Property taxes in Malaysia

Property taxes are a certainty that all property owners must face. There are taxes for every step of the way- during the purchase of property, owning of property and of course, the selling (or transferring) of property.

How many of us can say that we know exactly what taxes there are, when do they apply and how much should be paid? Perhaps property agents, lawyers or some accountants may know the complexities of taxes involved with property, but the average Malaysian will face certain frustration when the word “taxes” even comes to mind.

This simple guide aims to give property owners a better idea of what are the most common taxes, under what circumstances they apply as well as how to calculate them throughout the different stages of buying, owning to the letting go of property.

Purchasing a Property

1. Stamp Duty

During the purchase of a property, there is a ton of paper work involved, which is already quite overwhelming in itself. Stamp duty makes things a little more complicated (and costly) to purchase a property.

Stamp duty is imposed on the ‘instrument of transfer’ (or documents) related to the purchase or transfer of the property, which is paid for by the buyer. These include the Sales and Purchase Agreement (S&P) and Memorandum of Transfer (MOT), and even loan documents.

The Inland Revenue Board stipulates that the amount of stamp duty is levied upon the value of the property, determined by (whichever higher):

(i) The property’s market value.
(ii) The property’s selling price.

Example:

Property price based on market value: RM600,000
Property price based on selling price: RM550,000

So the amount that stamp duty will be levied on is RM600,000 (the higher amount of the two).

Calculating stamp duty:

Based on the example of a property valued at RM600,000:

*Note: Stamp duty is also imposed on the documents of loans taken to purchase properties. If you take a loan to purchase the property, you will have to pay 0.5% of the loan amount on top of that.

2. Goods and Services Tax (GST) - Commercial Properties

GST is a fixed 6% tax imposed on goods and services in Malaysia beginning from 1st April 2015. In terms of property purchasing, GST of 6% is applicable when you (buyer) purchase a commercial property from an individual who is GST-registered.

Criteria of commercial property owners who have to be GST-registered:

(i) Own 2 or more commercial properties.
(ii) Own land larger than 1 acre.
(iii) Own a commercial property/land valued at more than RM2 million (based on market price).
(iv) Earn more than RM500,000 (total annual taxable supply) from the commercial properties owned (eg: renting).

For instance:

The seller is a GST-registered individual whom you intend to purchase a shop lot from at a price of RM500,000. GST of 6% will then be charged to that amount (RM500,000), which you (buyer) will have to pay.

Owning a Property

After going through the daunting task of applying for a loan, purchasing the property and paying the applicable taxes, you are now the proud owner of a property! But what’s next? Well for starters, more taxes of course.

3. Cukai Taksiran/Cukai Pintu (Property Assessment Tax)

The property assessment tax, better known as Cukai Taksiran/Cukai Pintu, is a tax imposed on every household to finance the maintenance and construction efforts of various public infrastructure around the neighbourhood, town or city where the property is located.

These include the costs of cleaning and maintaining drains, road works to repair potholes, replacing broken street lamps and so on. The tax is payable to the local council of the area in which your property is based, such as Dewan Bandaraya Kuala Lumpur (DBKL), Majlis Bandaraya Petaling Jaya (MBPJ), Majlis Bandaraya Ipoh (MBI) etc..

Property assessment tax is evaluated based on the annual rental value of a property set by the state government or local authority where the property is located. Rates vary according to the type of property (eg: residence, serviced apartment, small-office-home-office, flats), location, market rate, and state of the property. (Note:Empty residential and commercial lands are also subjected to this tax.)

An example is as such (according to property assessment tax rates set by DBKL):

*Note: Property assessment tax is payable in 2 instalments, which are on February 28 or 29 for the first half of the year (January to June) and on/before August 31 for the following half of the year (July to December).

4. Cukai Tanah (Quit Rent)

This form of tax is applicable to owners of land, either freehold or leasehold and is an annual tax payable to the State Governments of each individual state. The tax also applies to homeowners of condominiums, apartments and other strata titles. The rates of quit rent may vary between respective states and even within the same state.

It is stipulated in The National Land Code that all payments of quit rent must be made on/before May 31 every year. Individual landowners can pay directly to the Department of Director General of Lands and Mines via online banking while owners of strata titles will have to make payment to the Joint Management Body (JMB) and Management Corporation (MC) of their respective residences/property. The JMB and MC will then submit the collective payment to the land office.

