Buying a Property in Malaysia...
All Malaysian citizens are free to purchase houses within Malaysia save for low-cost houses which can be applied for through the relevant land offices or registries based on the relevant rules for eligibility.
Houses built on Malay reserved land can only be purchased by Malays. Thirty percent of each housing project is to be reserved for Bumiputra purchasers who enjoy 5% to 8% discount on the purchase price.
Foreign purchasers are subject to the approval of the Foreign Investment Committee (FIC) of the Economic Planning Unit of the Prime Minister's Department based on the FIC "Guidelines on the Acquisition of Properties in Malaysia by Foreign Interests".
There are two categories of titles:-
- freehold - which gives the owner perpetual ownership;
- leasehold - which allows the owner to stay in possession only for a specified period. When the specified period ends, ownership reverts back to the authority which issued the title.
Banks and other financial institutions have different packages of housing loan to assist house buyers in their purchase. Pursuant to a recent Bank Negara guideline, house buyers can now only obtain housing loan of up to a maximum of 60% of the purchase price for the purchase of a second or subsequent house.
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 purposes of buying or building a house or a shophouse 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 30% of the total amount deposited in the EPF whichever is lower
- for purposes of reducing or setting housing loans, depositors can withdraw 30% of the total amount deposited in the EPF, or the amount of the housing loan remaining outstanding, whichever is lower.
All purchases direct from housing developers must use the Schedule G (for purchases of houses) or the Schedule H (for purchases of apartment respectively of the Housing Developers (Control and Licensing) Act 1996 as the sale and purchase agreements. Payment of the purchase price the said Schedules G and H is by progressive payment 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.
There are no fixed rules on the form of agreement for purchases from existing house owners (more commonly called sub-sale). However, it is common practice that upon signing of the sale and purchase agreement 10% of the purchase price be paid to the seller, and the purchaser be given 3 months to pay the balance of 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 annum calculated on a daily basis is 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.
Other than the sale and purchase agreement, a memorandum of transfer, which is Form 14A of the National Land Code 1965, must be completed to transfer the title from the seller to the purchase. 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; and if the purchase is 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.
5. STAMP DUTY
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)
The first Schedule of the Solicitors Remuneration Order 1991 sets out the fees 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
FOREIGNER GUIDELINES FOR PROPERTY PURCHASE IN MALAYSIA......
There are presently no Malaysia Government regulations prohibiting foreigners and expatriates from taking a mortgage to assist in the acquisition of Malaysian real estate. Individual banks determine their respective policies and lending guidelines in this respect. However, certain countries may require their citizens to first obtain consent from their own Central Bank or equivalent before applying for a housing loan from Malaysian banks to buy Malaysian properties.
In general, foreigners/expatriates seeking a housing loan in Malaysia come under four categories ie:
(i) Expatriates married to a Malaysian citizen; (ii) Expatriates with a valid working permit and/or an ongoing business in Malaysia; (iii) Expatriates coming into Malaysia under (MM2H); (iv) None of the above (Pure Foreigner Status)
Foreigners married to Malaysians Provided the Malaysian spouse is a co-borrower, most banks would treat the application as if coming from a Malaysian citizen. In this case the Margin of Finance (MOF) may be as high as 90% to 95% of the purchase price/value of the property. The loan tenure may also goes up to 70 years of age, based on the younger borrower’s age.
Whilst it may help that the Malaysian co-borrower is gainfully employed, lenders are prepared to base their assessment on a single income source provided that such income meets with the Debt Servicing Ratios (DSR, also known as Payment To Income Ratio) of the lender. DSR is the percentage of the borrower’s gross income that the monthly servicing of the loan applied for, will take. As a general rule a Debt Servicing Ratio of 40% or under is considered good.
All calculations are in Malaysian Ringgit based on prevailing published exchange rates. So, a USD4,000 pm income may very well be able to support a RM1Million loan!
Expatriates With Working Permits/On-going businesses in MalaysiaIn all probability, an expatriate working in Malaysia will have a housing/rental allowance of RM6,000-RM10,000 per month. That amount is more than adequate to support a RM1Million loan. Hence, it is often said that presently, it is cheaper to buy than rent Malaysian properties.
What factors significantly for foreigners that come under this category are
(i) the number of years the borrower has been working in Malaysia
(ii) the remaining duration of the working permit and
(iii) the company the expatriate is working for (ie multinational; publicly listed company or a private holding).
LENDERS look for the borrower’s commitment to treat the country as their permanent resident. Therefore a healthy bank balance in a local bank, and the ability to show monthly wages being credited into a local bank account augurs very well.
In cases where part of the income is paid into an overseas bank account, the borrower must be prepared to provide bank statements of the said bank oversea bank account.
Be wary not to be caught in-between jobs as Lenders prefer to see longevity in a particular post rather than a new job that may only be weeks old, albeit at a higher pay.
