Property Malaysia

We have always wanted to learn more about real property gains tax (RPGT) in Malaysia, and have been searching for online resources for awhile.

The term real property here is referring to landed property in Malaysia such as residential property (houses, condominiums, apartments), commercial properties (shop houses, commercial lots, factories and office buildings) and land. The property must be in Malaysian territory. Foreign property will not be subject to RPGT.

Capital gains are generally not subject to tax in Malaysia. Real property gains tax is charged on gains arising from the disposal of real property situated in Malaysia or of interest, options or other rights in or over such land as well as the disposal of shares in real property companies. The tax rates for Malaysian citizens and permanent residents are as follows:

Disposal within 2 years – 30%
Disposal in the 3rd year – 20%
Disposal in the 4th year – 15%
Disposal in the 5th year – 5%
Disposal in the 6th year and thereafter:
Company – 5%
Individual – nil

Citizens and permanent residents also enjoy an exemption of RM5,000 or 10% of the gains whichever is the greater, besides a one-time tax exemption on the gains arising from the disposal of one private residence.
For non-citizens and non-permanent resident individuals, gains from the disposal of real property within five years are taxed at a flat rate of 30%, after which the tax rate will be 5%.

The holding period is measured from the acquisition date of the real property up to the disposal date.

Anyway, the best Malaysia online resource we’ve found so far is this helpdesk by property giant Sunrise and this site where someone has even given some calculated examples.

For further reference, you can check out official MIDA site, and this one, too.

If any experts out there are willing to help out, you are most welcome.

If you just move into a just-completed condominium or apartment, chances are, you would not have obtained your strata title.

What’s a strata title anyway? Its a title given to the owners of multi-storey buildings, after the developer has sub-divided the master title.

But in Malaysia, the problem is that the developer is always late in issuing these titles to all the buyers. What are the reasons?

• The master title has not been subdivided yet;
• The block title has not been issued to enable submission of applications for strata titles or floor titles;
• It cannot be done until the other phases and blocks are issued with CFs;
• The master title is encumbered;
• There are numerous caveats on the land title; and
• The building has been issued with temporary CF only.

This issue has plagued housebuyers for more than 30 years. According to a report by the New Straits Times,

In our annual tabulation of complaints received last year, involving a total of 212 housing projects and more than 37,810 purchasers, the problem of strata titles accounted for 29 per cent of the complaints, a one per cent increase from 2003.

Under Section 8 of the Strata Titles Act, developers must apply for strata titles within six months of receiving the Certificate of Fitness for Occupation (CF) or face a fine of not less than RM10,000 butt not more than RM100,000.

They are also subject to a further fine of not less than RM100 and not more than RM1,000 for each day that the offence continues to be committed.

For further info, you can check the whole article taken from the website for the Homebuyers Association.

We found this interesting post on buying insurance on your home under loan with the bank.

Banking On Houseowner’s Ignorance

Very interesting read, especially if you’re living in a condo and are being pestered to buy additional fire insurance by the building management corporation.

There is also a link to the General Insurance Association of Malaysia (PIAM)

We’re quite lacking in the ‘Knowledge’ section of this website, so we’re doing an entry on mortgage.

We found this excellent article by EDinformatics.com.

So what is a mortgage?

A mortgage (Law French for “dead pledge”) is a device used to create a lien on real estate by contract. It is used as a method by which individuals or businesses can buy residential or commerical property without paying the full value upfront. The borrower (called the mortgagor) uses a mortgage to pledge real property to the lender (called the mortgagee) as security against the debt (also called hypothecation) for the rest of the value of the property. In legal terms, the creation of a mortgage gives the legal title of the land to the mortgagee and an equitable title (called “equity of redemption”) to the mortgagor. The legal title, however, only exists as a security for a debt and does not convey any title or powers associated real property.

The website has more interesting write-ups on the history of mortgage, the mortgage finance industry, mortgage loan types, fixed rate mortgage calculations and even a section on Islamic mortgages.

For the full article (including a glossary of mortgage-related terms), check out the site.

Everybody needs a bank loan when buying a home, unless you’re the few that pay everything in cash (!). In Malaysia, there are 10 local anchor banks, most of them (if not all) are actively marketing your home loan packages during these good times for property investment.

