Guide To Buying Auction Properties In Malaysia

Guide To Buying Auction Properties In Malaysia

In recent years due to the economic slowdown, we see a significant increase in the number of properties entering into the auction property market. Many homeowners lose their holding power and start defaulting on their home loans. Many of these units are brand new, never-lived-in units purchased during the era of Developer Interest Bearing Scheme (DIBS). At that time, it was so easy to make an entry into the property market.  Buyers only need to fork out as low as RM 3000 to start owning a property. Under this scheme, buyers are not required to pay the mortgage until the property is completed. Many of these buyers probably purchased it thinking that they could flip it later for a profit. Unfortunately, due to the soft property market, they are unable to find a buyer. Also, some buyers during the point of purchasing the property may not have adequately assessed their ability to repay the loan. Once they receive their keys 3 years later, they are suddenly faced with huge loan repayments that they are unable to afford. Finally, these properties end up being auctioned.

According to an auction specialist, Leslie Low, in 2017, about 2500 properties are auctioned off every month. This is about 50% increase since 2013; during that time, there were only about 1000-1500 auctioned properties every month.

What does this mean for you? If you are looking for a property for investment or for your own stay, whether you are an experienced buyer or a first-time buyer, there are thousands of properties below market value up for grabs! If you’re looking for a great value deal, read on!

What are auction properties?

Auction properties are residential or commercial properties that go up for sale through a competitive bidding process. The buyer who makes the highest bid during the auction will get to buy the property. Once the hammer falls, a legal binding contract will be set between the seller and the purchaser.

Where do auction properties come from?

When property owners start defaulting their bank loans, the bank will send reminders to borrowers and introduce penalty by increasing the interest rate and charging overdue penalty cost. If borrowers are unable to service the interest or repay the principal over a period of more than 3 to 6 months, the borrower’s loan will be classified as a Non-Performing Loan (NPL). These properties will be moved to foreclosure or the auction department of the bank. These properties will then be sold to the open market via public auction for the bank to recover the loan given out to the defaulted borrowers.

What are the benefits of bidding for (and buying) auction properties?

Auction properties are priced at Forced Sale Value, which is usually at 20% below market value. That means buyers stand to enjoy a 20% discount off a particular property!! Should there be no bidder for the auction property, the reserve price (the lowest price at which the property can be sold) will be lowered by another 10% in the next auction date. Sometimes, you might even be able to get an auction property at 50% below market value. Besides this, you can own a property very quickly by buying from the auction market because there is no negotiation process between the buyer and the seller.

Documents required for bidding

For individuals:

  • A photocopy of your IC
  • A bank draft or cashier’s order equivalent to 10% of the reserve price
  • Additional funds to pay for the shortfall in the deposit of the successful bid vs the reserve price.
  • Authorization letter (if you are bidding on behalf of someone)

For companies:

  • A photocopy of director’s IC
  • A bank draft or cashier’s order equivalent to 10% of the reserve price
  • Additional funds to pay for the shortfall in the deposit of the successful bid vs the reserve price.
  • Board of Director’s resolution
  • Form 24 and 49
  • A certified true copy of the company’s Memorandum and Articles of Association (M&A)
  • Authorization letter (with company letterhead and company stamp, signed by at least 1 director)
  • IC and photocopy IC of the person authorized to bid

What is the process of buying an auction property?

  1. You must be at least 18 years of age to be an eligible bidder.
  2. Select your desired auction property based on the auction list or recommendations provided by your auction agent.
  3. Conduct an official title search with the relevant Land Office and make general enquiries with the developer and management office. You may engage your agent to do this for you by paying a small fee.
  4. Go to the location and conduct an external inspection of the property to ascertain the current condition of the property. Do not rely only on the description of the property. You may engage your agent to do this for you.
  5. Conduct due diligence checks on the property depending on what type of property you are bidding for – LACA/non-LACA. You may engage your agent to do this for you.

For property on master title or Loan Agreement Cum Assignment (LACA), these properties are usually auctioned by banks through a private auction house eg. Public Auction House Sdn Bhd, Ng Chan Mau & Co. Sdn Bhd, Ehsan Auctioneers Sdn Bhd, etc

Due diligence checks required are:

  • Outgoings consisting of quit rent, assessment, maintenance charges, sinking fund, TNB, SYABAS, Indah water and developer.

For Property with individual title/strata title (non-LACA), properties will be auctioned by High Court or Land Administrator.