Foreigners Under The “Malaysia My Second Home Programme” (MM2H)The Malaysian Government is on a drive to attract foreign nationals to stay in Malaysia on a long term Social Visit Pass under The Malaysia My Second Home programme.
The Participants of Malaysia My Second Home Programme are provided with various incentives to make the Foreigners stay more comfortable and enjoyable in Malaysia. For acquisition of residential properties under MM2H programme, purchase of residential unit is exempted from Foreign Investment Committee’s (FIC) approval.
Certain Banks are more actively involved with the expatriate community and the MM2H programme, and hence more willing to offer “softer” financing terms such as higher margin of finance.
Pure Foreigner Status The last 2 years has witnessed a spike in foreign ownership of residential properties in Malaysia. This is largely driven by the fact that Malaysia presents one of the most attractive upscale property bargains in the world. In addition, the abolishment of the Real Property Gain Tax (RPGT) has provided a further financial incentive for overseas buyers to invest widely in Malaysian property market.
In line with the Malaysian Government relaxation of the rules on foreign ownership of real estate, Lenders have become friendlier towards foreign buyers in term of their lending guidelines. Some lenders are even willing to offer Margin of Finance of up to 80% of the property.
However, the lending terms and conditions to Foreigners are still rather subjective and Banks may impose additional terms and conditions on a case to case basis.
As a guide (and this applies to all categories of Foreigners) here are some of the factors that Lenders look out for:
(i) Country of origin with a preference for developed Countries
(ii) required loan size. Under RM2Million id preferable.
(iii) location of the property. Properties in Kuala Lumpur and Penang are clear favourites especially properties located in the high-growth suburbs such as Damansara Heights.
(iv) credit profile & financial standings of the applicants. Whilst Lenders do not necessarily discriminate between employed and self employed borrowers, it is easier for borrowers under employment to establish credit worthiness by showing pay slips and corresponding entries into a regular bank account. For those who own businesses it may a wise move to just show the amount of salary drawn instead trying to make a local lender understand how your business mechanics. Remember that you only need to establish a good Debt Service Ratio of preferably under 40%.
(v) Margin Of Finance. Try and avoid anything over 60% lending.
However, should a borrower manage to “package” his/her application to fall neatly into items (i) to (iv) mentioned above, a 80-90% may not be out of the question.
Be wise on the selection of the property type. A “landed” property (house) is usually more well received than a “non-landed” property (apartment/condominium). A completed property with title scores better than a property which is under construction due to the completion risk. Whilst premier high-end condominiums have been very popular amongst, do bear in mind that most Lender have limited appetites to any one development project and a Lender’s exposure to certain property projects may well affect the terms the Lender may be prepared to offer a buyer, regardless of the his/her credit strength. For a lot of Banks, the magic ingredient seems to be the ability to show liquidity (cash in savings accounts and fixed deposits) and perhaps the placement of some savings in the Bank that you are trying to obtain credit from, without necessarily having to pledge the money as collateral.
Q:Can we set up a Malaysian company to take loans to assist in the acquisition of Malaysian properties?
A: Yes, however the terms and conditions may be significantly differently to a personal housing loan. Loan tenure is usually to a maximum of 15 years, and interest rates may be higher by up to 2%. Some Lenders allow third party charges which means that whilst the property is bought by a company the loan may be personally housing loans to the Directors of the company on a joint and several guarantees.
Q:What documents do I need to prepare?
A: A Photocopy of Passport, Letter from MINISTRY OF TOURISM certifying your participation in MM2H Programme (if applying under MM2H), Sales & Purchase Agreement, Property land title (if any) and relevant income documents (6 months salary slips, 6 month’s bank statements, income tax statement, assets & liabilities)
Q:What are the fees and charges associated in (a) applying for a loan; (b) accepting an offer and (c) drawing down on the loan?
A: It is uncommon for Malaysian Lenders to charge an application fee. Fees and charges associated in accepting the loan are the legal documentation fees that include the bank’s lawyer’s fees, stamp duty (Memorandum Of Transfer), disbursement fees and valuation fees. However, most lenders offer “ ZERO ENTRY Loan Packages" where all these costs are absorbed by the Banks with the trade-off being a slightly higher rate of interest.
Q:What is the usual time it takes to get a loan approved?
A: Standard Processing timeframe: 5 to 7 working days.
Q:Can I raise a housing loan against collateral in countries outside Malaysia?
A: No, as MALAYSIAN BANKS's will insist on local real estate collateral. However a few foreign banks in Malaysia may accept foreign collateral and loan in foreign currencies.
Q:In what currency may I draw the loan?
A: Ringggit Malaysia (RM) for all local banks with exceptions of a couple of foreign banks that allows lending in USD, Euros and Yen.