Despite a tumultuous first half of 2020, experts say that Malaysia can still expect to experience a rise in foreign purchases in property in the next 12 months.
The reason for this is because in the budget 2020 proposal, the Malaysian government has lowered the purchasing threshold for foreigners from RM1 million down to RM 600,000. This also applies to high rise properties.
Properties that will benefit from this change will be located around high-rise dense areas such as Kuala Lumpur City Center, due to the current high rise oversupply in the market. Foreigners will be attracted to these properties as it will be seen as an investment property.
Once the lower threshold comes into effect, the property market should experience a strong demand from foreign buyers. In a recent survey conducted in November 2019 that polled over 300 real estate agents, they reported that property transactions, rental and pricing have all been experiencing good growth.
According to property experts in Malaysia, there is historical data that shows a recovery in Malaysia’s real estate market despite the current economic climate. They also state that Malaysia is attractive to global investors because of its strong infrastructure and the bolstered outlook of the Ringgit. The forecast says that the Ringgit will stay constitutionally stable – and it’s expected to strengthen against the US Dollar in 2020.
The Malaysian government is moving forward with the Malaysian My Second Home (MM2H) to attract more foreign investors to stay in Malaysia as well.
Malaysia My Second Home (MM2H)
Malaysia My Second Home is a programme introduced by the government back in 2002. It was promoted by the Malaysia Tourism Authority (MOTAC) and the Immigration Department of Malaysia. It allowed foreigners to stay in Malaysia for up to 10 years.
Since its introduction, MM2H has positioned Malaysia as one of the most foreigner friendly countries in Southeast Asia especially for real estate investors. This programme has attracted over 40,000 applications since its inception.
“I want to purchase a property in Malaysia and I am a foreigner, what should I do next?”
Before you make any major decisions, there are policies, restrictions and legal fees that the Malaysian government has imposed on buying a local property.
Here are six secrets expats need to know before buying a property in Malaysia.
1. Know what type of property you can purchase in Malaysia
Malaysia has one of the most liberal requirements for foreigners when it comes to property purchases. You just need to understand what the minimum government requirements are, and ensure that you can meet them.
By Malaysian property law, foreigners can own ANY type of properties EXCEPT the following:
A. Properties under RM1 million in most major states (pending the new Budget 2020 changes)
B. Properties that are on Malay Reserved Land
C. Residential units that are designated as Low and Medium cost units
D. Properties that are designated under the “Bumiputera quota” (as determined by the government or state)
The easiest entry level property for a foreigner would be a studio unit, located in the Kuala Lumpur City Center as KL is a melting pot of international investments and tourists. Many of the high rise projects here cater to foreign purchases.
2. Know the minimum property price threshold varies from state to state
In general, there is always a minimum value of RM1 million property price threshold in all Malaysian states. Nonetheless, please note that each state still reserves the right to amend the minimum value threshold.
In the Budget 2020, it was announced that starting next year, the Government will reduce the minimum price of properties at which foreigners can make a purchase. This reduction was from RM1 million down to RM600,000.
However, do note that this price threshold reduction will only be for a year, and only applies to properties that have been built, but remain unsold. The good thing is that Malaysian property prices are still generally lower than other developed countries, and very much lower than our neighbouring country Singapore.
Thus, this makes purchasing a Malaysian property an attractive proposition with or without the price threshold reduction.
Do understand that many properties in Malaysia were built on speculation, and sold to buyers hoping to flip them quickly. Unfortunately, with the current global economic situation, even before the pandemic, there was a massive “property overhang” – in others words, properties that could not be flipped.
The government believes that, by temporarily lowering the minimum purchase price threshold, they could resolve the property overhang problem.
3. Paperwork you need when purchasing a Malaysian property
(This gets a little technical, but bear with us – it is a comprehensive list, after all.)
1. Obtain the sales form (from developer) and sign it
2. If necessary, apply for financing sufficient to purchase the property
3. Provide these documents to your solicitor:
– Copy of your passport
– Your valid registered address and contact number
– Your income tax number and the location of your income tax submission (for sub sales only)
4. From the date of the signing of the sales form or the offer to purchase, you have 14 days to sign the Sales and Purchase Agreement (SPA), the deed of mutual covenant and other documents. You then need to pay the agreed earnest deposit to the developer or the vendor.
