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  • Writer's pictureFIONA TEH

Guide to Buying Secondary Market Property in Malaysia (Part I)

Costs involved to purchase a property in the Secondary Market (i.e. sub-sale property).




Introduction

It was announced under Budget 2022 that the Malaysian government would no longer impose real property gains tax (RPGT) for the disposal of property from the sixth and subsequent years after acquisition. Such an announcement is seen as a timely move that will help boost the property market in Malaysia. It is also good news for the purchasers as property owners will be enjoying significant savings from such removal of RPGT and are more willing to settle for lower prices in selling their properties.

Nevertheless, purchasing a property can be a complicated and intimidating process, be it for first-time property purchasers or even for regular property investors. This article is part of a series of articles which aims to provide some guidance on purchasing a secondary market property (i.e. a sub-sale property).

Budget and Cost

To assist the purchasers in managing their budget and cash flow, this article sets out the costs involved in purchasing a secondary market property and the timing for payment of purchase price.


(a) Legal Fee

The legal fees for handling the sale and purchase transactions and loan transactions are regulated under Solicitors’ Remuneration (Amendment) Order 2017 as follows:-



Apart from the above legal fee, the other costs and disbursements incurred in a sale and purchase transaction (including land search, bankruptcy search, transportation, postage, printing, stamping, and registration fee for the registration of instrument at the relevant land office/land registry) are usually ranging from RM1,000.00 to RM1,500.00. Legal fees and disbursements are usually paid to the solicitors during the execution of the sale and purchase agreement (SPA).


Apart from the above legal fee, the other costs and disbursements incurred in a loan transaction (including land search, bankruptcy search, transportation, postage, printing, stamping, and the fee for purchasing loan documents) are usually ranging from RM1,000.00 to RM1,500.00. Legal fees and disbursements are usually paid to the solicitors during the execution of the loan agreement. Sometimes the solicitors acting for the purchaser in a sale and purchase transaction may be appointed by the purchaser’s bank or financial institution to handle the loan transaction. It should be borne in mind that when the bank or the financial institution appoints the solicitors, the solicitors are acting for the bank or the financial institution not for the purchaser even though the legal fee is paid by the purchaser to the solicitors.

(b) Stamp Duty

Stamp duty is essentially a tax levied on the instrument of transfer (i.e. the Memorandum of Transfer if the individual title or the strata title has been issued, or the Deed of Assignment if the individual title or the strata title has not been issued) based on the purchase price or the market value of the property as determined by the valuation department of the Stamp Office, whichever is the higher. The latest stamp duty rates are as follows:-

Stamp duty also applies to the loan agreement. If the purchaser intends to apply for a loan from any bank or financial institution to finance the purchase of property, the stamp duty levied on the loan agreement is calculated at 0.5% of the total loan sum.

Note: The first-time property purchasers will enjoy the full stamp duty exemption for both instrument of transfer (as provided under Stamp Duty (Exemption) Order 2021 [P.U.(A) 53]) and loan agreement (as provided under Stamp Duty (Exemption) (No. 2) Order 2021 [P.U.(A) 54]) for the purchase of their first residential property the market value of which is not more than RM500,000.00. The exemptions are applicable for SPA executed between 1 January 2021 and 31 December 2025. The application for the stamp duty exemption shall be accompanied by a statutory declaration under the Statutory Declarations Act 1960 [Act 783] by the individual purchaser confirming that he has never owned any residential property, including a residential property obtained by way of inheritance or gift, which is held either individually or jointly.



(c) Valuation Fee

If the purchaser is applying for a bank loan to finance the purchase of property, the bank or the financial institution will usually require an independent valuation report to be prepared by a licensed property valuer. The valuation fee is payable by the purchaser, which is calculated based on the value of the property on a decreasing scale rate ranging from 0.25% to 0.04%.

(d) Payment of Purchase Price


Normally, in a sub-sale transaction, the purchaser is required to pay 10% of the purchase price as a deposit, 3% of which will be paid to the real estate agent as stakeholders during the execution of the Offer to Purchase (also known as the Letter of Offer or the Booking Form), and the balance 7% will be paid to the seller’s solicitors as stakeholders during the execution of the SPA.


The balance 90% of the purchase price (Balance Purchase Price) is usually paid by the purchaser either by cash or by way of loan, within three months from the date of the SPA or the fulfillment of the relevant conditions precedent (such as obtaining state authority’s consent, obtaining developer’s consent/confirmation, obtaining an order for sale, etc.), subject to the terms and conditions of the SPA. If the purchaser fails to pay the Balance Purchase Price within the three months, he is usually entitled to a one-month extension, subject to 8% late payment interest to be charged on the unpaid Balance Purchase Price calculated on daily basis until the date of full payment of the Balance Purchase Price.

If the loan sum obtained by the purchaser is less than the Balance Purchase Price, the purchaser is required to pay the difference between the Balance Purchase Price and the loan sum to the seller’s solicitors as stakeholders before the disbursement of the loan sum by the bank or the financial institution.

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