Malaysia Property Buying Process

In Malaysia the property buying process is well documented and regulated but that doesn’t prevent the purchase process from differing from person to person!
As is often the case when buying in an overseas emerging market it’s more a case of who you know rather than what you know when it comes to speeding up and easing the entire property buying process; and the more property transactions you engage in the simpler the process gets.

Foreign investors interested in the Malaysian property market are subject to certain restrictions on the type of real estate they can purchase and a great deal of care and attention to detail has to be paid to the whole buying process, therefore it is imperative that a good and recommended local lawyer is used to assist with the transaction.

If a buyer uses an estate agent to help them find property for sale in Malaysia they may be liable to pay agency fees of up to 3% of the property’s underlying purchase price. Some agents will require this fee be paid when an offer to purchase has been accepted but it is not actually wise to pay the agent until the whole property purchase transaction has been completed.

In terms of the restrictions placed on non-resident purchasers, firstly permission to buy has to be granted by the Foreign Investment Committee of the Economic Planning Unit of the Prime Minister's Department. Secondly property on Malay reserved land cannot be owned by overseas foreign investors. Other than these restrictions foreign owners of property are treated in the same way as Malaysian owners and both are protected by the same real estate laws.

When looking for property for sale in Malaysia it’s wise to have a structural survey carried out on any property that meets the investor’s objectives because many homes are known to have structural problems and they may not be apparent at first glance. Once an investor is satisfied that his chosen real estate is sound and meets his requirements he will sign an offer letter that will be submitted to the vendor for acceptance.

Once the offer letter has been accepted an option to purchase contract will be signed by the vendor and purchaser and the investor will pay a 10% deposit which is non-refundable if they withdraw from the sale. It’s important to make sure that there is a clause added to this standard document stating that if the vendor pulls out they have to pay back the deposit and an amount equal to that to the investor for the inconvenience.

Once this option to purchase has been signed the investor is given three months to find finance, get the title deeds checked and move towards signing the S & P agreement (Sale and Purchase Agreement). Because getting a mortgage in Malaysia is such an incredibly slow, time consuming and frustrating affair this three month period often needs to be extended by another month. If the period to signing the S & P is extended the purchaser has to pay interest on the outstanding amount he has left to pay at a rate of 10% per annum that is calculated on a daily basis for the month.

Overseas investors who require a mortgage to purchase property in Malaysia might like to consider raising the finance outside of the country as this will speed up the whole Malaysia property buying process.

When the completion date comes the Sale and Purchase Agreement is signed and the balance of the property’s selling price is transferred to the vendor. The S & P is then sent to the land registry along with the memorandum of transfer form 14A of the National Land Code to transfer the title deeds into the name of the property investor.

Other than the estate agent’s fees a buyer should be aware that they will be liable to pay stamp duty and lawyer’s fees.

Malaysia scraped property gains tax from April 1, 2007

Malaysia will scrap capital gains tax on property deals from April 1, the prime minister said Thursday as he announced a slew of pro-investment programmes and incentives in a bid to boost the economy.

Prime Minister Abdullah Ahmad Badawi said he hoped the decision would "inject more excitement and dynamism in both the property and financial sectors.''

"Potential that has gone unrealized or under-optimized will be turned into new industries and businesses, new value creation and new jobs,'' he said in a speech at a conference of local and foreign fund managers, and heads of some of Malaysia's biggest companies.

The Malaysian property market is currently believed to be stagnating, and considered undervalued compared to other countries in the region, especially Singapore.

Abolishing the property gains tax would encourage investment and deals and bring more liquidity into the market.

"Going forward to further improve the national property sector, the government has decided not to impose real property gains tax throughout the country commencing 1st April, 2007,'' Abdullah said.

He also said the government will continue to reduce its stakes in government-linked companies in which it has a high ownership level in order to increase liquidity in the equity market.

"To avoid exaggerated market disruptions and to allow for strategic tie-ups, the process will be undertaken in an orderly manner,'' he said.

Abdullah announced a new package of incentives for the Iskandar Development Region, a special economic zone in the southern state of Johor, in six targeted sectors: creative industry, education, financial advisory and consulting, health care, logistics and tourism.

Those starting businesses in these six sectors will be exempt from corporate income tax for activities within the zone and outside Malaysia for 10 years, provided they commence operations before 2015.

They are also exempted from foreign investment committee rules, have the freedom to source for capital globally, and would be allowed unrestricted employment of foreigners.

In a statement, the Iskandar Regional Development Authority said Malaysians are still expected to make up the large majority of the work force.

Abdullah also announced the creation of four more economic regions besides the Iskandar Development Region.

They are the Northern Corridor Economic Region, East Coast Corridor, the Sabah Corridor and the Sarawak Corridor.

The last two are on the Borneo island in the states of Sabah and Sarawak.

"The opening up of these new economic regions, in a concerted and systematic manner, will literally change the face of the country,'' Abdullah said.

The announcements, aimed at attracting foreign investments, come at a time when the country is facing stiff competition from China and India. Still, Malaysia's economy hasn't fared too badly.

It expanded 5.7 percent in the fourth quarter or 2006 from a year earlier, bringing full-year growth to 5.9 percent.

This was slightly better than the government's earlier 5.8 percent forecast, and higher than the 5.2 percent expansion in 2005.

