold on the basis of “as is where is”. The terms of the two (2) SPAs may differ significantly. The change of ownership is effected by presenting the statutory form called Memorandum of Transfer (MOT) together with the requisite registration and stamping fees upon full payment of the purchase price.
However, the beneficial interest for property without title is conveyed using a contractual document known as Deed of Assignment (DA) which does not require registration with any public authority but will require a notice to be given to a housing developer. Hence, the SPA will set out the different processes on how MOT or DA are to be stamped, registered or perfected.
In subsale SPA, the purchaser is required to pay a deposit of 10% of the purchase price upon confirmation of purchase and the balance of ninety per centum (90%) is payable within three (3) months from the date of SPA unless a condition precedent is to be complied whereupon three (3) months shall commence once the condition precedent is fulfilled.
(a) Foreign Interest
The FIC guidelines have been abolished and superseded by the new guidelines issued by Economic Planning Unit Unit (EPU). The EPU guidelines aim to regulate the acquisitions by foreign interests of assets and interests in Malaysia companies and businesses. Under the latest guidelines, foreign interest may acquire the following properties without EPU approval: –
(1) Residential unit valued at RM1,000,000 and above;
(2) Commercial unit valued at RM1,000,000 and above;
(3) Agricultural land valued at RM1,000,000 subject to specific purposes as stated therein;
(4) Industrial land valued at RM1,000,000 and above; and
(5) Transfer of property to a foreign interest among immediate family members only.
On the other hand, transactions that requires approval of the EPU are as follows:
(1) Direct acquisition of property at RM20 million and above, resulting in the dilution in the ownership of property held by Bumiputera interest and/or government agency; and
(2) Indirect acquisition of property by other than Bumiputera interest through acquisition of shares, resulting in a change of control of the company owned by Bumiputera interest and/or government agency, having property more than 50% of its total assets, and the said property is valued more than RM20 million.
S433B NLC : State Authority Consent
A non-citizen or a foreign company may acquire property subject to approval from State Authority otherwise the purchase will be null and void as provided under Section 433B of the NLC. Purchasers are advised to check with the relevant authorities of the State on the latest guidelines as these do differ from state to state in addition to the requirements of EPU.
(b) Restriction-In-Interest
Approval for transfer is required where the document of title is endorsed with a restriction-in-interest relating to transfer which generally restrict transfer, lease and charge unless State Authority consent is obtained. The obligation to apply for this consent lay on the vendor failing which, specific performance may be ordered against him. A transfer in breach of a restriction on transfer is void.
As for property without title, the practice for consent application varies according to the Land Registries. Some Land Registries may not entertain an application for consent to transfer unless individual title has been issued to the property.
If any of the consent mentioned above is not obtained by the purchaser and/or the vendor, the SPA may be terminated and the deposit paid refunded to purchaser unless the parties ultimately get the consent upon appeal.
(C) PURCHASE BY CASH OR LOAN
The purchase consideration may generally be paid by cash or financed by loan from any financial institution.
For cash buyer, he must ensure that the property is free from encumbrances i.e. not charged to any financial institution before the full purchase price is released. If the property is encumbered, he shall obtain a letter from the existing chargee / assignee disclaiming the bank’s rights and interests and to exclude it from foreclosure proceedings. If not, the purchaser is advised to make the progressive billings direct to the financial institution to get the discharge/ waiver before paying the balance to the developer. This is to avoid losing the property in the event the financial institution foreclosed the master title which was charged by the developer.
Most of the financial institutions in Malaysia provide unlimited financial assistance to Malaysian and foreigner to enable the purchaser to buy any property so long as the purchaser is qualified. Currently, the margin of financing is normally up to ninety per centum (90%) of the purchase consideration unless it is a third property purchased, then only seventy per centum (70%) financing is permitted to Malaysian citizen
(D) REAL PROPERTY GAINS TAX (RPGT)
Under the Real Property Gains Tax 1976 (RPGT Act), every foreigner (individual or company) will be subject to pay tax on the gain accrue from the sale of a chargeable asset. Both parties shall submit a return together with whole purchase price or a sum not exceeding two per centum (3%) of the purchase price, whichever is lesser to the Director General, within sixty (60) days from the date of disposal i.e. the date of SPA or if no SPA, then the date of completion of the disposal of the asset i.e. the date of MOT or DA OR date of Government approval is obtained if the SPA is conditional upon approval/consent by the Government.
However, property purchased from a housing developer will not require submission of RPGT forms as the disposal transaction is deemed as a normal business activity of the developer and hence, the gain will be submitted as income of the developer pursuant to Income Tax Act 1967.
For ease of reference, the rates of RPGT is reproduced below:-
New RPGT Rates from January 2022
Category of Disposal % of Tax on the profit (Malaysians /
Permanent Resident)
% of Tax on the profit (Malaysian Company / Trustee of Trust) % of Tax on the profit (Non-Malaysians)
Disposal in the 4th year after the date of acquisition of the chargeable asset. 20% 20% 30%
Disposal in the 5th year after the date of acquisition of the chargeable asset. 15% 15% 30%
Disposal in the 6th year after the date of acquisition of the chargeable asset. 0% 10% 10%
Disposal within 3 years after the date of acquisition of the chargeable assets. 30% 30% 30%
(E) OTHER COST
The purchaser should also consider other cost like stamp duty and legal fees when buying a property.
| STAMP DUTY |
|---|
| 1% on first RM100,000.00 |
| 2% on next RM400,000.00 |
| 3% on next RM500,000.00 |
| 4% on amount in excess of RM1,000,000.00 |
| LEGAL FEES |
|---|
| 1% on the first RM500,000 |
| 0.8% on the next RM500,000; |
| 0.7% on the next RM2,000,000.00 |
| 0.6% on the next RM2,000,000.00 |
| 0.5% on the next RM2,000,000.00 |
| Any consideration above RM7,500,000.00 shall be negotiable but not exceed 0.5% |
CONCLUSION
Buying properties for own use or investment is a big commitment. As can be seen above, the land law and procedures involved in acquiring the properties are complex. It is therefore highly recommended that potential buyers do engage the services of a Solicitor to act and advise on all the legal issues and procedures to ensure that their interest is protected.
Should you have any further inquiries, feel free to contact us.
[Disclaimer: The above Article is merely for general informational purposes only as at the date of publication on 1 June 2022, and is not conclusive. Readers should seek proper legal advice especially where the law, rules and practices will change from time to time.]
-LTP-