5. Your solicitor then needs to apply for the state authority consent. You will also need to provide the following documents:
– 1 certified true copy of your Sales and Purchase Agreement
– 1 certified true copy of your passport
– 1 certified true copy of company constitution (if you are buying under a foreign company)
– Obtain and submit the latest quit rent and assessment receipt for the property
– Submit an application form under Section 433B of the NLC
6. Finalise the remainder of your purchase price payment that follows the Third Schedule of the Schedule H, Housing Development (Control and Licensing) (Amendment) Regulations 2015 (known as “Schedule H”) or the SPA
7. According to Schedule H, the developer shall then deliver vacant possession of the property. They have 36 months from the date of the SPA agreement. If there are delays, it has to be approved by the relevant authorities.
8. Once the keys to the property have been handed over (delivery of vacant possession), the strata title and certificate of completion must be delivered by the developer and verified by the foreign buyer. If you are purchasing a sub sale property, the vendor will hand over the property (vacant possession) to the foreign buyer in accordance to what has been stated in the Sales and Purchase Agreement (SPA).
4. What are the hidden costs?
There are three major costs involved when you purchase a property other than the price of the property.
- Property Stamp Duty
|Price Tier||Stamp Duty
(it is a % of the property price)
(RM101,000 – RM500,000)
|RM500,001 – RM1,000,000||3%|
|> RM1,000,000 onwards||4%|
- Legal Fees (For SPA and the Loan Agreement)
|Property Value (RM)||Legal Fees
(% of property price)
|Up to RM500,000||1%
(There is a minimum rate of RM500)
|RM500,001 – RM1,000,000||0.8%|
|RM1,000,001 – RM3,000,000||0.7%|
|RM3,000,001 – RM5,000,000||0.6%|
|When adjudicated value exceeds RM7,500,000||This rate is negotiable and will not exceed 0.5%|
- Real Property Gains Tax (RPGT)
Although this is not an outright cost tied to your property purchase, foreigners should still take note of this. The reason being that amendments were made during Budget 2019 whereby RPGT was to be increased from 5% to 10% (from the sixth year onwards) for foreigners who are selling their properties.
If you sell your property within the first five years of ownership, the RPGT will be charged at 30% of the profits made from the property sale.
5. Can foreigners buy property at a cheaper price?
Yes, if you wish to apply under the Malaysia My Second Home (MM2H) programmeme. As briefly explained earlier in this article, MM2H is a programmeme by the Malaysian government to encourage foreigners to stay in Malaysia for up to 10 years (10 year visa approval). Many foreigners have already applied for this programme as they want to retire in Malaysia.
Some of the requirements to qualify for this programme are:
Foreigners below 50 years of age have to have a cash deposit of RM500,000 in a local savings account. Those above the age of 50 years of age must have at least RM350,000 cash in their local savings account.
Although this may seem like a high requirement, the advantages of the MM2H programme is that foreigners can purchase relatively cheaper property. It is best to check with your property agent to understand what discounts you may qualify for.
6. Can foreigners get Home Loan financing?
MM2H programme holders can receive up to 80% of Margin of Finance (MOF), while non-MM2h holders would qualify for 70% MOF. If you are purchasing a property without the MM2H programme, it is advisable to get a loan from foreign banks in Malaysia.
If a foreigner has a Malaysian citizen spouse, and qualifies for a loan, the spouse can obtain up to 90% financing for the home loan. However, do note that the financing loan has to be in the name of the Malaysian spouse.
If you wish to purchase a property now, make sure you are prepared with enough liquidity and also be sure to purchase properties that are foreign investor friendly when it comes to paperwork and customer service.
Based on the information discussed in this article we hope you understand that as a foreigner, there are still certain policies and legal fees imposed by the government. Malaysia still strives to be a foreigner-friendly country, and their living costs are still relatively cheap. So there are still many advantages to purchasing a property here and calling Malaysia home.
For more information, you can contact the 8 Conlay team here.