Buying property in Malaysia as a foreigner

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Following up my previous post on buying property in the Philippines, I’d thought I’d move on to Malaysia. The usual caveats apply!!!! I’m not a financial consultant, nor real estate guru!! With that said…..

Malaysia lies right in the heart of the South China Sea, a multi-ethnic, multi-religious, multi-cultural country that was recently ranked by the World Bank as the number one emerging economy in East Asia, and number four in Asia overall.

With 29 million inhabitants, Malaysia is a diverse country that is known for its friendliness, its forests and its famous hawker street food. Add in a warm climate all year round, a low cost of living and an international travel connection point in the form of Kuala Lumpur’s International Airport, and the benefits of this attractive destination are clear.

The ease with which foreigners can purchase property should also be added to this list, along with the flexibility provided by its legal system which has its roots in UK law.

The political environment in Malaysia contributes significantly to its attractiveness as a destination for global business and investment. In general terms ,the prominence of Muslim Malays in the country (around 60% of the population) deliver stability in policy and regulation across business, education and civil service, while the economic power held by the Chinese contributes wealth and growth.

Malaysia’s foundation as a vibrant economy was laid decades ago, and has been supported by ongoing industrial growth, particularly in manufacturing. In recent years this sound performance and a new reputation as a hub for global start-ups, means that Malaysia has begun to attract increased interest from business, investors, residents and tourists alike.

In addition, the government is making increased efforts to build Malaysia’s reputation as a home for retirees and expats, via the popular program known as Malaysia My Second Home (MM2H -more on this later).

Accordingly, tourism services are also growing, and these provide an abundance of lifestyle and entertainment opportunities that make Malaysia an attract place to live, work and visit.

What’s the property market like in Malaysia?

Over recent years, the property market in Malaysia has climbed steadily higher, although from the end of 2016 the steep price rise has appeared to level off. The final quarter of 2016 saw prices rising 5.36% year on year, compared to 7.35% year on year for 2015.

Average property prices in Malaysia vary enormously, depending on where the property is located. It’s common to buy property rather than rent, even for younger people, and so the steady demand creates plenty of opportunity for buyers and sellers alike.

Kuala Lumpur, Georgetown and Ipoh are all sought-after areas to live in, whether that’s for expats, retirees, students or locals. Accordingly, the properties in these cities command higher prices. Kuala Lumpur – affectionately referred to as “KL” by locals – is the most expensive region, with average house prices of around RM 770,000 (US$173,000).

  • In Kuala Lumpur, you can expect to pay around US$2600 per square metre for property inside the city centre. For properties outside the city centre, that falls to around $1,300.
  • In Georgetown, you can expect to pay around US$1500 per square metre in the city centre, with prices outside the city centre at a more reasonable $1100.

There is a steady market for rentals, with Malaysian property offering stable yields of between 4-5% per annum over the past two years.

What kind of property is available in Malaysia?

The country is well developed, and you can choose from a wide range of flats, condos, houses or land for your property purchase. These terms means different things in Malaysia than they do in other parts of the world, so it pays to know the lingo:

  • A condominium apartment refers to a unit in a block with common facilities such as a gym, swimming pool and tennis courts
  • A flat refers to a unit in a block without any additional facilities
  • A bungalow refers to a detached, stand-alone property – but it can be two or three stories high, rather than the single level Californian bungalow you might be more familiar with
  • A villa is a stand-alone property that can also be more than one storey high. A villa is more likely to be found in a newer development or gated community, and can come with or without additional facilities.

 Can foreigners buy property in Malaysia?

Foreigners are encouraged to buy property in Malaysia, although – like all countries – there are some restrictions that apply. However, foreigners can own 100% of the property as long as the minimum requirements are met.

In addition, the government of Malaysia is particularly encouraging foreigners to make Malaysia their second home, whether that’s through investment, long-term stays, or retirement. Under the 10-year MM2H visa, lower purchase limits apply (ie, under RM1 million).

Foreigners can own any type of property as long as its value is above the limit set by each state – generally that means a value above RM1 million (approximately US$235,000), although in some areas of Malaysia (most notably Penang, Selangor and Melaka), the value must be above RM2 million.

This applies to both residential and commercial properties. It means you can generally purchase a flat, apartment, condominium, studio, bungalow, terrace house, individual house, commercial property, or industrial property or land.

There are no current limits on the number of residential properties that you can own in Malaysia as a foreigner.

Be aware that some states (there are 13 in Malaysia) have set restrictions on the types of property a foreigner can purchase, for example, by stating that purchases must be within a gated community (eg in Selangor).

In addition, minimum set values can change, so make sure you always engage a lawyer who is familiar with recent developments in policy, or who can check what the current limits are.

Are there exceptions to the kind of property that foreigners can buy in Malaysia?

