1. Purchasing Process
2. Foreign Exchange Controls
Buyers must bear in mind that foreign exchange controls apply for expatriates and non-resident travellers in Malaysia. One of the main exchange control requirements include the Foreign Direct Investment (FDI) which dictates the following:
- Non-residents are subjected to no restrictions when purchasing ringgit assets, such as landed properties and securities. The investment settlement can also be made in either ringgit or foreign currency.
- Upon conversion into foreign currency, foreign direct investors are allowed to repatriate their investment, whether that includes capital, profits and dividends from divestment, without being subjected to any levy
3. Financing Your Investment
STANDARD FINANCING APPROACHES
Generally, foreign or non-resident buyers may undertake one of the following two options when financing the purchase of properties in Malaysia. The first entails securing the purchase with funds procured directly from the potential buyer’s home country. This is arguably the easiest, most straightforward approach as non-Malaysians are allowed to maintain Malaysian bank accounts without restrictions on ringgit amounts. Another possibility is to take out a loan with a Malaysian bank. Depending on the bank and the applicant’s financial standing, foreign interests are generally able to obtain a Margin of Financing of up to 70 percent. With a wide variety of choices available, including home loans designed specifically with foreign buyers’ interests in mind, it is advisable to shop around and inquire further about what different banks offer.
PROPERTY TENURE OR OWNERSHIP
The Torrens Land Registration System applies with respect to ownership of real property in Malaysia. Subsequent transactions under this system, created by registration under the National Land Code 1965, are registered against the title. Tenure falls under two categories: Freehold and leasehold, which entails a term not exceeding 99 years and 30 years, if the lease relates to a section of land.
FOREIGN PROPERTY OWNERSHIP
Be the purchase residential or commercial in nature, all property transactions, including those between foreign buyers and non-bumiputeras, no longer require Foreign Investment Committee (FIC) or Economic Planning Unit of the Prime Minister’s Department (EPU) approval, subject to a pricing threshold of MYR 1,000,000 and above per unit. Properties may be acquired via financing from external or internal sources.
Working with local solicitors, foreign buyers will still need to apply in writing to obtain prior approval to the relevant state authority, which is at liberty to impose any other conditions and the payment of such levy as it deems fit.
The following rules apply with respect to what foreign interest is not allowed to acquire:
- Properties valued less than MYR 1,000,000 per unit
- Residential units under the category of low and lowmedium cost as determined by the state authority
- Properties built on Malay reserved land
- Properties allocated to bumiputera interest in any property development project, as determined by the state authority
- Stall and service workshops
- Agricultural land developed on the basis of the homestead concept
- Properties gazetted under National Heritage Act 2005
4. Loan Application Information
WHAT CAN I AFFORD?
In purchasing property, one must naturally work out a realistic budget. What can I afford? What is the ceiling price on the property I want to buy? As a rule of thumb, your monthly commitments, inclusive of house and car installments as well as other payments, should not exceed one-third of your gross monthly household income.
Whilst the list below is indicative of the basic documents prospective buyers would require for a financial institution to process a loan application, it’s worthwhile to note that some institutions might request for additional supporting documents.
- A photocopy of identity card or passport
- Your latest 3 months’ salary slip
- Your latest income tax return form (form J) or EA form
- Sale and Purchase Agreement/deposit or booking receipt/ letter of offer from the housing developer
- A photocopy of the land title (if any)
- The latest bank statements (compulsory in the absence of salary slips and/or Form J/EA Form) dating back six months / savings passbook / fixed deposits
- Valuation report for completed houses and/or
- If you are self-employed, you need to provide your business registration documents, latest 3 months bank statements, latest financial statements and other supporting documents to support your income
Once your application is approved with a letter of offer from the institution in question, the next step is to appoint a lawyer (usually selected from a list of panel lawyers provided by the financial institution) to draw up the loan documentation for you. Some documents will also need to be submitted to the relevant government authorities for registration followed by a stamp of approval from the Stamp Office.
Once registered, the documents should then be submitted to the financial institution which will then furnish you with a copy of the loan agreement. The timeframe of this process is estimated to be around 6 months or less.
5. Threshold Limits
Foreign applicants are advised to check with local solicitors on the actual threshold limit specific to each Malaysian state, as the threshold limit may vary from state to state and from time to time.
|State / Area||Minimum Purchase Price||WITH MM2H|
|Kuala Lumpur||RM 1,000,000|
|Kedah||RM 1,000,000||No minimum|
|Melaka||(Individual Title)||RM 1,000,000|
|(Strata Title)||RM 500,000|
|Negeri Sembilan||RM 1,000,000|
|Penang Island||(Individual Title)||RM 2,000,000||RM350,000|
|(Strata Title)||RM 1,000,000|
|Penang Mainland||RM 1,000,000|
|Zone 1||RM 2,000,000 Individual title not permitted - only landed properties with strata titles|
|Zone 3||RM 1,000,000|
TAXES ON ACQUISITION & TRANSFER OF REAL ESTATE
CAPITAL GAINS TAX
In Malaysia, capital gains from the sale of investments or capitalassets other than those related to land and buildings are no ttaxable. Gains arising from the resale of real property situated in Malaysia, or on any interest, option or other rights in or over such land are, however, chargeable and subject to real property gains tax (RPGT). The same applies for the disposal of shares in real property companies.
The RPGT rates are as follows:
|DISPOSAL PERIOD||TAX RATE|
|Malaysian Company||Non-Malaysian Company|
|Disposal within 3 years after he date of acquisition||30%||30%|
|In the 4th year after the date of acquisition||20%||30%|
|In the 5th year after the date of acquisition||15%||30%|
|In the 6th year after the date of acquisition||15%||5%|
TAXES ON POSSESSION & OPERATION OF REAL ESTATE
STAMP DUTY & LEGAL COSTS
Payable by property purchasers, stamp duty is calculated on the higher of the money value of the consideration or current market value at the following rates:
|CONSIDERATION / CURRENT MARKET VALUE||TAX RATE|
|For the first MYR 100,000 (USD 23,354)||1%|
|For the next MYR 400,000 (USD 93,418)||2%|
|Remainder (Excess of MYR 500,000) (USD 116,772) ||3%|
Any transactions, be they sales, purchases or other forms of conveyances, involving immovable properties are subject to legal fees which are fixed at rates based on the consideration or adjudicated value:
|CONSIDERATION / ADJUDICATED VALUE ||SCALE OF FEES|
|First MYR 500,000||1% (subject to min fee of MYR500)|
|Next MYR500,000 ||0.80%|
|Next MYR 2,000,000||0.70%|
|Next MYR 2,000,000||0.60%|
|Next MYR 2,500,000||0.50%|
|Remainder (Excess of MYR 7,500,000)||Negotiable**|
** Negotiable, but shall not exceed 0.50% of such excess
Though no specific tax is levied on owners of property, a land tax known as ‘quit rent’ is levied by individual state governments. Payable on a yearly basis, this rate varies according to land category and size.
An assessment refers to a form of tax that is levied on properties situated within local authorities’ boundaries. Calculated as a percentage of annual value, the final amount varies according to location and property type. It is payable in two installments annually.