Calculating quit rent:

For example, a house measuring 40’ x 70’ or 2,800 sf:

Selling a Property

5. Real Property Gain Tax (RPGT)

Should you choose to sell your property within 5 years of its purchase, RPGT will be imposed on the net chargeable gains that you get from selling it. Which is the amount of profit leftover after deducting permissible costs from the gross profit, such as legal fees, property agent fees, repair costs etc.. (Note: Remember to keep all records and receipts of these deductibles.)

RPGT is only imposable should the sale or disposal of a property be profitable. If you do not turn a profit from the sale (eg: sold at same price as purchase/lower than purchase price), there is no need to pay for RPGT. Transfer of properties between married couples, a parent and his/her child, grandparents to grandchildren, where there are no gains or losses, is also exempted from RPGT. (Note: There is no exemption in transfers between siblings.)

Rates for the RPGT varies according to the number of years from which the property is disposed of or sold. There are also different rates for Malaysians and Permanent Residents of Malaysia, non-Malaysians as well as companies.

The RPGT was recently amended in the country’s 2015 Budget, whereby new rates are as follows:

Calculating RPGT:

For example, you (a Malaysian) buy a property on October 1st 2011 at a price of RM300,000. In October, 2016 you sell the same property for RM600,000. Hence, the rate that will apply to you is 15% as it is the 5th year of ownership.

*Note: Each individual is allowed a one-time only exemption from RPGT in the disposal of a residential property. This exemption is not applicable to commercial properties.

Taxing Effort Required of Property Owners

Despite how taxing it may be to go about knowing which taxes apply to your property, calculating how much tax you have to pay and even who to pay to, paying taxes is the responsibility which comes with property ownership.

Hence, owning a property takes more than just money, it also takes effort and ample knowledge. It is hoped that this simple guide can help property owners (especially first-time buyers or owners) manoeuvre the overwhelming sea of stamp duties and GST to tackling the waves of property assessment taxes and quit rent until finally, sailing smoothly pass the Real Property Gain Tax (after 5 years that is).

source: https://www.propsocial.my/topic/858/5-vip-very-important-painful-property-taxes-all-malaysians-should-know-posted-by-propsocial-editor?utm_campaign=website&utm_source=sendgrid.com&utm_medium=email

Freehold vs Leasehold

The bolded and centrally-placed words of “FREEHOLD” is commonly seen on everything from billboards and brochures to website banners promoting new developments. But why do developers think it’s so important that you know the property they are selling is freehold? Why do people scramble to get their hands on freehold properties?

Well that’s because one of the first things we learn about property is to only buy freehold. We’ve heard the same advice from others ranging from your parents to co-workers, real estate negotiators to bank officers or even read articles online about how important it is to buy freehold. With so much emphasis paced on this status, the idea that freehold tenure is an essential trait for a property worthy of our hard-earned money is truly reinforced.

Understanding Freehold and Leasehold Tenure

Freehold

In simple terms, freehold tenure is where you have the right to ownership of a property until the end of time. This means that you could pass on the property to your children or anyone else after your death and they can pass it on to their children, and then their children, followed by their children or whoever they choose and then their… you get the point.

Leasehold

Leasehold on the other hand, means that technically, you are not the owner of a property/land. You are merely leasing it for an amount of time (in Malaysia, it is commonly the maximum of 99 years when the property is new). That amount of time could also be less if you buy a pre-owned property (e.g.: 20 years ago, the tenure for a property was 99 years, when you buy it this year, you are left with 79 years).

When you reach the end of the tenure, an application to extend the lease will then have to be submitted to the state government, where if approved, you will have to pay a fee (based on the market value of that property/land at the time).

Five Common Assumptions About Freehold and Leasehold Property/Land

But is it a fact that freehold property/land are more worth buying? Or is it just a myth conjured from assumptions or optimistic ideals?

Take a look at some of the common assumptions about freehold and leasehold properties and sift out the fact from fiction.

1. You own a freehold property/land forever

Status: Denied (kind of)

Though perpetual ownership is entitled to freehold land/property owners, the fact is that ALL freehold lands/properties are subject to the Land Acquisition Act 1960, which gives the government the right to acquire them if deemed necessary (as seen in the case of land acquisition for the MRT project here).

