Buying a New Home in Malaysia: A Step-by-Step Guide
Updated: Nov 30, 2022
Are you looking to purchase a new launch property in Malaysia? Here's a 12-step checklist that includes the most recent housing schemes and government incentives, as well as home financing updates and buying tips to help you make the best purchasing decision.
Sure, you've always wanted to buy a house, but the process seems long and daunting. I mean, where do you even begin, and how does one research a property to buy in the first place? After all, real estate is a large-ticket item that involves numerous processes; therefore, it is critical that you purchase the right product the first time.
We can't simply "test" one to see if it meets our requirements and needs - consumers don't have the same luxury as they do with other goods like shoes, makeup, and even cellphones.
In this article, we will go over the steps involved in purchasing a new launch property in Malaysia so that you don't make unnecessary mistakes or face unexpected challenges.
1. Brush up on fundamental property knowledge.
Your family and friends may be well-versed in the Malaysian property market scene. However, before venturing into uncharted territory, you should gain firsthand knowledge of the real estate market. Ideally, you should understand the fundamentals of residential property in Malaysia, such as the various types of housing in Malaysia, what buyers should know about the Sale and Purchase Agreement (SPA), other costs associated with purchasing a home, and how to identify a good property developer.
2. Establish a budget for a new home.
As you become more acquainted with the real estate market, the next step is to determine your property affordability level. Most financial experts will advise you not to exceed one-third of your household income in monthly instalments. Assume you have a total combined income of RM9,000 (if you have a spouse); your monthly instalment for your first home cannot be more than RM3,000.
You'll also want to organise your finances. Check that your credit card payments are up to date, as well as any other loan repayments you may have, such as a car loan and a study loan (PTPTN). A minimum of 3 months salary slip is required if you are on fixed pay, and a minimum of 6 months salary slip is required if you are on fixed plus commission pay. Check out How much home loan can I get from my salary in Malaysia for a more in-depth look at home loan capabilities.
3. Choose the neighbourhood in which you want to live.
You can start looking for your preferred neighbourhoods now that you know how much you can afford. There are numerous options available, ranging from the popular, family-friendly suburbs of SS2 in Petaling Jaya, Cheras, and Puchong to the pricey yet environmentally friendly upscale townships of Desa ParkCity and Mont Kiara.
You should first visit the area to assess the accessibility, surrounding infrastructure, and amenities. Due diligence is essential in ensuring that you buy the right home in the right neighbourhood that meets all of your needs.
TIP: When it comes to newly launched properties, be especially cautious because not everything that glitters is gold! Don't be swayed by glitzy brochures and the promise of freebies; instead, remember the mantra: research, research, research. Before purchasing a new launch property, you should also check this list of blacklisted property developers.
4. Begin looking for a home.
The next step will be to start looking for a home. What is it going to be? Is it a condo, an apartment, a terrace house, a semi-detached house, or a bungalow? You can search for new launch properties in the areas you're interested in using the aProperty.com.my filter.
Various housing types in Malaysia
This section will assist you in making more informed decisions when purchasing your first home. Consider the following when deciding on the type of property you want to buy:
High-rise building - Many people mistakenly believe that a condominium and a serviced apartment are the same thing! Although they share some similarities, there is a significant difference between the two.
Dual key condo
However, the property search does not end there. You should also think about the type of land title you have, as this will affect your homeownership costs and rights in the long run:
What are the differences between freehold and leasehold title properties? Depending on your circumstances, one land title may be more advantageous than the other.
From a legal standpoint, a property's ownership is represented by its land title. As a result, it's in your best interest to understand whether the property you're considering buying has a strata title, a master title, or an individual title.
As a multicultural country, purchasing property in Malaysia may be more difficult than purchasing other types of assets. Read this article to learn more about Bumi Lot vs Malay Reserve Land (MRL).
Finally, plot ratio - which affects development density or the amount of development in a specific area - is an often overlooked factor when purchasing a new launch house in Malaysia. A higher plot ratio typically indicates that there are more units or "habitable space" in a development. A lower plot ratio, from the buyer's perspective, means that the buyer may end up paying more for a new property. Discover what the plot ratio is and how to calculate it.
5. (Optional) Engage the services of a real estate agent.
If you find the entire process to be tedious, time-consuming, and a major headache all around, you can hire a real estate agent to assist you with your home-buying journey. All you need to do is be open about your preferences, such as preferred location, type of home, unit size, loan tenure, land tenure, and estimated budget.
You will only have to pay a small fee for their services. The maximum commission fee for real estate agents for the sale or purchase of land and buildings is 3%, according to the Seventh Schedule (Rule 48) of the Valuers, Appraisers, and Estate Agents Act 1981. However, real estate agent fees are subject to a RM1,000 minimum fee per property.
6. Do you have enough money for a down payment on a house?
After you've found your dream home, you'll need to make sure you have enough money for a down payment. Whether buying a new or subsale home, home buyers will typically need to pay 10% of the purchase price as a down payment, with the remainder of the property price financed through a bank loan. As a result, if your dream home costs RM400,000, you'll need to put down RM40,000 as a down payment.