Due diligence checks required are:

  • Title search to ensure no caveat (it is a formal legal notice to the world that you have an interest in a particular property or land)
  • Outgoings consisting of quit rent, assessment, maintenance charges, sinking fund, TNB, SYABAS and Indah water.
  1. Once you have decided to bid for the property, get a copy of the Proclamation of Sale (POS) and Condition of Sale (COS). Your agent will download a copy and explain the important clauses in the POS and COS to you.
  2. Register yourself as a bidder with the bank via the auction agent servicing you.
  3. Pre-qualify and pre-arrange financing for the selected property with your bank.
  4. Take note of the auction’s date, time and venue.
  5. Prepare a bank draft, 10% of the reserve price, as stated in the POS and COS.
  6. List down other costs not covered by the bank. These are usually stated in the POS and COS.
  7. Ensure you reach the auction venue at least 30 minutes earlier and register at the auctioneer registration counter. You will be given a bidders card with a number during the bidding. Your agent should attend the bidding with you, or if you are unable to bid on your own, you may also authorize your agent to bid on behalf of you. (You will need to provide an original authorization letter, a photocopy of your IC and bank draft to your agent)
  8. Before the bidding process, the auctioneer will read out some important clauses in the POS and COS and some information about the property. He will then announce the commencement of the auction.
  9. During the bidding, you or your agent bidding on behalf of you will raise the bidding card to indicate the bidding price. The bidding will stop when the highest price is called out 3 times by the auctioneer and no higher bids are made. At the fall of the hammer, the property is sold.
  10. (Recommended) Ensure you prepare additional cash or bank draft to top up the difference in deposit sum between successful bidding price and reserve price. This must be paid after the auction should you be the successful bidder.
  11. If you are the successful bidder, you will then have to sign the Contract of Sale. The balance of purchase price must be paid within 90 (for LACA) or 120 days (non-LACA) as per the POS and COS.
  12. Contact the bank you have selected and pre-arranged to finance the balance 90% of your purchase price.
  13. Should the current occupant refuse to vacate the property, apply for a distress order and get a court order through a lawyer to demand vacant possession.
  14. For unsuccessful bidders, your deposit will be refunded immediately after the auction.
  15. Do take note that if you are the successful bidder and later change your mind on the purchase, your deposit will be forfeited.

In the coming years, we may also have some added convenience and transparency to this process as bidders will soon be able to bid online with e-Lelong! Read more here & here.

What are the risks of buying auction properties and how we can minimize it?

As with any type of transaction, buying from the auction has its own risks. Know the risks involved and take a calculated risk before going to an auction.

  1. You do not get to view the property’s internal condition, and if the property is in bad shape, you may have to fork out extra money for repair and renovation works

If the property is tenanted, you may try to ask the tenant if they allow you to take a quick look at the property. If the property is owner-occupied, you may also ask the permission of the owner to take a quick view of the property, and at the same time, you might also wish to check if they are already prepared to vacate the property. Do expect some hostile treatment. You may also wish to consider speaking to the neighbours, they may be able to give you some valuable information.

  1. The property may have many outstanding utility bills left unpaid and you may have to quantify it

Before the auction date, do ensure you or your agent goes to the relevant utility offices, such as Tenaga Nasional Berhad, SYABAS, management office, with a copy of the POS to check on the outstanding bills.

  1. You may have trouble evicting previous occupants

Once you are the official owner of the property, you can then engage a lawyer to distress the occupant and then apply for a court order. Always check if the property is occupied before the auction.

  1. The property may have a caveat 

Ensure you or your auction agent do a title search for properties with title.

Whether you’re a property investor or a first time home buyer, the auction property market has something for everyone. Familiarize yourself with the process, ensure you do a thorough investigation of the property to get a better picture of the costs involved to ensure you get a great deal!

Keen to explore the opportunities in the auction property market?

Contact us at 03-7785 1888. Let us know what you’re looking for and our agents will contact you with a list of auction properties based on your specifications. 

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About the Author

KC LAW

Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyors Malaysia, Member of Malaysia Institute of Estate Agents and Member of Business Valuers Association of Malaysia.

Creative Real Estate Financing

creative real estate financing

 

What can we do when faced with insufficient cash reserve or low margin of finance from bank(s) caused by stringent lending requirements by Bank Negara or short loan tenure due to age factor?

Does this sound familiar to you? Would you think about..

  1. Delaying the purchase until Bank Negara relaxes the lending requirements for banks
  2. Fabricate income for at least 6 months and reapply again(Illegal! Never do this!)
  3. Use creative financing legally

Most people will adopt Option 1, which is basically just – waiting because we will never know when Bank Negara will relax the lending requirements for banks.

In addition, the desired property you have chosen in the right location, right neighborhood and right price would have appreciated to a much higher value (due to inflation) when Bank Negara finally relaxes the lending requirements.

What about Option 2? It sounds like a smart and creative move. but it’s illegal, so don’t even think about it!

What else can the genuine property buyer turn to?

Good news! We can adopt creative financing to solve the above problem.

What does creative financing look like?

There are many ways in using creative financing. We will use a real life story to explain this technique.

Mr Ali (not his real name), 60, lives in Bangsar and has a big family of 8.

Since a number of his children have already started working and will also soon have their own family, he thought it would be a great idea to buy another property in Bangsar for his children so that they can be close to him.

Hence, he went on a search and buy mission. After a few property viewings with his real estate agent, he found a single storey house which had ticked off everything on his list and was just a stone’s throw away from his house.

The house was priced at RM1.2m. To secure his booking, he placed an earnest deposit with the registered estate agent company, and hurried to get his lawyer to prepare the sales and purchase agreement and proceeded to arrange financing for the property.

Since Mr Ali is a prudent investor and buyer, he has consolidated his cash to pay for his purchase.

