“I don’t know about business practices in Malaysia”
“What criteria should we apply when choosing a site or building?”
“What’s the procedure for choosing property?”
Do you have questions and uncertainties like that?
Here we have summarized the acquisition method of building site, and the process and tips to buy or rent a real estate in Malaysia as the useful information for the person in charge of launching projects to build factories and warehouses.
This article has been created by Plus PM Consultant Sdn. Bhd., a construction consultant based in Kuala Lumpur, Malaysia, who provides project & construction management services and supports the investors who are looking to enter and expand their business into ASEAN market.
Acquisition of building site in Malaysia
Lands in Malaysia are under the jurisdiction of the state government, and you can register the ownership of a land by state government fiat.
According to “the guideline for real estate acquisition” by EPU (Economic Planning Unit), the minimum price of the real estate which can be acquired by a foreigner / a foreign company is a million Ringgit, but the minimum price varies depending on states.
What are “freehold” and “leasehold”?
There are two kinds of land ownership: freehold and leasehold.
Freehold:
Freehold allows the owner to register ownership for both land and building when purchasing a real estate. The state government used to own all the land of Malaysia but then sold and transferred some of them for plantation. By freehold, the owner can register permanent ownership of the property.
Leasehold:
Leasehold is the property that is leased by the state government. The government sets lease period of 30, 60, or 99 years. The lease period of a condominium is mostly long (about 99 years), and the content is almost same as freehold. Leasehold is common form of ownership.
The purpose of use of land is specified beforehand such as for a farmland, industrial site, commercial land, or housing site, and the use for the purpose other than specified purpose is prohibited.
Process flow of real estate acquisition
The process of acquisition of the land and real estate in Malaysia is:
| STEP１ | Selection of property (setting evaluation standards) |
| STEP２ | Observation and check of the property |
| STEP３ | Check delivery terms and Conditions with the seller |
| STEP４ | Letter of offer is issued by the seller |
| STEP５ | Payment of deposit (usually 2% of the price of the property) |
| STEP６ | Preparation of the Sales & Purchase Agreement (SPA) |
| STEP７ | The seller and buyer sign SPA and the buyer pays 8% of the price |
| STEP８ | Transfer procedure ・Apply to EPU to obtain authorization if needed ・Apply to the state government to obtain authorization ・After obtaining authorization by EPU and the state government, pay the remaining 90% ・Apply to the Land Office for registration and pay the registration fee |
| STEP９ | Registration is completed after procedure at the Land Office |
Merit of hiring a construction consultant in Malaysia
In principle, both persons involved to the contract are on equal footing However, in Malaysia, seller is on the dominant position in SPA, so you need to check the risk.
For example:
STEP5 Payment of deposit (usually 2% of the price of the property) before preparing SPA
What risk do you face here?
The risk in this case is the “payment of deposit (2% of the price of the property) if SPA is unacceptable”. Before paying deposit, it is important to confirm if deposit can be refundable depending on the condition of SPA.
The following is the information for negotiation with the buyer after checking SPA.
In cooperation with a lawyer experienced in construction project, we extracted risks of the project focusing on downstream of the project and checked for unfavorable conditions before paying deposit and signing SPA.
It is recommended to check documents for registration of land and building, regulatory documentations, conditions of ground and infrastructure (electricity, water, gas) and necessity of registration of division or plottage of lot. These factors would have a major impact on cost of building and schedule.
Do not accept SPA without questioning because the agent or the seller is kind.
Cautions when signing a lease
Check all relevant authorities’ approval, certificate of occupancy (CF or CCC), certificate by fire department (BOMBA Approval).
If the other party says, “We are currently applying” or “We have received provisional approval”, there is likely to be high risk (of being an illegal building or such).
In a lease agreement, the cautions are same as when signing a SPA.
It is important to check the delivery terms and have the building repaired at owner’s cost if necessary. You need to check contract conditions because you may need to pay remaining rental if the contract is terminated before the lease term expires.
Tips for choosing a real estate agency and lawyer
Tips for choosing a real estate agency
Buyers usually do not have to pay commission when buying a real estate because sellers pay for it. However, foreign companies who are unfamiliar with local business custom are sometimes requested to pay undue commission by local estate agencies, so you need to check such conditions.
Tips for choosing a lawyer
In Malaysia, an agreement is prepared by the intermediary of a lawyer who specializes in real-estate deal, not a real estate agency. However, the lawyer is not an expert in construction project, so it is difficult for such lawyer to give advice on defects in land or building to “protect the buyer”. Some real estate agencies or buyers may introduce you a lawyer, but we recommend you choose a lawyer who can reduce risks to the buyer.
Note that disclosure statement (an explanation that a real estate broker is required to provide before contract when buy, sell, or broker land or building) required by Japanese law is not compulsory in Malaysia.
Therefore, the buyer needs to assess and eliminate all possible risks because pursuit of responsibilities of seller after the contract is difficult even if any defect is found in the property.
Cost for acquisition of real estate
Cost for acquisition of real estate is relatively low and most of the cost is determined based on property price, which is usually 4% of the price of the property.
- Stamp tax （1-3％）
- Legal fee （0.4％-1％）
- Registration fee （varies according to state and property）
Malaysia Industrial Park
You can check the list of Malaysia Industrial Park on ASEAN Promotion Centre on Trade’s website. Click below to jump to the website.
Refference： ASEAN Promotion Centre on Trade’s website
Summary
- Register ownership after authorization by the state government
- Check whether freehold or leasehold
- Check risks in the agreement (SPA)
- Check relevant authorities’ approval, certificate of occupancy, certificate by fire department
- The business owner should take the initiative in eliminating risk because pursuit of responsibilities of seller after the contract is very difficult
For customer who is considering investment in construction in Malaysia
As a construction consultant, Plus PM Consultant Sdn. Bhd. carries out project management using construction management method.
工We handle various building project such as factory, warehouse, condominium, hotel, restaurant, and tenant. We also provide construction consulting service for overall construction investment and consulting service for site selection. Feel free to contact us.
This article has been created by Plus PM Consultant Sdn. Bhd. based on on-the-ground research and information in the following websites.
We go to great length to ensure that the informational contents on this website and article are as accurate as possible. However, the accuracy of the contents of the article is not always guaranteed. Unauthorized reproduction of these contents is not allowed.
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