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Legal Guide to Buying Property in Malaysia

Malaysia is a popular country for foreign visitors. In 2015 Malaysia is ranked 4th in Asia in number of tourist arrivals. It is also fast becoming a favorite place in Asia for foreigners to buy property because of its openness to foreign buyers and strong property laws that protect homebuyers and investors.

Buying a property is easy and very safe as long as you use the services of a reputable property agent and lawyer. Buyers should be aware that the recent popularity of Malaysian property has encouraged the growth of opportunist property companies, giving the appearance of reputation and quality. So check the credentials of your agent, the developer and property before you buy.

MALAYSIAN PROPERTY LAW

The Malaysian legal system is based on English Law. Documents and contracts are mainly written in English.

Unlike some of its Asian neighbors, Malaysia has very clear and consistent laws on property ownership. Malaysia uses the Torrens System of land law adopted originally from Australia and New Zealand that requires all ownership of property to be registered. Once the title is registered it is secure and cannot be disputed or challenged by anyone. This gives investors a high degree of security and peace of mind.

FOREIGN OWNERSHIP

Malaysia has historically made it a national priority to provide housing to its citizens. As a result, a high percentage of Malaysian people own their own home and many young people save hard to buy a house to raise a family.

As Malaysia grew richer it began to relax its policy on foreign ownership of property. In 2006, Malaysia removed all restrictions on house buying by foreigners. Today foreigners can buy any number and type of property in the country as long as the property price exceeds Ringgit 500,000.

Malaysia has immigration policies that can give foreigners including foreign property buyers residency rights in Malaysia. Read here.

USING A PROPERTY AGENT

Appointing a property agent to be your representative can be invaluable when buying a property in Malaysia. Choose an agent who is competent, experienced and from a licensed agency. Stay with one agent per transaction and be frank with your agent as to the kind of property you are looking for, such as size, location and price. Build a relation with your agent who can act as your consultant and introduce to you other professionals such as lawyers and bankers to give you legal and financial advice.

SUB-SALE OR PROJECT PROPERTY

As a foreigner you are freely allowed to buy any kind of property in Malaysia: whether apartment, house with land, office or shop. You can either buy a completed older unit from an existing owner (“sub-sale property”) or new or soon to be built property from a property developer (“project property ”).

In a project property, other than price, location and design, the following are also important:

  1. stage of completion of building and handover date
  2. condition of title 
  3. reputation of developer 
  4. management and maintenance fee 
  5. availability of bank financing

OFFER TO PURCHASE

If you are buying a sub-sale property, you will be required to prepare 2% of the purchase price as earnest deposit and sign an offer to purchase to the seller. The earnest deposit is usually not refundable.

It is possible to ask your agent to make the offer to purchase conditional on bank loan so that if you cannot get financing then the earnest deposit will be refunded back to you but this must be negotiated and carefully drafted into the offer.

SALE AND PURCHASE AGREEMENT

Once you have paid the 2% earnest deposit and signed the offer to purchase form you should quickly appoint a lawyer to act for you as you are given only a limited time (normally 14 days) to sign the sale and purchase agreement and pay a further 8% as balance of the deposit.

The sale and purchase agreement is the formal and final contract between the seller and you. Your lawyer has a duty to conduct a search on the property title and negotiate the sale and purchase agreement and explain the terms to you before you sign.

In project property, the buyer and seller (property developer) will sign a sale and purchase agreement that is prepared according to a statutory standard form.

Even so, it is still important for you as the buyer to have your own independent lawyer to act for you and explain all the terms of the contract. Using a lawyer who is also acting for the seller is not wise as it puts you at risk of conflict of interest and is a breach of the lawyer’s own professional ethics.

WHAT ARE THE COSTS OF BUYING A PROPERTY?

As a general rule you should allow roughly between 3 to 5 % of the purchase price for various expenses associated with purchasing a property.

Expenses:

Lawyer fees – around 1% of the purchase price

Stamp Duty (according to scale, often this is the largest expense)

For the first RM 100,000, the stamp duty payable is 1% For the next RM 400,000, the stamp duty payable is 2% For any sum exceeding RM 500,000, the stamp duty payable is 3%

Agent Fee – None as agents normally are paid a commission by the Seller 
but if appointed as buyer’s agent then the fee is between 2 to 3 % of the purchase price.

HOW DO I MANAGE THE PROPERTY?

If you are buying the property as an investment and intending to rent out your property, you have two options. You can either manage the property yourself, or you can use a property manager.

The practice of appointing professional property manager is slowly gaining ground in Malaysia. Professional managing agents will look after every aspect of your tenancy. Their job includes collecting the rent, maintaining financial records, conducting regular property inspections, handling any disputes and arranging all repairs that need to be done.

Most property managers charge a percentage of the weekly rent as a management fee. This is usually around 7-10%, however this is negotiable.

You should also expect to pay additional one-off fees when they find a new tenant.

Although many developers and property agents are happy to manage your property for you for a fee not all of them licensed property managers. Please check to make sure that the managing agent you are interested in using is licensed by the Board of Valuers before you enter into any formal agreement.

Their license will be displayed in their office or on their website.

THIS CONTENT SHOULD NOT BE CONSTRUED AS LEGAL ADVICE.

Kerk Boon Leng