The owner will then be compensated an amount depending on the market value of the land/property. So NO, freehold does not equal guaranteed ownership forever.

2. Freehold properties/lands are higher in value than those of leasehold

Status: Plausible

Not all leasehold properties/lands will be cheaper than freehold ones. Other factors such as location, property type, built-up area etc. will have to be taken into account. However, if 2 properties, one leasehold and the other freehold are similar in every single aspect, the leasehold one will typically be priced 20% lower than the other freehold property.

Apart from that, the price of properties are also affected by the principle of supply and demand. Hence, if freehold properties are more in demand by buyers, it is without question that their value will be higher, be it in the short or long term.

So there’s no saying that leasehold properties will definitely be cheaper than freehold ones in price.

3. Freehold property/land enjoys better appreciation over time

Status: Confirmed

Although there have been accounts evidencing that both freehold and leasehold properties/lands experience appreciation at comparable rates, this is only applicable for the first 20 to 30 years of the leasehold tenure. After that, the value of those leasehold properties/lands remain stagnant before deteriorating as the end of the tenure inches closer.

For that reason, freehold properties are a better bet if you’re looking for a property which can appreciate or remain in value over the long run.

4. Financing for freehold property/land is easier to obtain than leasehold ones

Status: Confirmed

Banks are less than willing to finance buyers who want to purchase leasehold properties, more so those with few years (even decades) left on their tenure. But if you do mange to secure a bank loan for a leasehold property, the loan amount can be significantly lower than the maximum 90% margin of financing.

5. Leasehold properties are harder to sell

Status: Confirmed

Leasehold properties, especially those which are older and are nearing the end of their tenure, are harder to sell. This is due to the fact that the renewal of the lease is uncertain, where its extension is determined solely by the local authorities. Hence, not too many buyers are keen to take the risk of buying a leasehold property and not be able to renew the lease- few potential buyers equals harder sale.

The Verdict: Buy Freehold When You Can

Given that all other aspects of property type, size, location, facilities etc. are equal, it is always better to opt for those which are freehold.

Leasehold Properties Come With Their Perks

Freehold status is a highly attractive feature for new developments. With that, developers see the need to make leasehold projects more attractive to buyers. Hence, most new developments which are leasehold will offer more value-for-money benefits in terms of facilities, design themes, finishings etc. than freehold ones.

Location is also an important factor in the property market. For instance, there are large parts of coveted locations like Bandar Sunway, (the older parts of) Petaling Jaya, Tropicana, Seputeh and even Georgetown which are leasehold.

Future Prospect: Affordability Over Freehold Status

As the price of homes become increasingly expensive, the determining factor of whether a property is worth buying may no longer weigh solely on its tenure status. This may be especially true for first-time homebuyers, where affordability is the first hurdle to tackle when buying a home.

Given the high demand for freehold properties, the supply may be limited and could even reach a point in time when buyers may not have much of a choice. By then, the factor of freehold or leasehold could even be rendered meaningless.

Conclusion

To put it simply, it is always better to buy freehold over leasehold properties (given that all other factors of locations, price, type, size etc.). In the end, it depends on individual buyers on whether it is worth compromising on freehold status for other factors like affordability and location

source:  https://www.propsocial.my/topic/900/5-common-myths-in-the-freehold-vs-leasehold-dilemma-posted-by-propsocial-editor?utm_campaign=website&utm_source=sendgrid.com&utm_medium=email

Things You Need To Know Selling Your Property

Selling Your Property

The main objective of property investors is to reap the benefits of capital appreciation on 

properties invested. After all, the effort, time and hard-earned money spent should 

amount to something, right? When you are ready to sell your property, it is important to

 extend that effort, time and money a little more to complete this final step.

How much is it worth now?

The current value of the property should not be based on its purchase price. It should be higher and 

do take into account the costs that would be incurred in the course of selling a property. 

CheckiProperty.com.my and gauge the price that most sellers are going for, and see if it matches the 

minimum return-on-investment that you are expecting.

source: https://www.iproperty.com.my/resources/sell-your-property.aspx

Get it appraised

Get a property appraisal done by a certified valuer from a real estate agency as well before inviting

 potential buyers to view the property. This will provide you with a more accurate indication of what 

the selling price in the area is and also details of other recent transactions involving similar properties

 within the vicinity.