His initial option was to pay down RM900k from the cash reserve in hand and borrow RM300k over a period of 10 years.

That sounds good and workable but are there better options? Since he is almost 60 years old, the maximum tenure of loan he can obtain is 10 years.

Let us assume the average interest is at 4.2% and the loan tenure is 10 years. The options available are as follow:

  1. Loan sum RM800K: repayment RM8200 per month.
  2. Loan sum RM600K: repayment RM6100 per month
  3. Loan sum RM300K: repayment RM3100 per month.

Should he take option 1 or 2, he will be burdened with heavy monthly repayment and may end up with no disposable cash left from his salary.

If he takes option 3, all his hard earned cash savings would be exhausted leaving him with no excess cash to renovate his property.

With the above challenges in mind, he decided to seek some recommendations and advice from banker and finance savvy friends.

After reviewing his situation above, his banker and finance savvy friends recommended that he takes up a join loan with his son who is 30 years of age. With that the loan tenure is now stretched to 30 years.

Let us assume the average interest at 4.2% and loan tenure 30 years. The NEW options available are as follow:

  1. Loan sum RM800K: repayment RM3900 per month.
  2. Loan sum RM600K: repayment RM2900 per month.
  3. Loan sum RM300K: repayment RM1500 per month.

Now, he has new options to select from. He decided to take option 2. The repayment is manageable with a sizable balance from his salary and he still has RM300k cash reserve for him to enhance and renovate his property.

We have just described one practical and legal approach to assist genuine property buyers when facing the challenges of tightening credit lending by Bank Negara over the last 3 years. There are many ways to finance your property purchase. Should you require further advice on property purchase or investment you can drop us an email at action.e2520@gmail.com

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Action Real Estate copyrights reserved. Do not reproduce or copy the content of this post without first obtaining our consent. 

About the Author

KC LAW

Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyors Malaysia, Member of Malaysia Institute of Estate Agents and Member of Business Valuers Association of Malaysia.

8 Ways To Save Up For Your Down Payment

saving up for your down payment

In recent years, more and more average income earners are unable to afford buying their own property.

What has contributed to this situation?

Some say it’s because the banks are too stringent with lending, others would argue it’s because of the rising housing cost, there are also some who say that we are just simply not earning enough.

Turning the questions back at oneself, could the reason also be this – The average income earner do not have enough savings for a down payment to begin with?

Here are eight ways you can start saving up for your down payment!

1. Delayed gratification

We’re all guilty of this, the need for instant gratification.

Does this sound familiar?

Going shopping and suddenly seeing something you really want, its so difficult to resist.

Some of us would succumb to using our credit cards just to get our hands on it immediately.

immediate gratification

Why not pause and hold on to that thought of buying that new iPhone/MacBook Pro (or whatever it may be).

Keep asking yourself, do I need this or do I want this?

Can I afford it?

List down at least 3 reasons to justify your purchase. If it’s to make an impression, think again.

Try this: wait for 3 months and see if you still decide to continue with that purchase.

2. Set a standing instruction

Set aside at least 7% of your salary (a fixed amount every month) as savings before spending.

Set a standing instruction into a separate savings account, unit trust fund or whichever investment vehicle you are comfortable with.

Even on days you forget to save, the bank does it for you automatically.

Check the account after 1 year, you’ll be amazed at how much you’ve managed to put aside!

amazed

3. Monetize all your skills & hobbies

Do you have extra skills or hobbies?

Photography? Coding skills? Good at a language? Dancing?

freelance writer

Earn extra cash by doing freelance in your free time!

Sell your photos as stock photos, get paid each time it gets downloaded.

Get on fiverr.com or other freelancing sites to offer your web development services, translation services etc.

If you’re a great dancer, how about teaching at a dance studio part time?

Put these skills and hobbies to use and get paid for them!

No skills? Get behind the wheel!

Drive Uber/Grab, pay down your debts faster and earn extra cash!

Driving uber or grab

4. Set a timer for your air conditioner

You and I know how much we LOVE our air conditioner.

We simply cannot live without it.

Try setting a timer to your air conditioner, so that it is only on for a couple of hours when you’re about to enter sleep, and have it automatically off itself.

You will be amazed at how much money you can save on your electric bills!

Here’s an article by cilisos.my, Guess How Much Your Aircond Contribute To Your Electric Bill?

5. Review your monthly expenses

These include your insurance premium, mobile phone data plan, UNIFI, dietary supplements, facial treatment, massage, manicure & pedicure, gym, petrol etc. Things you regularly spend on every month.

Some expenses are necessary, however they can also be reviewed and tweaked once in a while so that your spending is optimized.

You may not even realize that you may be over paying for some things you under utilize.

Are there cheaper or more cost effective alternatives?

Start reviewing them one by one and you may be able to point out where you can cut back on.

Are you one who increase your expenses on weekly/monthly indulgences once you get a raise?

Is your lifestyle undergoing an inflation?

What is “lifestyle inflation”?

Nadia Khan from comparehero.my described what “lifestyle inflation” is and why it’s causing you to struggle.

