Why do foreigners invest in Malaysian property?
In terms of real estate market, Malaysia property prices are still among the cheapest in Asia with good growth amidst a resilient economy. Regional property markets like Hong Kong and Singapore have actually risen too much in the past few years.
What must you do first?
We strongly recommend you to find an good real estate agent first, before you buy any property in Malaysia. An agent specializing in real estate will not only be able to provide you valuable information and legal advice of sale and purchase procedures, but also contacts of some reliable professionals in the industry, such as real estate lawyers and bankers. You can trust them and save your time to look for others as they have been working together with the agent in many previous successful transactions.
What are the contracts/ agreements involved in a transaction?
The purchase agreement for a property is called the “Sale & Purchase Agreement” (SPA or S&P). These are fairly standard, but it is best to have a lawyer representing your interests before signing any agreement.
A memorandum of transfer also has to be signed to transfer the title from the seller to the purchaser. In the case of a new development where the developer does not yet have full title, the seller will state in the SPA that this will be given as soon as they have the properties.
What are the procedures to buy a property in Malaysia?
The first step to purchasing a property in Malaysia is to hire a real estate lawyer to assist in the transaction. Once property is selected, a Letter of Offer/Acceptance is signed between buyer and seller, and a 1%-3% earnest deposit is expected from the buyer.
Within 14 to 30 days, the Sale and Purchase Agreement is signed. The buyer must pay another 7%-9% deposit to make up a 10% down payment. From the date of the signing, the buyer has a maximum of three months to accomplish full payment upon receiving Land Office consent.
The Sale and Purchase Agreement must be stamped at the Stamp Office. After the examination on the property by the valuation department, Stamp Duty is paid to the Stamp Office. The transfer must be registered at the Land Office Registry. These are all done by your real estate lawyer after signing the Sale and Purchase Agreement and before the completion of transaction.
How can foreign property buyers get financed in Malaysia?
There are generally two ways to finance the purchase of properties in Malaysia. The first way is to bring in your own money from your home country to finance the purchase. This is the most direct approach and the easiest, as non-Malaysians are allowed to maintain accounts with banks in Malaysia without restriction on the amount of Ringgit held in the accounts.
The second is to take a loan with a bank in Malaysia. With sound credit ratings, most foreigners should have no problem obtaining Margin of Financing of 70% with banks in Malaysia. This could be even higher depending on the banks and financial standings of the applicants. For those seeking to purchase a residential property in Malaysia by taking up a home loan, you are advised to use an online comparison tool with the various banks as they may differ slightly from bank to bank
What is the advantage in buying a residential property under the Malaysia My Second Home Program (MM2H)?
MM2H is a program promoted by the Malaysian government to allow foreigners fulfilling certain criteria to reside and travel to and from Malaysia unrestricted for an extended period of time. Generally, MM2H is valid for a period of 10 years, and is renewable.
For those staying in Malaysia using the MM2H visa, buying a property in Malaysia is an added incentive; as it allows you to withdraw part of the money you need to place in a fixed deposit account in Malaysia, which is an MM2H requirement. You can do this starting from the second year of staying in Malaysia:
• For MM2H participant below the age of 50, you can withdraw up to RM150,000 from your fixed deposit commitment of RM300,000 for approved expenses, including those related to home purchase.
• For MM2H participant aged 50 and above, you can withdraw up to RM50,000 from your fixed deposit commitment of RM150,000 for approved expenses, including those related to home purchase. Additionally, should you purchase a property in Malaysia worth RM1 million and above in Malaysia, you are allowed to reduce the amount of money you need to place in the aforementioned fixed deposit account, in the following way:
• For MM2H participant below the age of 50, your fixed deposit commitment is reduced from RM300,000 to RM150,000.
• For MM2H participant aged 50 and above, your fixed deposit commitment is reduced from RM150,000 to RM100,000.