Make it look good!

First impressions matter. Be sure that your property is in a good shape by fixing everything that needs 

to be fixed, giving the place a solid spring-cleaning and throwing a fresh coat of paint on the walls. 

Don't underestimate the power of aesthetic appeal as they attract the attention of potential buyers. 

More importantly, these buyers will remember your property! Make potential buyers want to live there!

Advertise

Put an ad in iProperty.com.my. Alternatively, use the services of a reputed property agent to cut down

 on the time and work involved on your part. These agents will advertise the property for you, vet

 through potential buyers, negotiate with them, and complete the paperwork on your behalf, once

 the sale is concluded.

Legal advise

You could appoint a lawyer at the same time as your agent. In most instances, sellers only appoint a

 lawyer when they have secured an offer. Appointing a lawyer right from the beginning could help

 avoid delays and allow time for the collection of necessary documentation involved in transferring

 ownership of your property to the new buyer. 

Let the viewing begin!

Viewings are usually conducted in the evenings and on weekends as this is the time when prospective

 buyers are available. 

Accepting an offer

If a buyer is interested, he/she will make an offer to buy it. This is normally done through negotiations

 with your estate agent; if you are handling it yourself, then the offer will be made to you directly. The

 buyer does not necessarily have to offer the asking price. If you get a private offer but you have

 signed a contract with an estate agent, you may still have to pay professional fees, depending on

 the kind of contract you have. Many buyers will make an initial offer below the asking price, so you

 should expect to negotiate. However, when there is a lot of demand, some properties may eventually

 sell for more than the original asking price.

The price you are likely to get usually depends on:

• Whether the asking price is realistic compared to similar properties

• How quickly the buyer wants to move

• Whether property prices are rising

• Whether your property is in a popular area

Letter of Offer

Some real estate agents will ask the buyer to pay an earnest deposit of between 2-3% of the

 offered sum when they make an offer and signs a 'Letter of Offer to Purchase' or an 'Agreement

 To Purchase'. The real estate agent normally keeps the earnest deposit in their client's account as

 stakeholders from the date the offer is made until the execution of the Sales & Purchase Agreement.

Sale & Purchase Agreement (SPA)

After accepting an offer, you or your estate agent will need to give your lawyer certain information 

to begin the legal preparations for the sale. When the buyer executes the SPA, the buyer will pay

 the balance of the first 10% of the purchase price (less than the earnest deposit). The documents

 will then be forwarded to you for execution and then stamped. This must be done within 14 days

 of the date of the signing of the 'Letter of Offer to Purchase'.

Based on the standard terms in SPA, the remaining 90% will be payable to you within three months

 from when the SPA or three months from the SPA becomes unconditional.

Sold!

Once all payments have been made and all documents are finalised, the property will successfully 

be transferred to the buyer. Do note that you might need to pay Real Property Gains Tax (RPGT). 

Effective 1 January 2013, gains from the disposal of residential and commercial properties are taxed

 depending on the holding period of properties.

source: https://www.iproperty.com.my/resources/sell-your-property.aspx

MRT Phase 2 almost 95% completed

PETALING JAYA (Dec 14): Progress-wise, the second and final phase of the Mass Rapid Transit (MRT) project involving the Semantan-Kajang line is almost 95% completed.

MRT Sungai Buloh-Kajang (MRT SBK) project director, Marcus Karakashian said progress includes all station structure works, rail systems and trains.  

"We expect the MRT test run for the Phase Two to take place as early as January 2017 before its operation in July the same year," he told a media briefing here yesterday.

The 30km Phase Two involves 19 stations between Semantan to Kajang and part of the RM23 billion MRT project which spans 51km with 31 stations.

Meanwhile, Feeder Bus and Infrastructure Development chief Rudyanto Azhar said 112 feeder buses would begin operating on 25 routes from the 12 stations for the phase one, Sungai Buloh-Semantan line this Friday.

He said the buses would run on a frequency of between 10 minutes and 15 minutes with the routes designed to serve residential and commercial areas within 3 km of an MRT station.

source: http://www.theedgeproperty.com.my/content/1006121/mrt-phase-2-almost-95-completed