Cost of Buying Residential Properties from Owners

In our previous article, we looked at the cost involved in buying residential properties from developers. We learned that under local terminology, the word "project" refers to properties from developers.

In today's article, we consider the cost involved in buying residential properties from existing owners, that is to say, from a person who bought it from the developer or another earlier owner.

Once again, there is a local term used, and in this case, it is "subsale". If you are a foreigner, you might be baffled, but in the Malaysian context, "subsale" refers to the sale of a property prior to the completion of the memorandum of transfer. In other words, the seller is selling the property before it is transferred into his name by the developer or previous owner. The term subsale is broadly applied to all sale of properties that have passed from developer to owner, first hand or otherwise. In other words, by local definition, "subsale" refers to "sale in the secondary market". So when you hear a Malaysian using the word "subsale", he means a property that is sold not by the developer, but by an existing owner.

Unlike buying properties where prior ownership resides with the developer, and often not yet built, when you buy from existing owner, the property is usually completed, and might have also been occupied. The main advantage of such a purchase is that the property is completed, and often, even fully furnished. You can visit it for a viewing, to get feel of whether it is right for you.

The disadvantage is that the property may also be aged, meaning it might require extensive repairs and renovation before you would occupy it. Or, if it is new, the furnishing done by the earlier owner might not be to your taste. Those are the attached costs involved .

Whatever the price of a property put for sale, if you are keen to acquire it, you need to factor in another 10% or so, to cover various costs, which I will list down. Even if you are seeking a bank loan, you need to have at least 20% cash in hand before you settle on a purchase price.

Down Payment

Of the aforementioned 20% cash in hand, half of that, or 10%, will be for the down payment you have to make to the owner. That 10% will be paid in two installments: the first 1% when you sign the booking form, to seal an agreement with the owner, that you wish to buy his property; and the balance 9% when you sign the Sales & Purchase Agreement.

Sale & Purchase Agreement

The Sale & Purchase Agreement (often abbreviated as SPA, SNP or S&P) is the legal document specified that someone sold and someone else purchase a property. To materialize this SPA, you will need the service of a lawyer, for which a fee is involved. This SPA fee is based on the purchase price.

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%

Loan Agreement Legal Fees

Unless you are a cash buyer, your purchase will be funded by a housing loan, or mortgage. Unlike buying from a developer, where a panel of lawyers has been lined up for you, when buyer from an owner, you need to find your own lawyer. However, if you engaged a realtor to find you the property, the realtor would be able to recommend a lawyer to execute your SPA.

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%

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.

Memorandum of Transfer

The Memorandum of Transfer (or MOT) is the procedure to transfer the deed of the property from the seller to you, the buyer. While the SPA covers this between the seller and you, the MOT covers it from the perspective of the government. To complete this, you have to pay a Stamp Duty. Depending on the price of the property you are buying, this can be quite a sum.

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

Other Costs

On top of the aforementioned costs, that could be various other costs that come into play, depending on the type of property you are acquiring.

Examples

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


Example 1
Having worked for a few years, Karim is planning to settle down. With the help of a realtor, he found a flat. His realtor helped him negotiate the price down to RM300,000. He is taking a 90% loan. Here's the calculation of the initial costs involved that goes into the purchase.

Purchase Price: RM300,000
Down payment: RM30,000
Loan amount: RM270,000
SPA legal fees: RM3,000
SST on SPA legal fees: RM180 (6% of legal fees)
SPA legal disbursement fee: RM100 (this varies project to project)
Stamp duty on MOT: RM5,000 (see calculation below)
First RM100,000: 1% = RM1,000
Balance RM200,000: 2% = RM4,000
Loan Agreement legal fees: RM2,700 (1% of a loan of RM405,000)
SST on Loan Agreement legal fees: RM162 (6% of legal fees)
Stamp duty for loan agreement: RM1,350
Realtor's Professional Fees: RM3,000 (the realtor is charging him 1% as buyer)
The total initial cost to Karim is:
RM30,000 + RM3,000 + RM180 + RM100 + RM5,000 + RM2,700 + RM162 = RM38,142*
As you can see above, apart from the 10% down payment, Karim has to fork out approximately another 4.7% for various fees, and that's before he buys a single furniture for the house.

* In addition to the above, Karim will have to pay a commission to a realtor. This amount can be anywhere, to a maximum of 3% of the price of the property. On top of that, there is an SST of 6% on that commission.

Example 2
Calvin is buying a unit of a condominium unit. He saw the property advertised by a realtor, and managed to negotiate the price to RM645,000. He is taking a 80% loan. The realtor charges him 1% of the property price as his professional fees.

Purchase price: RM645,000
Down payment: RM129,000
Loan amount: RM516,000
SPA Legal Fees: RM6,160 (see calculations below)
First RM500,000: 1% = RM5,000
Balance RM145,000: 0.8% = RM1160
SST on SPA legal fees: RM369.60 (6% of legal fees)
SPA legal disbursement fee: RM150 (this varies project to project)
Stamp duty on MOT: RM13,350 (see calculation below)
First RM100,000: 1% = RM1,000
Next RM400,000: 2% = RM8,000
Remaining RM145,000: 3% = RM4,350
Loan Agreement legal fees: RM5,128 (see calculations below)
First RM500,000: 1% = RM5,000
Remaining RM16,000: 0.8% = RM128
SST on Loan Agreement legal fees: RM307.68 (6% of legal fees)
Stamp duty for loan agreement: 0.5% of loan = RM2,580
The total initial cost for Calvin to purchase that condo unit is:
RM129,000 + RM6,160 + RM369.60 + RM150 + RM13,350 + RM5,128 + + RM307.68 + RM2,580 + = RM157,045.28*

* In addition to the above, Calvin will have to pay a commission to the realtor. This amount can be anywhere, to a maximum of 3% of the price of the property. On top of that, there is an SST of 6% on that commission.

Conclusion

Properties are an excellent long-term investment. Unlike buyer a car, the property that you purchase will eventually appreciate in value. But under most circumstances, this does not happen overnight. It takes a while, even years, before you see any worthwhile appreciation in value.

References

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