Type of Property Titles
In Malaysia, there are 3 types of land titles: Freehold, Leasehold and Malay Reserve. However investors must be aware of other titles like Master Title, Individual or Strata Title.
- It means ownership in perpetuity.
- It is easy to transfer from one person to another as no consent is required from state or federal government authorities for the transfer and charge of the property. However, in certain states or some places in Klang Valley, freehold properties may have “restriction in interest” and which required state authorities or land office consent. The time taken to complete the transaction is usually 3 to 4 months.
- The government has the right to acquire the freehold properties for Public Projects. You will be compensated at the market rate for the forced acquisition of your entire property or part of your land.
- Freehold properties are the most preferred types of properties as they command better resale value and they tend to appreciate faster.
- It simply means you are leasing or renting the property from the government. The lease may be ranging from 60 to 99 years. In principle, once the lease expires, the property will have to return to the state and you will not be entitled to any sort of compensation. However in practice, when your lease is about to expire, you are required to apply to relevant land office or authority for a lease extension and pay the extension premium. The amount payable depends on various factors such as type of property, size, location, length of lease extension and etc. Normally, property price will increase tremendously when the lease renewal is granted.
- Transfer process from the seller to buyer is lengthy as consent from the state or federal government is required. It usually takes 6 to 9 months to complete the transaction. In some cases, it even take longer time to complete.
- During the lengthy transfer process of 6 to 12 months, seller may change his mind not to sell because the property price has gone up and the transaction may be aborted. Therefore it is important for the buyer to put an exit date about 12 to 18 months in the SPA agreement in order to prevent the seller from terminating the agreement when there is a longer than usual delay in obtaining the consent.
a. When buying empty leasehold property, buyer can negotiate to obtain early vacant possession upon signing the SPA; while waiting for the transaction to complete, buyer can either have ample time to carry out renovation works or rent it out for early rental collection.
b. When buying leasehold properties from developers, it is important to check what is the remaining lease; don’t simply assume it is 99 years as in some cases, the remaining lease is only 89 years or even shorter.
c. Most local Banks are not willing to give financing to properties with less than 30 years lease remaining when the loan tenure expires. Foreign banks even require minimum 60 years lease remaining when loan tenure expires.
- The appreciation of leasehold properties is always lagging behind the similar freehold ones. However leasehold properties can fetch slightly better rent, 1% to 2% higher than similar freehold ones due to its lease extension cost.
- If your objective is for rental yield or own stay, then it does not matter whether to buy freehold or leasehold properties. if you have low entry cost budget then it is better to buy leasehold properties as it is cheaper than similar freehold ones; It may vary from 5% to 15% depending on various factors.
3. Malay or Bumiputra Reserve
- Due to government economic policies, these type of porperties are reserve for Malay or Bumiputra. Hence, non-bumi are not allowed to buy these properties.
- The future appreciation potential is below freehold and leasehold properties due to limited pool of potential buyers.
4. Other Type of Titles
- A Master Title is a title for the entire project approved for development. For landed properties, the developer will have to sub-divide the Master title into individual title upon completion and handing over to the purchasers; whereas for high-rise development, the developer will have to apply for Strata Title upon completion and handing over to individual purchaser. The issuance of individual title is fast but the issuance of strata title is very tedious and time consuming. Many high-rise properties were completed more than 20 years ago but the properties are still without strata titles.
- Upon the issuance of the individual or strata title, the owners on longer need to apply for consent or undertaking from the developer when selling their properties.