Guides
BASIS,PROCESS & RECOURSE

The evolution of land law in Malaysia started with the Sultanate Monarchy before independence where all lands were owned by the State. Back then, Customary land tenure was practiced wherein lands were allowed to be used for planting etc but one tenth (1/10) of the produce or profits was to be given to the State in return.

Later, the lands were colonised and since there was no longer a sultanate, private ownership of lands were introduced through the English Deeds System. However, under this system, there were problems of keeping track of the lands and if the deeds were lost, there would not be any other records.

Following the deeds system, the Torrens system was introduced under the democratic monarchy where land titles were indefeasible and every state had their very own land office regulating lands in that state.

In 1963, the formation of the federation of Malaysia took place; merging land administrations among the Straits Settlements (Singapore, Penang & Melaka), the nine federated and non-federated Malay states and the Borneo states. As a result, Article 13 of the Federal Constitution entrenched rights to property; everyone has the right to own property. However, the state would still have a right to lands. Thus, lands are administered by the State while the federal government shall legislate to ensure and facilitate uniformity.

Among the key legislations that govern the administration of lands are the National Land Code 1965, The National Land Code (Penang & Mallaca Titles) Act 1963, The Sarawak Land Code and The Sabah Land Ordinance.

Today, every state generally practises the same system and operates under the principles of Torrens (except for the state of Sabah) that was first introduced in 1879 in the state of Perak adopting the South Australian System.

Features of the Malaysian Torrens:

  • All dealings are to be carried out using prescribed forms and registration with the land authorities.
  • The Registrar reflects all the facts material registered to the registered owner’s title to the land.
  • Land titles are indefeasible as prima facie ownership is practised.

Land ownership is well sought after as it generally confers exclusive use and enjoyment (within the conditions imposed by State Authority [if any]), right to alienate or sell, right to possess and the right to transmit upon death.

There are various forms and types of land ownership. Lands can have individual, multiple, corporate, institutional or foreign owners. Ownership can be perpetual (freehold) or periodical; also known as leasehold for a period of up to 99 years. With ownership of lands comes possession of titles. There are 2 types of titles; which are sub-divided individual titles and strata titles for sub division of building. Lands can be used for residential, commercial, agricultural or mixed development purposes. In Malaysia, lands can also be used for “Malay Reserved” purposes. This category is only for the Malay community in the country.

New Development (to be constructed)

Property Developers in Malaysia practice the “sell and build” model generally rather than “built and sell. This practice is regulated by the Housing Developer Act 1966 (HDA), if it is a Residential development.

For Commercial development, it is regulated by the common law within the contractual documentations between the parties subject to the applicable land law.

Among the features of HDA (under Ministry of Housing & Local Government) are:

  • License (Development, Advertising & Sale) – All developers are required to have a license to develop properties.
  • HDA Account (Regulated & Permitted Withdrawal) – All developers must have a HDA account, regulated by HDA wherein withdrawals of such accounts are subject to the HDA rules.
  • Homebuyer Tribunal (Protection)
  • Prescribed Standard Contract of Sale:
    1. Schedule G (Subdivided Land)
    2. Schedule H (Subdivided Building*)

Undertaking on No Further Encumbrances – the developers cannot take out more than 1 loan to finance the property purchase before and during the execution of the Sale and Purchase Agreement to avoid any monetary deceit.

  • Schedule of Payments
  • Delivery of Vacant Possession:
    1. 24 months for Schedule G
    2. 36 months for Schedule H

Non-compliance with the above time frame will result in liquidated interest payment for late delivery.

  • Defect Liability Period (18 months from Delivery)
  • This takes consumer protection one step further. The Stakeholder (solicitors) holds 2.5% of the purchase price to ensure that all is well and running within the 18 months.
  • Solicitors on record in this transaction are acting for the Purchaser.
Constructed land and building

This category normally refers to the secondary market or “Sub-Sale” where the land is with a duly constructed building. It also includes those developments that practices “built and sell” and is regulated by the common law within the contractual documentations between the parties subject to the applicable land law.

Normally, there will be involvement of a real estate agent in the preliminary negotiation stage to conclude the salient terms of purchase and the payment of earnest deposit by the granting of the option to purchase by the Vendor to the Purchaser. The lawyers for the respective parties shall take over thereafter to conclude the details of all sale and purchase documentations within a prescribed time agreed by the parties.

The documentations vary for following two categories:
(1) With Title (Separate Title issued)
The Ownership Transfer Document shall be in the prescribed form of “Memorandum of Transfer” and the Security interest shall be in the prescribed
form of “Charge”, both to be registered with the relevant land registry; and

(2) Without Title (Separate Title not yet issued)
The Ownership Transfer & Security interest shall be documented by way of a deed in the form of assignment and only perfecting the ownership registration and charge respectively in the prescribed form with the relevant land registry upon the issuance of a separate title.