She also challenged readers to think in the opposite, when you earn more, you save more instead of spending more.

Because logically speaking, if you spend more, you will likely be in greater debt or financial uncertainty than if you were to save more money.

6. Liquidate all your white elephants

Liquidate everything you no longer use in your home such as electronic appliances, furniture etc.

You will be surprised how much money you can get back by getting rid of white elephants in your home.

You can use listing apps such as Carousell to list your items for sale.

By doing so, you get to kill two birds with one stone- get back some money and clear up the  clutter in your home.

Trust me, this is quite therapeutic!

7. File your taxes wisely, accurately and on time

Do you know what are some of the things you can get tax relief?

Some examples are life insurance, books, sports equipment.

It changes every year after the Prime Minister announces the annual budget.

Pay close attention to tax reliefs, what can be tax deducted and file them accurately.

Remember to keep your receipts for at least 7 years.

8. Eat home cooked food

Not only is eating home cooked food healthier, it also saves you money!

Cook a little extra during dinner and pack the remaining for lunch the next day!

Let’s say a home cooked meal (with moderate, ordinary, non-premium ingredients) cost about RM 4-5, and a meal outside cost RM 8-10.

You would save ~RM 5 per meal, RM 15 per day, RM 90 per week (Ok la, maybe one day you eat out), RM 360 per month, RM 4320 per year!!

Why not start being your own cook?

cooking

Q: What are some measures you have taken for yourself to ensure you increase your savings for your property down payment?

Share with us your own tips in the comment box below and share this if you agree! 

Action Real Estate copyrights reserved. Do not reproduce or copy the content of this post without first obtaining our consent. 

26 Real Estate Terms You Must Know, IN A STORY!

Written by: Sr. KC Law, Principal & Valuer at Action Real Estate & Valuers

26 Real Estate Terms You Must Know

Here is a short story about John (fictional character) and his house buying journey to help us in explaining 26 must know real estate terms.
All the terms are defined in the real estate glossary at the end. The terms are hyperlinked to one another, so you can click back and forth!
John plans to get married next year and is on a house buying journey…
There are several options he can consider but because he wants a ready property so he decided to buy from  the (1)sub-sale market. After calling up a few real estate agents and going for several viewings, he finally selected a (2) leasehold condo unit with a purchase price of RM500K. As this was his first time buying a property, he told the real estate agent that he would need some time to consider the purchase. He wanted to know if the price quoted by the real estate agent is truly what the property is worth.
John then calls up his ex-schoolmate who works with a (3) valuation company to verify the offer. He provides to his friend details such as, the property name, exact address, (4) built-up area, some information about the specifications of the property and even some pictures he took during the viewing to his friend to verify the property’s current value.
After some calculations and comparisons with other recent transacted property prices around the same street, his friend’s feedback is that the (5) market value of the property is RM550K. So this means the purchase price of RM500K is in fact 10% below market value. Feeling assured, John went ahead and pays an (6)earnest deposit of 3% to the registered real estate agency and signed a (7)“Letter of Intent to Purchase” or booking form. With the booking form issued by the real estate agency in hand, he then goes to several banks recommended  by his real estate agent to source for a bank loan to finance this property.
On assessing his loan request, the banks would consider his monthly income and capacity to make the monthly repayments before granting the loan approval. Since this is John’s first property purchase, he is eligible for 90% (8) margin of financing and there were 2 banks which were willing to offer him RM450K loan. After comparing the banks’ offer, he chooses the loan that offered a lower (9) interest rate and better terms and conditions. After finalizing the bank offer for his loan, he then needs to appoint a bank panel lawyer to prepare the (10) loan agreement. Legal fee here is borne by John.
Next, he is also advised to appoint a (11) conveyancing lawyer to prepare the (12) Sales and Purchase agreement (SPA). To execute the Sale and Purchase agreement, John is required to pay the seller another 7% to make up the 10% down payment and the balance, i.e. the 90% will be paid through bank financing.
Since the property is a relatively new condo with a (13) master title, the sale will be by way of (14) deed of assignment. If the unit has an individual (15) strata title then it will be by way of memorandum of transfer (Form14A). The seller is paid the balance 90% within 90 days from date of signing of SPA or (16) consent from developer and/or (17) relevant authorities (whichever is later) with an extension of 30 days carrying an interest rate of 8%.
John was informed that the Ministry of Finance’s Valuation and Property Services Department, also known in Bahasa Malaysia as (18) Jabatan Penilaian dan Perkhidmatan Harta (JPPH)  will assess the property value independently for calculation of (19) stamp duty to be charged. This is done by the SPA lawyer by the process of (20) adjudication. Since John is a first time home buyer, there is great news for him; he gets to enjoy stamp duty exemption! See glossary below to find out how to calculate stamp duty and also how much John would have to pay after his exemption.
In the event the market value assessed by the Collector of Stamp Duties is higher than the SPA price (i.e. purchasing price, in this case RM 500k), the stamp duty chargeable will be based on the market value instead of the SPA price. It is important to ensure the SPA document is stamped, as a document which is not stamped or insufficiently stamped is void or (21) unenforceable for that reason alone.
The bank that offers the loan for the property will also usually appoint a panel valuation company to confirm the property’s current market value before the release of loan. In this case, if the bank values the subject property as RM500K or more, then the bank will finance RM450K or 90% of the SPA price. However, if the bank values the property less than RM 500K, what would then happen? Answer: He will not be able to get RM 450K financing!
If John had not done his due diligence/ homework of checking out the current market value of the condo before putting his foot down to purchase, John would have to fork out a lot more money. For example, if the bank valuation of the condo is RM450K, then the bank will only finance 90% of RM450K which is only RM405K. John will have to top-up the shortfall of RM45K in cash! The valuation fee for the valuation report on the condo is borne by John.
If the (22) vendor (the right term to refer the seller as) has not paid up his bank loan in full, John’s SPA lawyer will need to get the (23) redemption sum that states the outstanding amount owing to the vendor’s bank. After paying the redemption sum and other (24) encumbrances  on the property the remaining sum will be paid to the vendor to (25)discharge the property. Upon full payment of RM500K John will claim (26) vacant possession of the condo he has purchased. Finally, just before the big move, John will need to apply for new electricity account and water supply account by paying the deposits for these utilities. After which he is all ready to move in and occupy the premise.

