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The process of buying a house is definitely an exciting journey for prospective buyers from all walks of life. After all, in the current economic situation, owning a house of your own takes a lot of patience and hard work. Once one has passed all these hurdles, they would just be one step away from being the proud owners of their own abode. However, in the midst of all this excitement, a prospective buyer would have to ensure the required documents to own the house have been signed or reviewed. This is to prevent complications in the future – in the worst-case scenario, one might have to face eviction. Here’s where it gets serious. To ensure a smooth transition, the legalities pertaining to owning a house should be thoroughly reviewed. Despite the importance of these legal documents, the legalese contained within are usually challenging for the layman home-buyer to comprehend and navigate Hence, here’s a concise guide on legal terms to help any prospective buyer in need.
In legal terms, a memorandum is defined as a document recording the terms of a contract or other legal details. In short, a memorandum of transfer (MOT) is a document signed by the new owner of a property and by the developer or the proprietor to transfer the ownership of the property from the developer or the proprietor. This would enable the buyer’s name to get registered on a land title, by legal means. Without this document, the buyer would not be the legal owner of the property and would definitely be at risk of being evicted by the developer or the proprietor. Besides that, not signing this document would expose the buyer and his/her heirs to the risk of inheritance issues such as the risk of the property being seized by the government and the risk of the inheritance being challenged by distant relatives.
For prospective property buyers who are absolutely worried about the details of the MOT and the steps required to sign it, fret not! If a prospective buyer were to apply for a bank loan for the chosen property, the MOT would be signed together with the Sale and Purchase Agreement and other documents pertaining to the loan. This would definitely save the buyer from going through the intense visits to the lawyer’s office just for the sake of signing documents. However, if the property is still under construction, a prospective buyer would just have to sign the MOT once the strata or individual title has been used.
It should be noted that although signing the MOT would function as a confirmation towards the intention to transfer ownership from either the developer or the proprietor, the MOT would only come into effect when the new owner’s name has been registered on the strata or individual title by the land authorities.
The contents of the MOT, or in its legal term, Form 14A would revolve around the particulars of the seller and the buyer, supplemented with the land title details for ease of reference for the land authorities. Similar to other legal documents, in order for the MOT to be effective, the document must be stamped and adjudicated at the Inland Revenue Board. In addition to that, the stamp duty must be paid. In relation to the stamp duty, it would be calculated based on the purchase price of the property. If a loan was taken to finance the property, the stamp duty payable would be a flat rate of 0.5% of the total loan amount.
The table below is the stamp duty payable based on the price tier of the property:
|wdt_ID||Price Tier||Stamp Duty on SPA & MOT (% of property price)|
|3||Next 400,000 (RM101,000 – RM500,000)||2%|
|4||Following RM500,000, up to RM1 million (RM500,001 – RM 1 million)||3%|
|5||Price excess thereafter (> RM 1 million)||4%|
Here’s how to calculate your total stamp duty: Stamp Duty on MOT + Stamp Duty on Home Loan
As soon as the MOT and other relevant documents have been signed and stamped (with a payment of RM 100 each) the documents along with the current land title would be registered in the records of the land authorities. After submitting these documents, a revised title would be issued with the ownership and charge listed on the title. If the titles are charged to a bank, the title would be kept by the bank until the loan is fully repaid. Upon successful and complete repayment of the loan, the details of the bank would have to be removed from the title in accordance with the discharge procedure.
The process of signing the MOT is not as complex as it sounds and it’s mostly done in tandem with the signing of other legal documents. The prospective buyer would be notified that the transfer of ownership has occurred via a letter or phone call, signalling that the new title is ready for collection. In the case of secondary market purchases, the buyer would receive a vacant possession and keys to the property in addition to the new title. However, in the case of purchases made via developers, it should be known that the buyer would be receiving the new title in a few years after receiving the house, keys and vacant possession. This is due to the fact that the master title has yet to be subdivided accordingly.
The MOT would be necessary to change the ownership of the unit from the previous owner to the next owner and this would require payment. The buyers would have to wait for approximately 6 months before being able to sign the MOT.
Got an eye for detail? Well, the Sales & Purchase Agreement (SPA) is a document that would require a generous amount of attention to the details in it. This is a legally binding contract that outlines the details of a sale between a buyer and a seller. In this context, the seller is either the developer or the proprietor. It serves as a protection plan for both the seller and the buyer. Just like how mobile phones have protection plans in case something awfully bad happens (loss, damage etc.), the SPA plays a significant role to ensure the seller is unable to change the terms and conditions to their benefit. The conditions in the SPA are mutually agreed upon between both parties and is a sign of closing the deal. Upon signing the SPA, further negotiations conflicting the SPA would be prohibited.
It should be noted that if the property is received via inheritance or auction, an SPA would not be involved in most cases. The SPA would be most useful in resolving disputes between the seller and the buyer especially when it comes to court cases. In situations where the buyer wants to cancel the SPA, it is indeed possible — albeit with a penalty amounting to 10% of the purchase price of the property. However, when it comes to the seller, terminating the SPA is very difficult and nearly impossible. This is due to the SPA’s clause that enables the buyer to sue the seller in the event of a breach of the agreement. In the case, where the Sales and Purchase Agreement is terminated, cancelling it would result in a legal penalty. The party that decides to walk out of the agreement is required to pay the other party a penalty fee that is equal to 10% of the initial price.