Although the industry standard for first-time home buyers is 90% financing, the margin of financing varies depending on the type of property purchased and your financial credibility at the time.
TIP: For newly-launched properties, many developers are offering 2%-5% rebates, while others only require a 1-2% booking fee (to register genuine interest), which then goes towards the down payment.
7. Consider the other costs involved!
Many homebuyers are surprised by the additional fees that must be paid in addition to the 10% down payment when purchasing a home in Malaysia. Set aside an additional 10% of the property purchase price to cover lawyer fees, stamp duties, Sale and Purchase Agreement (SPA) fees, and property valuation fees. If you are buying a home in a new development, some developers will cover the legal and SPA fees, as well as the MOT fees, but the rest must be paid by the buyer.
TIP: Set aside some money for home renovations as well as the purchase of furniture, fixtures, and other items. A good starting point is 10-15% of the purchase price of your home.
8. Look into home loans
After you've paid your booking fee or earnest deposit, you'll need to start looking for a good home loan. There are numerous banks that offer various home loan products, including term and semi-flexi loans.
One of the most important aspects of home loans is the interest rate, which can be fixed or variable. The former means that your interest rate will be fixed throughout the term of your loan, whereas the latter will have an interest rate tied to Bank Negara Malaysia's Overnight Policy Rate (OPR) (BNM).
The BNM-set OPR is the interest rate that a borrower bank must pay to a lending bank for funds borrowed. Malaysia's Overnight Policy Rate has remained at a historic low of 1.75% since being reduced from 3% in 2020 due to the Covid-19 outbreak. However, BNM recently increased it to 2% on May 11, 2022, and then to 2.25% on July 6, 2022. This shows the volatile nature of a home loan with a floating interest rate.
UPDATE: The SBR is the most recent Reference Rate Framework, and it will apply to all new retail floating-rate loans in the country beginning August 1, 2022. It takes the place of the Base Rate (BR), a reference rate introduced in 2015. The BR was created to take the place of another reference rate, the Base Lending Rate.
Previously, each bank was allowed to set its own BR, so it was not consistent across banks. This made consumer lending rates less transparent. The SBR is intended to eliminate this ambiguity by establishing a single reference rate that is solely determined by the OPR. A consumer can now easily compare effective lending rates across banks to see which banks charge lower or higher spreads.
Because the OPR has a direct influence on the SBR, a change in the OPR will have a domino effect on the floating interest rate on the home loan. A higher OPR will result in a higher interest rate and higher borrowing costs, and vice versa. A fixed-rate loan typically has a higher interest rate than a floating-rate loan. It is, however, more suitable for risk-averse people because it guarantees certainty.
You should look into the current offers and choose the one that best fits your repayment profile.
9. How to Qualify for a Mortgage Loan
Calculate your Debt Service Ratio
One of the most important factors in qualifying for a home loan is your credit score. Banks will assess your repayment capacity using the Debt to Service Ratio (DSR), which is a calculation that shows the percentage of your debt compared to your total income.
DSR = (Total Commitment ÷ Nett Income) × 100
Each bank has a maximum DSR cap that it imposes on borrowers in order to approve their loan applications. Your DSR should ideally not be higher than 70%.
Check your CCRIS and CTOS report
Your Central Credit Reference Information System (CCRIS) report, which is available online, shows all of your total credits, interest charges, and other outstanding charges for all loans you have with any Malaysian bank, including personal loans and credit cards, as well as hire purchase and overdrafts.
Repayment delays for any obligation will appear in your report and are recorded as "1." Lending guidelines vary by bank, but most will require mostly zeroes to demonstrate that you are a good paymaster.
One advantage is that the CCRIS only displays data from the last 12 months. As a result, if you have a less-than-perfect credit report right now, you could work to improve and 'correct' it in the next 12 months to increase your chances of getting a home loan.
Meanwhile, Credit Tip Of System (CTOS) collects information for summons and bankruptcy on individuals and businesses from various public sources. Banks will review the information provided by CTOS and determine whether it is relevant to your application. It is critical to monitor your CTOS report to ensure there is no incriminating information that could jeopardise your chances of obtaining a loan. Instead of going to BNM, loan applicants can check their credit status online for free.
10. Look into alternative home financing options.
The Ministry of Housing and Local Government (KPKT) and the Ministry of Finance (MoF) launched the i-Biaya initiative in April 2022 as part of the government's efforts to facilitate housing loans to the M40 and B40 low-income groups.
The i-Biaya initiative was created to align and improve on three existing home ownership programmes:
1. Housing Credit Guarantee Scheme (HCGS) through Syarikat Jaminan Kredit Perumahan Bhd (SJKP)
SKJP is available to non-fixed income earners to assist them in obtaining financing from financial institutions regardless of occupation. This scheme provides up to RM400,000.00 in financing, which includes the principal financing amount, MRTA/ MRTT, LTHO, solicitor's fee, and valuation fee. It also guarantees 100% of total financing obtained from participating Financial Institutions.