Real Estate Terms/Glossary:

1. Sub-Sale
Existing properties that are available and are usually occupied by owners or renters, or vacant.
2. Leasehold
An owner of a leasehold property is not the owner of the land upon which the building is erected, but is a lessee of the land for a period varying from three years to 99 years (the maximum period of lease permitted by the National Land Code 1965). Opposite to leasehold (sort of), is what is known as freehold, it basically means permanent and absolute tenure of land or property with freedom to dispose of it at will. (added in for completion)
3. Valuation
Valuation establishes an opinion of value utilizing an objective approach based on facts related to the property, such as age, square footage, location, cost to replace, etc.
4. Built-up area
Built up area is the carpet area plus the thickness of outer walls and the balcony. Check out the diagram below from housing.com, which shows what the built up area constitutes.
carpet area and built up area
Diagram was taken from housing.com
5. Market value
Market Value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In simpler terms, it means the price an asset is able to fetch in the marketplace.
6. Earnest deposit
Earnest deposit is something like a “booking fee”, given by the purchaser to the seller when he/she makes an offer to purchase the property. This is a payment  to show that you are serious about buying the property. It is counted towards the down payment, and refundable if the offer is not accepted. The earnest deposit payment should be made payable to the real estate agency. Once the SPA is signed, this earnest deposit will be the real estate agent’s commission from the seller.
7. Letter of Intent to Purchase
A Letter of Intent to Purchase, also known as a booking form is a document outlining an agreement between two or more parties before the Sale and Purchase agreement is finalized. The letter provides an outline of the proposed terms of the transaction so the parties can negotiate before committing to a contract. It is  needed to minimize misunderstanding and document progress towards a sale. Since this intent letter is not a binding contract, which means the property owner can still sell the property to someone else.  It’s also a great way for a buyer to help secure financing.
8. Margin of Financing
The margin of financing depends on a few things, the value of the property, your income and your repayment capability. The amount of financing provided by a financial institution depends on the market value (for completed properties only) or purchase price of the house, whichever is lower. For example, if a property is priced at RM500,000 and the Margin of Financing is 90%, the amount of own money is RM50,000. Want to know more about how to get a housing loan? Read “Getting A Housing Loan”
9. Interest rate
The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower, and the inflation rate.
10. Loan agreement
Also known as a loan or credit facility agreement or facility letter. An agreement or letter in which a lender (usually a bank or other financial institution) sets out the terms and conditions (including the conditions precedent) on which it is prepared to make a loan facility available to a borrower.
11. Conveyancing
The process of transferring property between a buyer and a seller. In real estate, conveyancing involves drawing up and carrying out a written contract that sets out the agreed purchase price and the date of transfer, as well as the obligations and responsibilities of both parties.
12. Sales and Purchase Agreement (SPA)
SPA is actually a written contract representing the seller and buyer in a real estate transaction. It lists down all the terms and conditions of the purchase as well as the role of both parties. In the event there is a default from any one party, the termination and indemnity clause in the agreement will provide protection.
13. Master title
A title, or title deed, indicates the owner of a property. In most cases, every property during the stages of development and construction will be under a single Master Title.
14. Deed of Assignment (DOA). (if title is not issued)
DOA is a legal document that transfers the interest of the owner of that interest to the person to whom it is assigned, the assignee. When ownership is transferred, the deed of assignment shows the new legal owner of the property. Sign DOA, When land still under master title.
15. Strata Title
Strata Title is the separate property deed for each unit in a sub-divided property (multi-storied building or a number of buildings on a piece of land that have common facilities administered by a management committee). These can include: apartments, condominiums, townhouses,etc.
16. Consent from developer
Get the consent of the developer to the sale of the property to the new buyer and to undertake
the registration of the property in the name of the new buyer.
17. Relevant authorities
The SPA of such schemes may have restriction on the buyer selling the property. i.e. it could not be sold within a stipulated period or without the consent of the government. The title to the property may have restrictions. (the restrictions could be read from the title or search of the title) e.g. property cannot be transferred or charged without State consent.
18. Jabatan Penilaian dan Perkhidmatan Harta (JPPH)
Valuation and Property Services Department of Ministry of Finance, JPPH advises the Federal Government, State Government, Statutory Body and Local Authority in Malaysia on matters pertaining to the valuation of real estate and property services. Besides this, JPPH also provides information on sale or transfer of real estate to valuers, appraisers or estate agents who are registered with the Board of Valuers, Appraisers and Estate Agents Malaysia
19. Stamp duty
For the transfer/assignment (if no individual title is issued), based on the adjudicated value by
the Stamp Office:
For 2017
First RM 100,000 – 1%
RM 100,001- RM 500,000 – 2%
RM 500,001 and above – 3 %
For 2018
First RM 100,000 – 1%
RM 100,001- RM 500,000 – 2%
RM 500,001 – RM 1,000,000 – 3%
RM 1,000,000 and above – 4%
For first time home buyers, the government has come out with an initiative to provide stamp duty exemption to reduce the cost of home ownership.
Up to RM 300, 000 – 100% exempted
>RM 300,000 – as per rates set out above.
Let’s try to calculate how much John would have to pay..
Price of property RM 500,000
First RM 100,000 -(1%) RM 1,000
RM 100,001 – RM 500,000 – (2%) RM 8,000
Total (without exemption)= RM 9,000
Exemption= RM 1,000 + RM 4,000 = RM 5,000
Means that he still needs to pay a balance of RM 4,000.
20. Adjudication
The purpose of adjudication is to ensure that the instrument is duly stamped to protect the parties to the contract in respect of the admissibility of the instrument as evidence in court during a civil proceeding. An instrument which is not duly stamped is not admissible in court as evidence.
21. Void or Unenforceable
A void contract is a formal agreement that is illegitimate and unenforceable from the moment it is created. There is some overlap in the causes that can make a contract void and the causes that can make it void and unenforceable contract is a valid contract that cannot be fully enforced due to some technical defect.
22. Vendor
The seller of a property.
23. Redemption sum
The outstanding amount owing to the Vendor’s bank (“Redemption Sum”). Where the Redemption Sum exceeds the Purchase Price or the Balance Sum, additional provisions are required to be made for payment of the amount in excess by the Vendor.
24. Encumbrance
A claim against a property by a party who is not the owner. Mortgages, easements and liens are examples of some encumbrances that can apply to real estate assets.
25. Discharge
Removing a debt by making full payment. A mortgage discharge is a document formally specifying that a mortgage debt have been paid.
26. Vacant possession
It is usual for the contract for the sale of a property to contain a provision confirming the property is to be sold with vacant possession. Vacant possession is an obligation on the Seller to make the property available on completion in a state in which the Buyer can physically and legally occupy it.
There you have it, 26 real estate terms you would encounter during a property transaction! Share it with others and subscribe to our blog for more articles like this!

