The Cost of Buying New Residential Property from Developer's Project

Buying your own residential property can be a lot of fun, and can also be financial rewarding. However, if you are unaware of the cost involved in buying your own residential property, the fun and excitement can quickly turn into a huge nightmare.

At All Malaysia Properties, we want each of our client to enter into every transaction with a clear expectation of what is involved. This year, we decided to start a series of articles to provide our readers with the essential property education.

In today's article, we want to talk about the cost of buying new residential project. The term "project" in local terminology, means a property development where the purchaser acquires directly from the developer. In such a case, the agent (or, to be exact, real estate negotiator) serves as a sales agent for the developer.

To expedite the sale of their properties, developers usually engage the services of at least one real estate agency, doing away with the need to take on board permanent staff.

Booking Fee

This is the fee you pay at the point where you express an interest in acquiring a property. It can be anywhere from a few hundred ringgit to tens of thousands, depending on the selling price. The "receipt" you get for making payment of the booking, is called the Letter of Offer, or LO, indicating the developer's willingness to sell you the property.

Upfront Cost

The upfront cost involved in buying a property is the amount you have to pay that isn't covered by your housing loan. As most banks in Malaysia will offer up to 90% loan, you need to fork up the balance 10%. Having paid the booking fee, this is the balance you need to pay when the Sales & Purchase Agreement is ready.

Cancellation Fee

Should you change your mind after making the booking, there might be a cancellation fee involved. The amount will be on a case-by-case basis, dependent on the developer and the project. Some developers do not charge a cancellation fee, while some require valid reasons backed by one or more bank loan rejection letters.

Loan Documentation

Unless you are a cash buyer, your purchase will be funded by a housing loan, or mortgage. As would be expected, every time there is documentation made, there money to be paid. A lawyer firm would be involved in preparing the loan documentation, hence, there will be a legal fee. There is also a stamp duty to be paid to the government, which is 0.5% of the loan amount. And on top of that, there is a bank processing fee for the loan, which is between RM50 to RM200.

Loan Agreement Legal Fees (2020)
First RM500,000: 1%
Next RM2,000,000: 0.7%
Next RM2,000,000: 0.6%
Mext RM2,500,000: 0.5%

The good news is that, for most of the recent property projects, the developer is absorbing a selection, or all, the above fees. This provides an attractive impetus for people to buy projects (as opposed to sub-sale, which we will cover in our subsequent article).

Sales & Purchase Agreement (SPA)

The Sales & Purchase Agreement (SPA) is the legal document, and is often signed in the presence of the lawyer who is appointed by the developer. This agreement spells out in detail the terms of the purchase, which is governed by the Housing Development (Control & Licensing) Act 1966 and the Housing Development (Control & Licensing) Amendment Regulation 2015. And of course, accompanying this signing will be another legal fee (shown below) and stamp duty, which will be not more than RM100.

SPA Legal Fees (2020)¹
First RM500,000: 1%
Next RM500,000: 0.8%
Next RM2,000,000: 0.7%²
Next RM2,000,000: 0.6%
Next RM2,500,000: 0.5%

Memorandum of Transfer (MOT)

When buying property from developer, you are in fact buying something on paper, to be developed and delivered to you some time in the future. When that property is completed and the ownership is to be transferred into your name, you will need to sign another legal document called the Memorandum of Transfer or MOT, and yes, there's another stamp duty for its execution.

Stamp Duty
First RM100,000: 1%
Next RM400,000: 2%
Next RM500,000: 3%
Above RM1,000,000: 4%

Loan Instalment

Having taken a loan to purchase the property, you will be expected to service that loan on a monthly instalment. To find out whether your salary can cover that loan, use the home loan calculator here.

Examples

To help you understand the costs involved in buying a property from a developer, let us give you a couple of examples.


Example 1
Michael is buying his first property. The purchase price is RM450,000. He is taking a 90% loan. Here's the calculation of the initial costs involved that goes into the purchase.

Purchase Price: RM450,000
Down payment: RM45,000
Loan amount: RM405,000
SPA legal fees: RM4,500
SST on SPA legal fees: RM270 (6% of legal fees)
SPA legal disbursement fee: RM200 (this varies project to project)
Stamp duty on MOT: RM8,000 (see calculation below)
First RM100,000: 1% = RM1,000
Balance RM350,000: 2% = RM7,000
Loan Agreement legal fees: RM4,050 (1% of a loan of RM405,000)
SST on Loan Agreement legal fees: RM243 (6% of legal fees)
Stamp duty for loan agreement: RM2,025

The total initial cost to Michael is:
RM45,000 + RM4,500 + RM270 + RM8,000 + RM4,050 + RM243 + RM2,025 = RM64,088
And that's before any additional wiring and furnishing for the property!

As for how much Michael has to pay in terms of monthly instalment, we will cover that in a future article on home loans.

Now, the good news is that, Michael is buying from a developer that is absorbing the SPA legal fee, SPA disbursement fee, Loan Agreement legal fee and Loan stamp duty, so Michael's total initial cost was only RM53,000 (a savings of RM10,575!) That's because Michael's realtor helped him pick a project where those documentation fees are absorbed by the developer.


Example 2
Keith is buying the penthouse unit of a luxury condominium. The price is RM5,800,000. He is taking a 60% loan.

Purchase price: RM5,800,000
Down payment: RM2,320,000 (through progressive payment)
Loan amount: RM3,480,000
SPA Legal Fees: RM39,000 (see calculations below)
First RM500,000: 1% = RM5,000
Next RM500,000: 0.8% = RM4,000
Next RM2,000,000: 0.7% = RM14,000
Next RM2,000,000: 0.6% = RM12,000
Balance RM800,000: 0.5%*= RM4,000
SST on SPA legal fees: RM2,340 (6% of legal fees)
SPA legal disbursement fee: RM500 (this varies project to project)
Stamp duty on MOT: RM216,000 (see calculation below)
First RM100,000: 1% = RM1,000
Next RM400,000: 2% = RM8,000
Next RM500,000: 3% = RM15,000
Remaining RM4,800,000: 4% = RM192,000
Loan Agreement legal fees: RM25,880 (see calculations below)
First RM500,000: 1% = RM5,000
Next RM500,000: 0.8% = RM4,000
Next RM2,000,000: 0.7% = RM14,000
Remaining RM480,000: 0.6% = RM2,880
SST on Loan Agreement legal fees: RM1,552.80 (6% of legal fees)
Stamp duty for loan agreement: 0.5% of loan = RM17,400
The total initial cost for Keith to purchase that penthouse unit is:
RM2,320,000 + RM39,000 + RM2,340 + RM500 + RM216,000 + RM25,880 + + RM1,552.80 + RM17,400 = RM2,622,672.80

Conclusion

When the property is completed and handed over to you, there will be other costs involved such as renovations and fittings. The amount will be largely up to your own taste and inclination.

As you can observe from the various costs stated above, buying a property is not a simple matter. However, by being aware of the various costs involved, you will enter into such a purchase with greater clarity.

Engage an All Malaysia Property Realtor

If you need a professional to help you buy, sell or rent property, in Penang and Kuala Lumpur, please contact us today.

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