There used to be many, many local banks, not to mention the small finance companies, but some years back during the financial crisis Bank Negara Malaysia (the Malaysian central bank) sought to consolidate the industry by mergers, so we now have 10. There is talk of another round of mergers down to 6 anchor banks, but there is no announcement yet.

Other than the 10, there is another 2 Islamic banks (also listed below). These are not including a few more development finance and savings institutions like Bank Rakyat and Bank Simpanan Nasional. For home loans, any one of the 10 banks will do. Number in parentheses is the telephone number.

For more on the home loan offered by local and foreign banks, yo ucan check out this series of articles in Property Malaysia:

Home Loans by Malaysian and Foreign Banks Part 1 : Local Banks
Home Loans by Malaysian and Foreign Banks Part 2 : Best selling Islamic Banks Loans
Home Loans by Malaysian and Foreign Banks Part 3

Local Banks:
Affin Bank Bhd. (+603 2055 9000)
Alliance Bank Malaysia Bhd. (+603 2694 8800)
Arab-Malaysian Bank Bhd. (+603 2026 3939)
Bumiputra-Commerce Bank Bhd. (+603 2693 1722)
EON Bank Bhd. (+603 2694 1188)
Hong Leong Bank Bhd. (+603 2164 2828)
Malayan Banking Bhd. (+603 2070 8833)
Public Bank Bhd. (+603 2176 6000)
RHB Bank Bhd. (+603 9287 8888)
Southern Bank Bhd. (+603 2087 3000)

Islamic Banks:
Bank Islam (M) Bhd. (+603 2693 5566)
Bank Mualamat (M) Bhd. (+603 2059 1389)

In addition to that, foreign banks also have a large presence in the country, and some like Citibank and HSBC are working closely with developers to offer home loan packages.

Foreign Banks:
ABN Amro Bank Bhd. (+603 2162 7888)
Bangkok Bank Bhd.(+603 2072 4555)
Bank of America (M) Bhd. (+603 2032 1133)
Bank of China (M) Bhd. (+603 2169 8117)
Bank of Tokyo-Mitsubishi (M) Bhd. (+603 2034 8080)
Citibank Bhd. (+603 2383 8585)
Deutsche Bank (M) Bhd. (+603 2053 6788)
HSBC (M) Bhd. (+603 2070 0744)
JP Morgan Chase Bank Bhd. (+603 2270 4111)
Bank of Nova Scotia Bhd. (+603 2161 0766)
OCBC Bank (M) Bhd. (+603 2692 0344)
Standard Chartered Bank (M) Bhd. (+603 2117 7777)
United Overseas Bank (M) Bhd. (+603 2692 7722)

Here’s a great FAQ on housing loan - something everyone should read before buying a house. It’s taken from the HBA website (take some time to explore the site, lots of useful information there).

On Housing Loans

Two important sections we’d like to highlight are the ‘Fees and Charges’ and MRTA.

And here’s a little something on MRTA, also from the same site:

The Mortgage Life Assurance or MRTA

This type of policy provides for full settlement of the outstanding balance of the housing loan with the financial institution, in the event of total permanent disability or death of the borrower. Premiums can usually be included in the loan amount, and the repayment period of the premium is usually spread over the loan tenure. The premium is only incurred once. There are no monthly or yearly premiums to be paid. In the event of early termination of housing loan, you will generally have the option to request for a refund of the premium for the balance of the unexpired period or to continue the insurance coverage.
Financial institutions have their own panel of insurers and most of them can arrange insurance on your behalf with the annual premium charged to your loan account.

Any foreigner buying property in Malaysia is required to get approval from the FIC (Foreign Investment Committee) and the State Authority. The FIC is part of the EPU (Economic Planning Unit) in the Prime Minister’s Department (JPM).

But before we go any further, who qualifies as a ‘foreigner’? (please insert your own AOR rock band joke here)

• Someone who is a not a Malaysian citizen; or a PR of Malaysia; or,
• A foreign-owned company or institution incorporated outside Malaysia; or,
• A local company or local institution with more than 50% of shares held by (i) or (ii) above.

According to the FIC, foreigners can only purchase properties valued more than RM150,000 and above, but there is no limit to how many units a foreigner may buy.