Action Real Estate copyrights reserved. Do not reproduce or copy the content of this post without first obtaining our consent. 

About the Author

KC LAW

Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyor Malaysia and Member of Malaysia Institute of Estate Agents.

Getting A Housing Loan In Malaysia

Written by: Sr. KC Law, Principal & Valuer at Action Real Estate & Valuers

housing loan approved

Getting your housing loan approved? Here are some pointers to note

Before looking through property portals and going for property viewings, it is of utmost importance to pre-qualify yourself before getting a housing loan.

Ever wondered how much is the bank willing to loan to you?

In this day and age, it is getting increasingly difficult to get a housing mortgage approved due to the tightening of lending policies by Bank Negara.

Why? you may ask, our debt to income ratio is as high as 146%! Meaning to say, for every RM 1 salary, you have a RM 1.46 debt!

There were countless of times I have seen genuinely interested buyers not being able to purchase their dream home simply because their housing loan application was rejected by the bank.

It can be quite frustrating and disappointing, after finding the perfect home and later being told that you cannot purchase it.

Therefore, you may want to make a trip to your bank to consult a mortgage banker. The information in this article should not replace the consultation you have with your banker.

P/S: Always engage a qualified, legal, certified real estate negotiator. Do you know how to spot an illegal real estate negotiator? Find out Are you Dealing With A Certified Real Estate Negotiator 

Bankers will typically look at 3 things before granting approval of your loan:

1. Credit Tip Off System (CTOS)

This is a privately owned credit agency. Basically, this system records if you have been blacklisted before.

The CTOS report indicates a CTOS Score, which is an easy to understand 3-digit number on how good your credit health is and how likely you’ll be approved for your next loan.

The higher the score, the better.

Did you know that you can check your own CTOS status online at www.ctoscredit.com.my for free?

2. Central Credit Reference Information System (CCRIS)

This system is owned and managed by Bank Negara Malaysia.

The information that CCRIS show are:- total loan amount, frequency of repayment, outstanding loan amount, types of facilities (credit card, car loans etc) and in which bank, whether or not you are single or a joint borrower.