The SPA is indeed very specific in terms of its clauses and terms but it doesn’t have a definite template. A lawyer’s help is usually necessary to ensure a hassle-free draft of the SPA and subsequently, walking you through the entire purchasing process. There are a few important clauses in the SPA that require specific attention. Here are a few key ones:
This would prevent any penalties incurred in the case of the breach of terms. Besides that, it would also help the seller and the buyer from managing their finances.
If a buyer is buying a brand new house directly from the developer, it would ensure the developer is responsible for any defects in the property purchased.
A house plan is necessary to ensure that one does not get the wrong unit. It prevents the developers from tricking the buyers. The usage of cheaper materials and altering the measurements by the developers is not uncommon.
This specifies when a buyer would obtain the keys for the property.
The type of SPA also depends on the type of property. There are 2 different types of SPA; Schedule G and Schedule H. Schedule G is for landed individual properties while Schedule H is for strata properties (e.g. flats, condominiums). Schedule H is more detailed as the document usually covers extra facilities typical to strata properties, such as swimming pools and parking spaces. Commercial properties, on the other hand, do not usually have a standard-form SPA.
The letter of offer might sound just like any other letter which comes after securing a deal. However, in the context of real estate, the letter of offer is signed by both parties (borrower and bank) after selecting the bank which provides the best offer for loans — with a payment of an earnest deposit (a deposit to demonstrate your committed interest to purchase or rent a property) of 2% to 3% of the purchase price. This is paid to a neutral party, oftentimes, a financial agent. The agent functions as a stakeholder account and is referred to as an escrow agent. Then, the remaining amount of the down payment (which usually adds up to 10%) is paid after signing the Sales and Purchase Agreement.
The Letter of Offer contains details such as the legal names of both vendor and buyer, sales price agreed upon, deposit amount, any other items included in the sale, and the date before which the SPA must be signed.
The approval process to obtain a loan is absolutely arduous and time-consuming but nevertheless, the wait would be worth it. One of the most important processes in obtaining a loan is the signing of the loan agreement (LA). This is an agreement signed between the purchaser and the bank. It comprises all the terms of the loan. However, these terms are more inclined to protect the bank rather than the buyer. Therefore, it’s done in the best interests of the bank. The stamp duty would be borne by the buyer —adding on to the costs of buying a house.
Apart from this agreement, if required, the buyer would have to sign the Deed of Mutual Covenant (DMC) and the Memorandum of Transfer (MOT). It should be noted that the DMC would be applicable for multi-unit or multi-storey buildings. Among the important terms that the DMC might include would be the rearing of pets in the units, the management fees, appointment of a building manager,and matters pertaining to the maintenance or renovation of the building.
The Real Property Gains Tax (RPGT) is a tax on the profit earned from the sale of real property (property consists of land and buildings) (i.e. resale price exceeding the purchase price). There are 3 categories of the RPGT, classified by seller types; individual citizens/permanent residents, individual non-citizens/foreigners, and companies. If the disposal price of a property is deemed equal to or lower than the acquisition price, the RPGT is definitely not applicable. In other words, the RPGT is only applicable if there is a profit gain from the disposal of the real property.
Individuals consisting of citizens, permanent residents, non-citizens and foreigners selling their properties at a profit, would have to pay the RPGT based on their chargeable gain. The RPGT amendment announced during Budget 2019 was implemented in January 2019. Below are the salient features of the RPGT amendment:
The RPGT rates from January 2019 are as follow:
|wdt_ID||RPGT Rates||Individuals (Citizens and permanent residents)||Individuals (Non-citizens and foreigners)||Companies|
|1||Disposal in 1st year||30%||30%||30%|
|2||Disposal in 2nd year||30%||30%||30%|
|3||Disposal in 3rd year||30%||30%||30%|
|4||Disposal in 4th year||20%||30%||20%|
|5||Disposal in 5th year||15%||10%||10%|
|6||Disposal in 6th year and beyond||5% (2018: 0%)||10% (2018: 5%)||10% (2018: 5%)|
Citizens and permanent residents would be exempted from the RPGT by 10% of profits if an asset is transferred as a gift by a donor who is a Malaysian citizen and the acquirer is related to the donor as either a husband/wife, parent/grandparent, or child/grandchild. However, transfers between siblings are not allowed. In addition, there is also a one-off exemption on the chargeable gain on disposal of 1 private residence by a Malaysian citizen or Permanent Resident (PR). Disposal of low/medium cost housing units priced below RM200,000 would also be exempt from the RPGT.
For non-citizen and foreign individual recipients, if an asset is transferred between spouses, then the asset to be disposed of must be owned by a Malaysian citizen to allow for the RPGT exemption. If an asset is transferred to a company, then the asset owner or owner’s spouse must be a Malaysian citizen. If the asset is jointly owned by 2 individuals, both owners need to be Malaysian citizens for the transfer to qualify for the exemption.
The calculation for the RPGT is as follows:
Every property has its own set of rules. The Deed Mutual Covenant (DMC) stipulates these rules, typically covering issues such as pool access, gym access and etiquette, maintenance cost splits, duties of the Management Committee, gardening services, and security protocols, among many others.
Signing the DMC indicates your agreement to the rules that regulate the use and maintenance of shared areas in a stratified property. This was, however, a measure used prior to the Strata Management Act (SMC) — a standardized framework across all strata-titled properties. The DMC acts as a replacement The DMC is unique only to some stratified properties. This would allow unscrupulous developers to include clauses that will disadvantage the homeowners.
Currently, the DMC functions as an additional agreement to frame shared understanding between the homeowner and the developers and it is no longer a legal foundation in the property scene. Additional rules can be included under the DMC but should not contradict the SMC.
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