2. My First Home Scheme (SRP) by Cagamas SRP Bhd
My First Home was created to help first-time home buyers with a gross monthly household income of up to RM10,000 (RM5,000 per applicant) purchase their first home. This programme allows qualified buyers to obtain up to 110% financing from participating financial institutions, allowing them to own a home without making a down payment.
3. PR1MA Rent-to-Own (RTO) Scheme by PR1MA Corporation Malaysia (PR1MA)
The PR1MA scheme is aimed specifically at first-time homebuyers and will include 5,000 units of PR1MA homes worth more than RM1 billion across the country.
Other than the PR1MA RTO scheme, you can look into other RTO schemes in Malaysia to see if they are something you might be interested in.
Aside from i-Biaya, prospective homebuyers should look into the following:
BSN Housing Schemes
Bank Simpanan Nasional (BSN) offers a variety of housing schemes to help Malaysians finance their first home. This includes the following:
BSN MyHome for Residential Property - Designed to assist homeowners in financing or refinancing their homes at a lower interest rate.
BSN MyHome (Program Perumahan Rakyat) — Intended specifically for self-employed individuals or those with irregular income.
BSN MyHome-i — A Shariah-compliant version of the BSN MyHome for Residential Real Estate.
Housing schemes in the Klang Valley
Residensi Wilayah Keluarga Malaysia is another affordable housing scheme to consider. It is a housing project initiative that provides affordable housing across Malaysia's Federal Territories with a 100% loan.
Those looking to buy a home in Selangor can apply for the Rumah Selangorku (RSKU) scheme. This is a people-centered housing scheme designed to assist middle-income families in purchasing affordable homes in key urban areas throughout the state of Selangor.
2022 Stamp Duty Exemption For First-Time Home Buyers
The government announced in July 2022 that first-time homebuyers will be exempt from paying stamp duty on the instrument of transfer and loan agreement. This initiative, part of the Keluarga Malaysia Home Ownership Initiative (i-MILIKI), will apply to sales and purchase agreements concluded between June 1, 2022 and December 31, 2023.
The exemption rate for stamp duty is as follows:
100% exemption for homes worth less than RM500,000
%0% exemption for properties priced between RM500,000 and RM1 million.
The i-Miliki incentive is in addition to the previously announced full stamp duty exemptions for first-time home buyers on memorandums of transfer (MOT) and loan agreements. This discount will only be available for homes priced up to RM500,000 purchased between 1 January 2021 and 31 December 2025.
11. Hire a lawyer
Even if your developer offers to pay your legal fees for the home you want to buy, you should have your lawyer draught and sign the SPA and loan agreements. A lawyer who represents two opposing parties in the same transaction cannot be objective. Following this step, you can apply for a bank loan.
12. Make an offer and complete the transaction
After you've decided on which new property to purchase, you'll need to draught a Letter of Intent to Purchase. This is a document that you give to the property seller to express your desire to buy the property. It also specifies the initial terms of offer and purchase.
The LOI is typically accompanied by an earnest deposit, which is an upfront payment of 2% of the total cost of the property that counts toward your overall 10% down payment requirement. If the sale falls through for any reason and you want to claim a refund on your earnest deposit, you can include this as one of the conditions in the contract. Financing details are not included in an LOI; instead, they are negotiated separately with the lender.
If the terms of the LOI are accepted, the seller will request a formal offer. You can then send over a formal offer in the form of a Letter of Offer from here (LOA). This is a formal document that includes more binding legal language that protects both the buyer and the seller than a LOI. The LOA will include the following information: the names of the seller and buyer, the property address, the agreed-upon price, the deposit amount, and any items such as fittings that are included in the sale. The LOA will also specify the deadline for signing the SPA, which is usually 14 days.
Following that, your lawyer will draught the SPA and have both parties sign it. The remaining 7-8% of your down payment, as well as your stamp duty fees, must then be paid. Your lawyer will also draught the loan agreement, which must be signed by both you and your bank, and the bank may require you to obtain an insurance policy. A loan agreement is a legally binding document that outlines the terms and conditions of your home loan. Although a loan agreement generally adheres to a bank's standard operating procedures, your lawyer will ensure that everything is in order.
You must sign a Memorandum of Transfer for properties with either a Strata Title or an Individual Title (MOT). This is part of the documentation package you must sign in order for the developer to transfer ownership of the property to you.
Then you'll have to wait 2-4 years for the home or project to be finished before you can take possession and get the keys to your new home. You can collect the keys to your new home from the seller once your lawyer has completed all of the necessary paperwork. The property must be handed over within the time frame specified in the SPA. At this point, your mortgage is activated, and the remaining 90% of your property cost (less the 10% down payment) must be paid according to the fees schedule.
After that, you can pack your belongings, move in, and start planning a housewarming party!