Some exceptions do apply to foreign property purchasers. Foreigners cannot buy:

  • Low and medium cost residential units, as defined by the state authority
  • Properties that are located on Malay Reserved Land
  • Properties allocated to Bumiputra (indigenous Malays), as determined by the state authority
  • Most agricultural lands

In addition, foreigners are generally not allowed to purchase property that is valued at over RM10 million. To purchase a property above this price point, you must gain approval from the Foreign Investment Committee.

What is the legal process for buying property in Malaysia?

In general, once you’ve made your decision, inspected a property and checked all the necessary documentation, a property purchase can be easily agreed between the buyer and seller.

The process operates in a similar way to that in Australia, New Zealand and the UK, so it will feel familiar to buyers from those countries as well as purchasers from other parts of Europe and North America.

The steps take place in this way:

  • Buyer and seller agree on the sale and purchase price
  • Buyer’s real estate lawyer drafts a Letter of Offer/Acceptance which is signed by both buyer and seller
  • Buyer contributes a deposit of 2-3% of the purchase price, to demonstrate good faith
  • Within 14 days, buyer and seller sign the Sale and Purchase Agreement. At this point, the buyer pays an additional 7-8% deposit
  • The Purchase Agreement is stamped at the Stamp Office after the purchase price is verified.
  • Buyer pays stamp duty, which can be up to 3% of the purchase price
  • Buyer has a maximum of three months to settle the rest of the purchase price from the date of the signing of the Purchase Agreement
  • The property’s change of ownership is then registered at the Land Office Registry

A good lawyer is an essential part of the purchase process in Malaysia. The rules for foreigners buying property are different in different areas of the country, and they are often reviewed and changed.

A specialist real estate lawyer can ensure you remain compliant with the regulations as well as help to protect you throughout the purchase process.

Be aware that foreign property purchases also need to be approved by State Authorities, who consider factors such as the location of the property, the type of property and the percentage of total units in a new development that are owned by foreigners.

State approval can take from six weeks to six months, so make sure you build this timeframe into your planning. Your lawyer will take care of this approval for you.

What kind of title system operates in Malaysia?

Malaysia uses the Torrens title system that is also in operation in many other countries including Australia and Singapore.

Foreigners can purchase two types of land ownership in Malaysia: freehold and leasehold.

  • Freehold land means the owner can use the land for any purpose and in perpetuity.
  • Leasehold means that the land itself is owned by the government. It is usually leased for periods of 99 years, with lease renewals made via payment to the state government.

In Malaysia, both freehold and leasehold properties are issued with the following property titles:

  • Master title: this is issued to a property developer, who owns the “master” before any individual or strata titles are granted.
  • Strata title: this title is given to sub-divided Malaysian properties such as condominiums, flats, and apartments. These properties are on the same land but have different owners. However, an individual house or other landed property with shared facilities is also considered to be a strata title.
  • Individual title: properties such as semi-detached houses, bungalows, terrace houses etc. These properties are on land that is owned by an individual land owner.

Both Individual and Strata titles are protected under the National Land Code (NLC) and have the same legal status.

Be aware that serviced residences are often on commercial titles, as they’re frequently located on top of commercial property.

What are the costs of buying property in Malaysia?

If you buy property in Malaysia, you can expect to pay a deposit, and range of standard fees and charges. In total, budget for an additional 4-10% of the total purchase cost of your property.

  1. Deposits are usually around 10% of the total purchase price. These are paid in two installments – a deposit of 2-3% is paid when you sign the Letter of Offer/Acceptance. Then you must pay the remaining 7-8% deposit when you sign the Sale and Purchase Agreement, which must be done within 14 days of signing the Letter of Offer/Acceptance.
  2. Stamp duty is from 1-3% of the purchase price, and is paid by the buyer.
  3. Solicitor’s fees can be between 0.4-1% of the purchase price. You will only pay the fees of your solicitor, not those of the seller.
  4.  Estate agent fees can be paid by either the buyer or seller, or both, and they are regulated in relation to the cost of the property. They tend to be under 3% of the purchase price.
  5.  Administrative fees including search fees and other charges, to a total of around $49.
  6.  Surveyor’s fees must be paid to inspect the property. It’s usually a good idea to get an inspection, and many banks will make it a prerequisite for any loan application. You can find aregistered surveyor online.
  7.  State levies can be between 2-3% of the purchase price, depending on the state in which your property is located.
  8.  Settlement of the remaining 90% of the purchase price must be made within three months of signing the Sale and Purchase Agreement.

Generally, to buy a property in Malaysia you will either need to have the full amount available as savings, or you will need to take a mortgage through a Malaysian bank such as Maybank, Public Bank Berhad, RHB or CIMB.