The expansion was attributed mainly to the sturdy growth of services and manufacturing sectors.

In its economic outlook, Malaysia's central bank on Wednesday projected that private sector investment will expand by 10.4 percent this year compared to 9.7 percent in 2006.

Public spending would expand by 11.4 percent, up from 6.5 percent last year, it said. Manufacturing output was expected to grow 6.6 percent in 2007.

Aution Caution

Looking at the advertisements in the daily newspapers, it would appear that a large number of properties are being auctioned off every weekend. The indicated prices appear to be way below the market price, making it appear like an attractive purchase.

Is it safe to buy a property at an auction, and is the buyer adequately protected by the law? Can properties be auctioned off without a court order?

Well, court approval is only required if there is a precondition in the loan agreement requiring approval of the court before it can be sold. Otherwise the court is only involved if the land has a charge registered under the National Land Code.

Right to sell
Buyer beware: Before buying a house at an auction, the buyer needs to be aware of the issues and complexities involved.

Almost all the auctions in the advertisements include a reference to a bank, a financial institution or a borrower. This would suggest a loan default scenario. The words “assignee” and “assignor” in the advertisements suggest that the property in question does not have separate individual titles to enable a charge to be registered.

Where there is no individual title and the loan is granted on the basis of a loan agreement and a Deed of Assignment, the lender is entitled to dispose of the property on the strength of a Power of Attorney, unless there is a restriction.

In fact, most such documents allow the lender to dispose of the property without any prior court approval. The agreement may not mention an auction but the auction mechanism is utilised to make the intended disposal known to a wider audience to get the best price and show transparency.

Before buying a house at an auction, the buyer needs to be aware of the issues and complexities involved. The offer price may appear to be cheap but there could be other aspects that could increase the cost of the transaction.

Contractual relationship
To start with, the property may not necessarily be available at the indicated price. This is merely the reserve price at which the bidding will start. Depending on the property and the buyers it has attracted, the price could end up much more than the reserve price.

An auction creates a setting to put in place a contractual relationship between the parties involved. The process starts with the publication of an advertisement.

Following the advertisement, the auctioneer invites bids for a particular item for sale and starts the ball rolling. This is referred to as an invitation to a treat. If a bid is made pursuant to such invitation, that in law constitutes an offer, the auctioneer is free to accept or reject. However, the sale by an auctioneer is concluded when he announces its completion by the fall of the hammer or in any other customary manner.

The next question that arises is: what are the terms and conditions on which the property is purchased? When property is purchased from a developer, there is the standard Sale and Purchase Agreement, if it is a housing accommodation. When a property is acquired through a sub-sale, the terms are set out in the Sale and Purchase Agreement, which is the result of negotiations between the parties.

Conditions of sale
However, the scenario in an auction sale is different. This is because the property is sold based on the Conditions of Sale, which become the terms on which the property is transacted.

These Conditions of Sale are always available before the auction takes place. An individual bidder at the auction ought to obtain and familiarise himself with these terms and conditions before the bid. This is because if the bid is successful, he will be deemed to have entered into a contract on those terms.

An example of a clause in a Condition of Sale which illustrates the risks a bidder must assume when he purchases a property, reads as follows:

“The property is sold on an ‘as is where is’ basis without vacant possession subject to (a) all express and/or implied conditions, restriction-in-interest affecting the Master Land and that which may be imposed/endorsed on the document of individual strata title to the property upon the issuance thereof, (b) all easements, covenants, charges, caveats, liabilities, (including but not limited to liabilities to the local authorities incurred but not ascertained and any rates made but not demanded) and any adverse claims in respect of the Property; and (c) all tenancies, lease, occupiers and rights (if any) of any tenant or occupier, subsisting thereon or therefore without any obligations arising to define the same respectively.”

It is a common and acceptable practice to purchase a property subject to express and implied restrictions endorsed on the document of title. But if there are tenants on the land, the bidder has to take the responsibility of evicting them and bear the costs incurred with the added risk that compensation may not be recoverable. The same would apply in the case of a need to have a caveat removed.

This is different from purchasing a property from a developer or an ordinary individual where the vendor has an undertaking that the property is free from encumbrances which could include caveats, and that the seller will hand over the property to the buyer with vacant possession as part of his obligation.

To reinforce the rights of the seller or rather the seller’s lack of obligations, such Conditions of Sale often provide a condition binding the purchaser to admit that he has inspected the property and is buying it in the condition that it is in. An example of a Condition of Sale which exonerates the seller from handing over the property with vacant possession has a clause which reads as follows:

“The successful purchaser shall at his own costs and expense take possession of the property after the payment of the balance purchase price. The assignee/lender or its agents have no obligation to deliver vacant possession of the property and the successful purchaser is prohibited from entering the property before the payment of the balance of purchase price and/or late payment interest.”

Need for caution
It would be in the interest of the bidder to visit the property and inspect it to familiarise himself with the condition of the property. The photographs in the newspaper or leaflet may not convey the real state of the property which the bidder expects to acquire.

These are just some of the conditions of sale. A detailed examination of the Conditions of Sale in auctions could disclose a host of responsibilities which the seller may exclude himself from.

In conclusion it must be said that a valuable property may well be acquired at an auction. However, there is a need to make adequate inquiries and investigations, and consider all the factors in order to end up with a good bargain.