Foreigner on-selling to another foreigner requires to approval from FIC, if on-selling to a Malaysian individual / corporation, no approval necessary, but FIC need to be notified.

Some state authority approvals are specific, it would be best to check with them for a particular project you are interested in. Usually the developer can obtain the info for you. If you have queries for them, a good place to start would be the website for the Department of the Director of Land Office. (It’s in Bahasa Malaysia, though).

Recently one of my readers asked about withdrawing EPF savings to buy an apartment. So after some searching, here are some easy pointers for everyone planning that same path.

Basically there are 3 accounts in our EPF savings - Account 1 - Savings for Retirement (60%) Account 2 - Savings for Housing (30%) Account 3 - Savings for Medical (10%). Account two can be withdrawn entirely for buying houses – both privately built houses or for government housing.

Anyone with an EPF can withdraw. However, only those who have worked many years would have a substantial amount to be withdrawn. Also bear in mind, this sum is only for down-payment of your house, NOT for interim installments.

Below is a very useful Frequently Asked Questions (FAQ) taken from the EPF official site:

If I have bought a house using my EPF savings, can I withdraw my savings again to purchase a new house?
You are eligible to apply under Housing Withdrawal Scheme to purchase a second house on condition that you have sold the house that you have bought earlier with your EPF savings.

Can I withdraw my EPF savings to purchase a house paid in cash?
Yes, you can. You are required to submit the payment receipt made to the developer/vendor of not less than 20% from the purchase price of the house. The amount that you can withdraw is the purchase price of the house plus 10% of the purchase price or all your savings in Account II, whichever is lower.

Do I need to wait until 5 years as an EPF member before I can apply for withdrawal to purchase a house?
No, there is no waiting period for this scheme. You can apply for the withdrawal if you have savings in Account II.

I purchased a house jointly with several persons. Can we withdraw our EPF savings?
Yes, on condition that all the persons names are stated in the Sales and Purchase Agreement, which will then be included in the Deed Of Title. This is solely to protect the members’ interest.

Can I withdraw my EPF savings to purchase a piece of land?
You cannot withdraw your EPF savings to purchase a piece of land. However, you can withdraw your savings to purchase a land and build a house on it simultaneously.

If I build a house on a land owned by my spouse, can I make withdrawal to reduce/settle the housing loan balance?
Yes, subject to the condition that you are the borrower of the loan taken from the financial institution to finance the house.

Can I withdraw my savings to build a house on a land that is not in my name?
No, except to build a house on a land owned by your spouse.

(If you have any questions or viewpoints, feel free to leave them in the ‘comments’. All are welcome!)

Further to my post last week, I’ve found another interesting section from the book Property Ladder by Sarah Beeny.

Buying in a Rising Market – A Word of Warning

‘Trading or speculating on the property market is not the same thing as property developing. It simply means buying properties and either waiting for the market to change in some way or selling the property to someone who will pay more for it than you did in the state when you bought it.

This is effectively the same as if you were a broker trading in the stock market – brokers are not doing anything to add value to the shares, they are gambling on outside forces that are driving the prices up or down. While a rising market may seem an exciting way of gaining lottery-type amount of money for doing almost nothing, it is important to be realistic about what is happening.

A slow and steady growth in property prices undoubtedly benefits everyone but a very buoyant market where property prices rise dramatically over a short period carries with it the danger of unsustainable growth and the knock-on effect of the market becoming overheated and either leveling off or actually dropping (as happened in the 1980s).

Either way there is little you can do to affect the market (unless you have the buying power of an oil tycoon). If you are making a profit on the property due to the rising market rather than actually adding value by changes you make to the property yourself, then you might as well buy a newly-modernized home that someone else had sweated blood over and enjoy living there until it is time to sell.

Your profit should always be calculated on the basis of the value of the property on the day you purchased it. This way if the market rises, so well and good, but if it does drop it will still have a long way to go before you make no profit at all. Don’t forget that as prices go up, unless you are planning on jacking it all in and spending your capital backpacking around the world (quite tempting sometimes) you will have to spend more on the next property you buy so you don’t actually gain that much in the grand scheme of things.

The only one to really gain from a rising market is the Chancellor of the Exchequer (The British Finance Minister), as the more properties cost the more stamp duty is due.’

Some sound advice there, I must say.