If you already have an account with a large foreign bank such as HSBC, Deutsche Bank or Bank of America, you can also take a loan through one of their local branches.

What are property taxes like in Malaysia?

If you buy a property to rent to a tenant in Malaysia, you will need to pay tax on your rental income. The amount differs according to whether you are resident in Malaysia or non-resident. You are considered to be a resident if you stay in Malaysia for more than 182 days (around six months) in a calendar year.

Malaysian taxation for rental income is currently calculated at the following level:

  •  Resident status for foreigners: 0-25%
  • Non-resident status for foreigners: 25%

If you sell your property in Malaysia, you will be liable for Real Property Gains Tax (RPGT). It’s relatively low compared to other countries in the region, but can be complex depending on your individual situation.

If you are a foreigner selling your property in Malaysia the rate will range from 5-30% depending on how long you have held the property, along with other factors.

Check this article for more details.

Malaysia My Second Home (MM2M) Program

The MM2H program has been put in place by the Malaysian government to help support foreigners and their families who want to live in Malaysia on a long-term basis. It’s basically a renewable 10-year visa that is especially popular with expats and retirees.

In order to apply for MM2H, foreigners below 50 years old must have at least RM300,000 evidenced in a savings account or fixed deposit. From the second year of your residency, you can withdraw up to RM 150,000 to put towards the purchase of a property.

Those aged above 50 years need to have at least RM350,000 in a similar account and can withdraw up to RM50,000 to use for a property purchase.

Additionally, if you buy a property that is worth RM1 million or above, your fixed deposit commitement is reduced in this way:

Below the age of 50 – reduced from RM300,000 to RM 150,000

  • Above the age of 50 – reduced from 150,000 to 100,000

MM2H offers expats a range of benefits, but one of the key features is that MM2H visa-holders can buy property in a range of states that is under the RM1 million threshold for other purchasers. However, it can also be higher.

For example:

State Min. Purchase Price

(individual title)

Min. Purchase Price

(Strata title)

Min. Purchase Price

(MM2H)

Kedah RM 1 million RM 1 million No minimum
Kelantan RM 1 million RM 1 million RM 500,000
Malacca RM 1 million RM 1 million RM 500,000
Perak RM 1 million RM 1 million RM 350,000
Perlis RM 500,000 RM 500,000 RM 1 million
Penang

Penang Island

Penang Mainland

 

RM 2 million

RM 1 million

 

RM 1 million

RM 1 million

 

RM 500,000 – max. two units

Sabah RM  1 million RM 1 million RM 500,000
Sarawak RM 400,000 RM 400,000 RM 300,000

There are some other restrictions to MM2H – in Selangor, for example, MM2H visa holders must buy a new property direct from a developer, rather than buying a pre-owned property, and each family is only allowed to own one property.

MM2H also offers other benefits, such as an increased loan-to-valuation (LVR) ratio of up to 80%, whereas foreign buyers without the visa can generally only access an LVR of 70%.

However, MM2H visa holders married to a Malaysian citizen can apply for finance with their spouse, and receive an LVR as high as 90%.

Check the MM2H website run by the Malaysian government, or www.mm2h.com  for all the fine details relating to this popular 10-year visa.

Work with a licensed real estate agent

Like all countries, the property market and the process of buying property in Malaysia can be tricky to navigate. It can help streamline your search significantly if you work with an agent and a lawyer who have a solid track record.

A licensed real estate agent will know the market intimately and can often put you in touch with people or opportunities that will help your search. In the negotiation and sale stages, you’ll appreciate having someone to handle the details for you and get you the best deal.

Check the Malaysian Institute of Estate Agents to ensure their registration is legitimate and current.

You can also begin by searching for an agent or a property online, by using one of the many property websites to help you narrow down what you’re looking for.

Knight Frank is an international agency offering luxury properties to international clients.

Property Guru is an aggregate site that collates properties being offered for sale by different agencies across Malaysia.

MM2H is a site run by the Malaysian government, designed specifically to help foreign investors or retirees with their property search. The site has a list of registered agents who cover the entire country and are accustomed to dealing with foreign transactions and expats.

Protecting your property in Malaysia

When you own property of any type it’s best to protect it – both with insurance, and with a will in case of your death.

Malaysia recognizes the validity of international wills that relate to properties owned by foreign residents and non-residents. However, it’s highly recommended that you make a will in Malaysia if you own property, or if you live there permanently and would be considered a ‘permanent resident’ of Malaysia at the time of your death.

If you die intestate – that is, without a will – there can be delays in the transfer of your property and assets to your beneficiaries under the law. There is no inheritance tax in Malaysia however, so your beneficiaries can inherit your property without any financial impact.

Making a will in Malaysia and specifically addressing your Malaysian properties and assets can help to avoid the risk of delays that may otherwise take years to settle.

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