An ‘0’ indicates that the person is up to date with his repayment. If the system shows ‘1,2,3..’, actually means that the person has defaulted repayment, the number indicates the number of months he has defaulted repayment.

Banks are only keen to lend to good paymasters, that means paymasters who are timely at paying their installments and consistent.

Thankfully, this system only show the latest 12 months record.

So if you had always been a defaulter, you can redeem yourself and start paying your installments on time and consistently.

You may check your CCRIS by going to a BNM branch with your IC, there will be a kiosk where you can get a print out of your CCRIS.

Alternatively, you can go to www.mycreditinto.com.my where you can check your credit status and CCRIS for a small fee.

3. Debt Service Ratio (DSR)

DSR shows how much of a person’s income is used to service debt installments and it is calculated by this simple formula Debt/Net Income x 100%.

Based on this calculation, the banks will then be able to tell how much more loan you are able to handle.

You can also work this out on your own, by collating all your income, expenses and commitments and plugging it into that same formula, although the banks will have a more complex algorithm by which they follow; calculating it on your own will help you to understand your chances of loan approval and gauge your ability to afford a particular monthly installment.

Many buyers don’t take this seriously, and when they are faced with cash flow issues, they are at high risk of defaulting their installments.

The DSR cap between banks can vary, and typically depend on your salary range.

Your DSR may qualify you for a loan at one bank but fail at another.

If you fail to obtain a loan at a bank, try another bank.

Different banks look at different aspects with different weightages. In any case, always reduce debts, increase income!

This is part of a series of articles we will be releasing, on “Guide To Buy A Property in Malaysia”. Stay tuned for the whole series of blog posts to get the complete picture!

Action Real Estate copyrights reserved. Do not reproduce or copy the content of this post without first obtaining our consent. 

About the Author

KC LAW

Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyor Malaysia and Member of Malaysia Institute of Estate Agents.

Malaysia Property Markets: New Development, Auction or Sub Sale?

Written by: Sr. KC Law, Principal & Valuer at Action Real Estate & Valuers

new development, auction or subsale property?

We have been frequently asked this question about the Malaysia property market –  New development, Auction or Sub sale, which market is for me? In this week’s blog entry, we will summarize the pros and cons of each property market and briefly outline the typical profile of buyers in each market.

There are typically two main reasons for purchasing real estate, i.e. for investment or for own stay. The consideration factors for both are completely different and should not overlap.

If you intend to purchase for your own stay, your emotional feelings come into play when making a decision.

For example, do you like the neighborhood, are you happy with the renovation work of the house, do you like the front porch, do you like the fittings in the house etc.

On the other hand, when buying a property for investment,  one should never let emotions come into play, only good numbers!

These numbers we are referring to are the property price, rental yield and its potential for capital appreciation.

Before hunting for a property, it is important to be clear of your purpose first!

To reiterate, 3 of Malaysia’s property markets are:-

Property market #1: New Development
New Development property market

New development, also known as the primary market is usually the choice of new/young buyers because of the low entry cost of new development projects.

The entry cost is typically between RM5k to RM10k, with most of the other cost such as legal fees, sales and purchase agreement covered by the developer.

To stay competitive, many developers also offer rebates and freebies to their purchasers.

Therefore, for new buyers that have limited savings to qualify for a sub sale purchase, this is the likeliest entry into the market.

From a buy-to-stay perspective, buying from the primary market gives you the privilege of choosing your preferred unit, it also ensures that everything within the property is brand new and the buyer can be assured that everything is in its best condition.

On completion of the project, the property is in move in condition and any defects are covered by warranty from the developer.

From an investor’s perspective, buying from the primary market may be beneficial in terms of higher potential for capital appreciation after the entire project reaches completion.

Since we can expect construction cost and property prices to rise at least in proportion with inflation, buying it in its early phase may give you an advantage.

However, this is highly dependent on many other factors such as the location, demographics, infrastructure and other developments around the area, it pays to do your due diligence of the area and surroundings before buying into any new development projects as they are not without its disadvantages as well.

For one, it is the more risky option because the project completion can be delayed since today’s cost of materials, labor, land and statutory compliance is very much higher.

So if you are buying into a new project, there is risk of the project having a construction period of more than 3 years, sometimes some projects even get abandoned mid way.

All this waiting period is risk with interest, and as buyers you will have no control over its delivery.

Also, due to the rising costs, these costs are factored into the price of the property, often times making them more expensive than its actual value, therefore causing less appreciation than expected.

The finish product’s quality is not guaranteed and may differ from that of the sample house, what you see in the show room may not always be what you will get.

Other than that, after delivery of keys, there is also the possibility that the market demand of the area may have dropped or changed after the waiting period of 3 years or more.

For instance, soon after the completion of your condo, several other high rise might have followed, causing an over supply. Some investors will be stuck with not being able to sell/rent out their unit.

Pros and Cons of New development

 

Property market #2: Auction

Auction property market

Next, let’s discuss what the auction market entails, also known as the tertiary market.

Auction properties are usually priced at 20% below market value.

An investor or a person buying to stay may be able to get a below market value deal at the auction market and transactions are typically faster since there is no need for negotiation between buyer and seller.