Where a separate title is not yet issued (mostly the strata title scheme), the Developer or the Master Title Holder shall act as a “temporary land registry” and consent of the Developer is required for any assignment at a fees chargeable.

The Sale and Purchase Agreement (SPA) remains principally the same with the following common features:

  • Deposit Payment upon Signing of SPA
  • Redemption, if there is security encumbrances by a financial institution
  • Retention from the Purchase Price for Real Property Gains Tax
  • Exchange of undertakings to facilitate the release of Loan sum by Purchaser’s financier
    Apportionment of Outgoings at Completion
  • 10% Liquidated Damages in the event of termination
  • Completion (Payment of Balance Purchase Price & Delivery of Vacant Possession)
    -3 months from the date of unconditional SPA*
    + (plus)
    -automatic 1 month extension with interests

*Conditions Precedent like consents from state authority, foreign investment committee etc.

Strata Title

All strata developments are governed by the Strata Title Act 1985. Traditionally, strata developments are for high-rise buildings that have common property that requires continuous maintenance at a service charge chargeable by the Management Corporation, of which such role remains the responsibility of the Developer prior to the issue of strata title.

There is recent development in the last decade where many gated and guarded housing schemes are designed and operated on such strata format. There is another document known as the Deed of Mutual Covenants on top of the SPA, setting out the do(s) and don’t(s) as a resident in such development scheme.

The Strata Title Act regulates the application (within 6 months from delivery) and issuance of Strata Title and the formation and operation of the Management Corporation.

Formation of Management Corporation

The Formation of the Management Corporation and its powers are governed by the Strata Titles Act 1985. It is a medium through which the proprieties are controlled and managed in the strata scheme.

Upon registration of the subdivided building with the relevant Land Office, the Management Corporation will automatically come into existence; consisting of all the parcel proprietors. The Management Corporation established will be known by the name registered with the land office; related to the registration of the subdivided building and shall be a body having perpetual succession and common seal.

The Management Corporation shall elect a council which; subject to any restriction or direction given by the Management Corporation at a general meeting, shall perform the Management Corporation’s duties and conduct its business on its behalf – the council can consist of as few as 4 members . The property manager can be anyone with knowledge in construction and building structures elected by the council. Following that, there has been an issue on the property valuer being the property manager.

The Management Corporation also has the right to compel residents to pay maintenance fees. However, there is a problem in enforcing this and about 30% of residents do not pay such fees. For low cost condominium and flat units, the Management Corporation will not come into automatic existence as there must first be at least 70% of residents in possession of the final title.

Financing for Acquisition

If you are taking out a loan to finance your acquisition, there are many avenues to consider including:

  • Recognized financial institutions
  • Insurance Companies
  • Government for the Civil Servants
  • Employees Provident Fund

In terms of the margin of financing, residential property is higher than the Commercial property due to the fact that residential properties are publicly marketable and affordable compared to commercial properties. The margin of financing is lower for foreign owner(s) deliberately foreign investors into the country. There shall be a financier’s lawyer advising the financier in this transaction.

Foreign Ownership

Foreign ownership is permitted; subject to the approval of the Foreign Investment Committee (FIC) and State Authority’s Consent (if applicable). The requirements of foreign ownership are as follows:

  • Property must be valued more than RM150,000.00 (RM100,000.00 for Permanent Resident)
  • For Agricultural land, it must be valued more than RM250,000.00 (or at least 5 acres)
  • There is no limit on industrial property through locally incorporated company

The FIC is under the Economic Planning Unit of the Prime Minister’s Department and requirements are mostly procedural as approvals are almost a certainty; barring any unforeseen circumstances. The attending lawyers for the SPA shall assist in making such applications.

Malaysia welcomes foreign ownership to facilitate programmes like the Malaysia My Second Home. There is also a difference in the applicable rate of Real Property Gains Tax for foreign owners.

Real Property Gains Tax (RPGT)
Sale/ Disposal from the Date of Acquisition/ Purchase Citizens/ Permanent Residents Non-Citizens/ Non-Permanent Residents Companies
Within 2 Years 30% 30% 30%
In the 3rd Year 20% 30% 20%
In the 4th Year 15% 30% 15%
In the 5th Year 5% 30% 5%
In the 6th Year & Subsequent Years NIL 5% 5%

Any individuals who are a citizen or permanent resident may elect for a once only exemption from RPGT on the sale or disposal of their residential property.

  • Chargeable Gain = Nett Disposal/ Selling Price
    – (minus)
    Nett Acquisition/ Purchase Price

The Disposal/Selling Price is derived by deducting the permitted expenses & incidental costs from the money received from the sale of the property.

The Acquisition/ Purchase Price is derived by adding the incidental costs incurred & deducting recoveries from the amount of money paid for the purchase of the property.

Acquisition Costs

Stamp Duty

The stamp duty on the transfer of property is levied at progressive rates based on the property value as determined by the Valuation Department.