Things to be Aware of :
Location
Choosing the right location might seem daunting at first, but, as it is generally accepted that foreigners are happier if they settle in an area that offers the safety net of an expat community. This narrows down the choice of location considerably.
There are two large expat communities in Malaysia: one is in the capital, Kuala Lumpur (KL), and the other is in Penang. While the expat community in KL is considerably larger than the community in Penang, the majority of the expat community in KL are here in Malaysia on a work permit, while the majority of expats in Penang are here as retirees under MM2H. It seems logical for a retiree (who is not working) to retire to a non-capital city, where prices are lower, traffic congestion less, and the pace of life more in tune with retirement.
However, the usual advice to retirees, given by those who have lived here for several years, is not to buy at first, but to rent, and then only to buy when they are absolutely happy about the chosen area.
Landed Property OR Condominium?
Landed property is noticeably more expensive to buy, though cheaper to rent, than condominium apartments of equal size. In the long term, in spite of the vagaries of the economic cycle, landed property has continued to appreciate, while the value of certain ranges of apartment fluctuates according to supply and demand.
Other than amenities, another advantage of a condominium unit is that there is good security and that an owner or tenant can just lock the door and then take off, traveling either around Asia or even back to the homeland to visit family and friends with no worries about the property. Security of a house can be a problem, which is normally overcome by fitting security alarms and leaving a maid living in the property while the owners or tenants are away. Another solution to the security problem of landed property is to choose gated and guarded (G&G) residence – a cluster of houses where entry is restricted by “gates” (boom gates, chains or locks) across the roadways, resulting in the creation of an enclave and secure private community.
Condominiums are easy to maintain and clean, and can be run without the services of a full-time maid. Houses with gardens seem great, but, unless a gardener is employed, gardening can be very tiring in the heat of the day. Due also to the high temperature and high rainfall, the outer fabric of a house needs constant attention, whereas in a condominium the outer fabric of the building and the gardens are maintained by the management. The cost of maintenance is covered by the monthly management fee, which is typically paid by the owner of the condominium unit, not the tenant.
Brand New / Under Construction property
Be cautious when buying new property in unfinished condominium projects. Buyers may not be fully protected against default, an issue vigorously raised by the Malaysian House Buyers’ Association, which has pointed to flaws in The Housing Development (Control & Licensing) Act 2002, and the Strata Titles Act. Those buying unfinished property from developers should ensure that the developer has a valid Developer’s License and a valid Sales and Advertising permit. Malaysia property market favours investors, not flippers.
Malaysian property is not good for house flippers who are looking for fast and high resale gains. It is better for landlords because of historically high rental yields in areas like Kuala Lumpur, Penang, and Johor Bahru. If you expect it to be like overseas properties in the West, where you can buy at low cost, do it up, and sell it high the next year, you may be heading to the wrong battlefield. One reason is more than 90% of the demand is from Malaysians. Another reason is because of the highest-ever Real Property Gains Tax now in force in Malaysia.
Dealing with real estate agents
It is prudent to always agree upon the terms and conditions first before you engage any real estate agent in Malaysia. For example, while it is the seller who should be paying the commission for a successful sale transaction, the amount to be paid is dependent on the quantum of the transaction. Similarly, for lease agreements, the landlord pays a month’s rent for the transaction of a successful tenancy term (anything from one year and above) but negotiations are required if the lease term is less than a year. Such details should be ironed out and agreed upon before work proceeds to avoid any misunderstandings.
Higher Home Loan Interest
In Malaysia, the average interest rate of mortgage loan is between 4% – 5%. It may be one of the lowest rate countries among other developing countries in the region, but it is still considered high as compared to most of the developed countries. For this reason, some foreigners prefer to take up a loan from their original country with a lower rate, instead of borrowing from banks in Malaysia.
Every day, individual clients as well as other foreign partners worldwide rely on us for advice on MM2H matters as well as other local services. To see how the combined expertise of our specialists could also work for you, contact us for further information or to arrange a private consultation.