However, auction properties are very well publicized in the market these days not only by auctioneers but also by property agents, it is no longer easy to get a good property at bargain price.

Auction properties at prime location will also attract many bidders. This will eventually drive up the price to market value and sometimes even above market value.

The entry cost is high, as bidders need to prepare a deposit of 5-10 percent of the reserve price and be ready to top up the difference in deposit after a successful bid.

Even if a buyer manages to purchase it at below market value, the condition of auctioned properties are usually in very bad state.

The money saved from purchasing a cheap property may have to be used for major renovation works, and also pay for unpaid taxes, bills, utilities and assessments.

Interested bidders are also unable to view the property before making a decision.

Moreover, the buyer may face difficulty in obtaining vacant possession of the auctioned property and may even need to go through lengthy procedures to obtain a court order to vacate the occupant of the property.

With all that has been said, it may still be a good option to consider for properties in unpopular areas that have untapped potential or non general purpose properties that attract fewer buyers from the market.

As you can already tell, purchasing an auction property has many uncertainties, hence making it risky.

Pros and Cons of Auction

 

Property market #3: Sub Sale

Sub Sale property market
Lastly, lets discuss about the sub sale market, also known as the secondary market.

When buying a property from the developer, you can only picture what it will be like when the project completes.

For a completed property, you can have a real look and feel of the property, what you see is what you get. You can see everything about the unit, from the view, the renovation works done to the property, the surrounding area, demographics of the area and etc.

On top of that, data of transacted prices will already be available to you either through your trusted real estate negotiator or through your research on various property portals. With so much of information available, a buyer is able to make informed decisions on their purchase and reduce the risk of purchasing an overpriced property.

It pays to be good friends with real estate negotiators as they may even help you secure below market value deals in the sub sale market, why not leverage on their network and connections? You do not even need to pay the negotiator, since the seller/vendor pays the commission (for most parts of Malaysia).

The lower the property price is, the higher the rental yield and  return on investment will be. Besides, compared to new developments, the transaction is way quicker as it usually takes only about 2-3 months to get all the paperwork done and get vacant possession of the property.

From a buy-to-stay perspective, many home buyers nowadays look for renovated sub sale property as it can save them money on renovation as cost of building materials have also gone up over the years.

As for property investors, purchasing property from the sub sale market allows you to realize the rental yield immediately as you will be able to start letting out your property once you have vacant possession of the property.

For all the reasons stated above, the sub sale market is many seasoned investor’s favorite property market.

However, the same cannot hold true for new/young home buyers as it requires a high upfront payment, namely 10% down payment, legal fees, stamp duty, valuation fees, just to name a few (approximately 15% of the property price).

Other than that, buyers of sub sale properties need to spend a lot of time viewing different properties before making a decision on a purchase.

Sometimes the time taken for decision making  may cause a genuinely interested buyer to miss out on the sale due to other buyers who have made a decision quicker.  Also, with sub sale properties, there is no warranty on defects of the property, you buy a property as is.

Many times older sub sale properties may come with defects which may not be immediately apparent such as a piping defect, electrical defect or termite infestation. This may require extensive repairing work which may be costly.

Fortunately, there is good news! End of year 2016 and year 2017 is an interesting time for buyers (investors/people buying to stay) as there are many “new” sub sale properties in the market.

These may be properties that are just being handover to the owners. Many of these properties were purchase before 2014 under the developer interest bearing scheme (DIBS). So it is not uncommon to see many brand new properties for sale at competitive prices in the market now.

Pros and Cons of Sub Sale

In conclusion, buying a property depends on the purpose of your purchase (investment/buy to stay), financial readiness and risk appetite.

According to Warren Buffet, “Risk comes from not knowing what you are doing”. Therefore, it pays the best dividend to equip yourself with the skills and knowledge necessary to manage and minimize the risk of buying property.

Finally, always engage a qualified real estate agent/negotiator for all your property transactions! (Find out “Are you dealing with a certified Real Estate Negotiator?“)

New Development, Auction or Sub Sale, which is your preferred property market?  

Action Real Estate copyrights reserved. Do not reproduce or copy the content of this post without first obtaining our consent. 

About the Author

KC LAW

Sr. KC Law is a Registered Valuer, Estate Agent and Property Manager with The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP) of Malaysia. KC Law is also an electronic engineer registered with the Board of Engineer Malaysia (BEM) and received his engineering training from Tunku Abdul Rahman College Malaysia and later at Hatfield Polytechnic United Kingdom. In the 1990’s he was involved with the digital transformation of Telecommunication infrastructure for Maxis and Telekom Malaysia. His passion for Real Estate in the 2000s led him to practice as a real estate negotiator in Ace Realty and later valuation and property management in Rahim & Co International. Several years later he founded Action Real Estate and Action Valuers & Property Consultants. His areas of expertise are in Real Estate Agency, Property Valuation, Property Management and Business Valuation. He is Member of The International Association of Certified Valuation Specialists of Canada, Member of Royal Institution of Surveyor Malaysia and Member of Malaysia Institute of Estate Agents.