PROPERTY VALUE STAMP DUTY PAYABLE
First RM100,000.00 1%
Next RM400,000.00 2%
In excess of RM500,000.00 3%

The stamp duty on the transfer must be paid within 30 days from the date of notice of assessment; otherwise a penalty will be imposed as follows:

  • RM25.00 or 5% of the stamp duty payable, whichever is higher, if delay is within 3 months;
  • RM50.00 or 10% of the stamp duty payable, whichever is higher, if delay is within 3 to 6 months; and
  • RM100.00 or 20% of the stamp duty payable, whichever is higher, if delay is more than 6 months
Legal Fees (SPA)

Legal fees are governed by the Solicitors’ Remuneration Order 2005 (Effective 1 January 2006):

Consideration/ Adjudicated Value
(whichever is the higher)		 Scale Fees
For the first RM150,000.00 1.00% (min RM300.00)
For the next RM850,000.00 0.70%
For the next RM2,000,000.00 0.60%
For the next RM2,000,000.00 0.50%
For the next RM2,500,000.00 0.40%
Where the consideration/ adjudicated value (whichever is the higher) is in excess of RM7,500,000.00) Negotiable on the excess but shall not exceed 0.4%

For the Schedule G & Schedule H contract under HDA, the applicable rates are as follows:

Purchase Price Fees
Less than or equivalent of RM45,000.00 RM250.00
From RM45,000.00 to RM100,000.00 75% of Scale Fees
From RM100,000.00 to RM500,000.00 70% of Scale Fees
More than RM500,000.00 65% of Scale Fees

Loan Documentation

Legal Fees

In relation to loan documentation, the legal fees calculated are as follows:

Loan Amount Scale Fees on Principal Instrument
For the first RM150,000.00 1.00% (min RM300.00)
For the next RM850,000.00 0.70%
For the next RM2,000,000.00 0.60%
For the next RM2,000,000.00 0.50%
For the next RM2,500,000.00 0.40%
Where the consideration/ adjudicated value (whichever is the higher) is in excess of RM7,500,000.00) Negotiable on the excess but shall not exceed 0.4%

For subsidiary instrument, 10% of scale fees (minimum RM200.00 & maximum RM1,000.00)

For the financing of Schedule G & Schedule H contract under HDA the applicable rates are as follows:

Purchase Price/ Loan Sum Fees
Less than or equivalent of RM45,000.00 RM250.00
From RM45,000.00 to RM100,000.00 75% of Scale Fees
From RM100,000.00 to RM500,000.00 70% of Scale Fees
More than RM500,000.00 65% of Scale Fees
Stamp Duty

Stamp Duty is governed by the Stamps Act 1949 and is charged at a rate of 0.5% for any loan amount. All amounts are rounded to the closest thousand before calculation is made (for example, for the loan sum of RM131, 300.00, the amount calculated for stamp duty would be RM132, 000.00).

“Build Then Sell” System & The Proposed 10:90 Payment Model.

The “build then sell” system requires the buyers to pay a 10 percent deposit and the balance 90 percent after the property is completed. Developers are not allowed to sell a property until it is completed.

Under this system, buyers shall pay 10% of the purchase price into an account and pay the remaining 90% only when house is completed. According to REHDA’s President Datuk Jeffrey Ng, making this system mandatory would affect the country’s home ownership agenda and the economy as 60% of developers in the country would go out of business.

Nevertheless, this system can be used to better protect consumers as it ensures a fairer deal for house buyers. With this, bankers would have to play a key role in providing project financing. The Malaysian Bar Council’s article “Give House Buyers A Choice” stated that there must be other systems to go alongside this system to ensure maximum choice on the buyers part.

Enforcements and Complaints

Buyers have a number of avenues to resort to in the event that their transaction is unjustly terminated:

Tribunal For Homebuyers Claims

The Tribunal for Homebuyers’ claims provides an easier, cheaper and faster means of resolution for homebuyers claiming compensation or damages from housing developers.

To make a claim under the Tribunal, purchases must be residential properties from licensed housing developers.

The Tribunal may hear claims from buyers on condition that:

  • A claim is filed no later than 12 months from the date of:
    • issue of the Certificate of Fitness for Occupation (CFO) of the property; or
    • the expiry date of the defect liability period as set out in the Sales and Purchase

      • Agreement.

  • Each claim does not exceed RM25,000 per cause of action unless:
    • the claimant agrees to forgo the balance of the claim; or
    • the acquiescence of the developer is obtained in writing for the matter to be heard at the Tribunal.

Homebuyers will represent themselves and no lawyer is allowed at the hearing unless the Tribunal allows for it and in this case, the other party will also be allowed to be legally represented. Upon completion of hearing, the Tribunal will make an award. Failure to comply with the Award shall result in court action; wherein the developer’s license may be suspended or struck off.

Following the development and evolution of land law in Malaysia, it is definitely moving forward as buyers are well protected and owning a property has become almost a necessity rather than a luxury in today’s society.