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Minimum Property Purchase Price For Foreign Interests Acquisition in KL, Penang and Johor Publish Date: 01 Mar 2014, By Ching Soon Seng

Companies with foreign capital and foreign interests (“foreign interests”) may purchase immovable property in Malaysia. Foreign interests are referring to people who are non-citizens and foreign companies as defined under Section 433A of the National Land Code 1965[1] and Section 4 of the Companies Act 1965[2].

Under the National Land Code 1965 (“Code”), a person may sell or dispose of his property to a foreign national but only after the State Consent has been obtained.[3] If a foreign national wishes to purchase a residential property in Malaysia, he must therefore make an application to the State Authority to obtain the State Consent before he completes the transaction. If this is not complied with, the sale or disposal can be rendered null and void.

New HomeBased on Budget 2014, announced by Prime Minister Datuk Seri Najib Tun Razak on 25 October 2013, the government will be imposing stricter governmental restrictions to curb speculations by local and foreign investors in the real estate market.Announcing this when presenting the 2014 Budget, he said this was among

Minimum Property Purchase Price For Foreign Interests Acquisitionin Kl, Penang And Johor

a slew of measures being implemented to temper the sharp rise of homes in the country and it may cause serious implications on foreign interests who wish to buy a home in Malaysia.

Within the framework of this Article, the acquisition of immovable property by foreign interest shall be examined.Malaysian Government has doubled the minimum value of properties that foreign interests could buy to RM1 million, from RM500, 000 currently as listed down in the Table below for the Penang, Johor and Federal Territory of Kuala Lumpur, Labuan and Putrajaya.

Wilayah Persekutuan Kuala Lumpur, Labuan dan Putrajaya[4] Penang[5] Johor[6]
Minimum Threshold RM 1 million for all types of property RM2 million on the island and RM1 million on the mainland for all types of property RM 1 million for all types of property
Effective Date 1 March 2014 1 February 2014 1 May 2014
Foreigner State Consent Fees RM150 (registration and application) 3% levy on non-citizens who purchase property in the state, in addition to the existing application fees of RM 10,000 (for individuals) and RM20, 000 (for companies). 2% of the purchase price mentioned in the sale and purchase agreement duly stamped completely or RM20,000whichever is higher.

 

Federal Territory of Kuala Lumpur, Putrajaya and Labuan[7]

Economic Planning Unit (EPU) in the Prime Minister Department has released their guideline on the minimum threshold for property acquisition by foreign interests in Federal Territory of Kuala Lumpur, Putrajaya and Labuan, effective on 1 of March 2014 are RM1 million per unit, up from RM500, 000 previously.One of the conditions set in the guidelines is the minimum threshold for the acquisition of residential units, commercial units, industrial lands and agricultural lands by foreign interests.

The EPU stated that any acquisitions of residential unit under the “Malaysia My Second Home” Programme are exempted from requiring the approval of the Economic Planning Unit, Prime Minister’s Department. But according to the officers at Land Office at the Wilayah Persekutuan Kuala Lumpur, it is not exempted at the land office. This exemption is only applicable when come to the approval from EPU, but not with the Land Office. Therefore, the price of the acquisitions of property by foreign interests in Kuala Lumpur must be above RM 1 million.

With the issuance of this Guideline, the Guideline on the Acquisition of Properties dated 1 January 2011 is repealed. As for the other States, the respective guideline and actual enforcement date is subject to the respective state authority. And till today, only Penang and Johor have come out with their respective guidelines relating to the RM 1 million thresholds.

 

Penang[8]

To prevent the adverse effects of a property bubble and to attract genuine buyers rather than speculators,the Penang State Government has come out with their latest ruling in which come into effect on 1 February 2014, ofimposing a 3% levy on non-citizens on the purchase price who purchase property in the state, to further curb speculation activities in addition to the existing application fees of RM 10,000 (for individuals) and RM20, 000 (for companies). The new ruling is gazette under Rule 83, Penang Land Rules on foreign state consent which has come into force on 1 February 2014.

Penang’s housing rules from 1 February 2014 designed to protect Penang from being adversely affected by a property bubble as well as ensuring that public housing and affordable housing is bought by genuine purchasers who are qualified first time buyers from lower and middle-income groups.In Penang since 1 July 2012, state administration allowed foreign interests to only buy property worth more than RM1 million in Penang and RM2 million for the landed property on the island since July 2012 and remain the same. In addition, there is a 2%additional registration fees imposed on purchaser regardless of citizens or foreign interests on any property purchased after 1 February 2014 and sold within three years from the date of the Sales & Purchase Agreement (SPA).

 

Johor[9]

Johor State Government passed New Policy on the Acquisition of Property by Foreign Interests after the Housing Task Force Meeting Johor held on 25July 2013 and the Johor Government Council Meeting held on 4 November 2013. The effective date of this new policy (on the acquisition of the property by foreign interest in the state of Johor) is 1 May 2014, and shall remain in effect until new ruling supersedes it.

Minimum price of property to be acquired by foreign interest is RM1million per unit for all types of property including residential units, commercial units, industrial lands and agricultural lands.However, there are new fees on the Foreign State Consent in which for acquisition through sale and purchase agreement, payment approval is 2% of the purchase price mentioned in the sale and purchase agreement duly stamped completely in accordance with the provisions of the Stamp Act 1949, or RM20,000 whichever is higher; and for acquisition through lease, payment approval is 2% of the lease amount mentioned in lease agreement duly stamped completely in accordance with the provisions of the Stamp Act 1949, or RM20,000whichever is higher. The maximum acquisition value is RM10 million and the permitted property (ies) is residential property (ies), commercial property (ies) and agricultural lease.

The rate is amount to more than twice the current RM10, 000 fee foreign interests pay to buy properties in the state. Since foreign interests are required to purchase units valued at RM1 million and above, the new rate of 2% of the property purchase price would make the levy starts from at least RM20,000.All application involving purchase of property valued less than RM1 million where sale and purchase agreement has been signed and stamped with execution before 1 May 2014 is exempted from the new policy with condition that the completed application shall be submitted to Johor’s Director of Land and Mines Office before or on 29 May 2014 (Thursday).

However, foreign interests planning to purchase property in Johor’s Iskandar region will be exempted from the minimum purchase rule of RM1 million, that projects approved by Johor authorities before May 1 this year would be exempted from the ruling. Further, developers with planning permission for projects approved before 1 May2014 are allowed to sell to foreign interests at the pre-set prices.

Our Firm takes liberty to translate the Guidelines into English which it can be downloaded at :

 

CONCLUSION

As explained above, the acquisition of immovable property in Malaysia is possible for foreign interests, but is subject to certain limitations. In addition to these limitations, in order to avoid issues arising from the lack of knowledge of the legislation and practice in Malaysia, foreign interests should take into consideration the above-mentioned matters before any acquisition. The most important of these matters is compliance with minimum threshold of respective States.

 


[1] Section 433A of the National Land Code 1965

“Foreign company” means:

(a) A foreign company as defined in sub-section (1) of section 4 of the Companies Act 1965;

(b) A company incorporated under the Companies Act 1965 with fifty per cent or more of its voting shares being held by a non-citizen, or by a foreign company referred to in paragraph (a), or by both, at the time of the proposed acquisition;

(c)  A company incorporated under Companies Act 1965 with fifty per cent or more of its voting shares being held by a company referred to in paragraph (b), or by a company referred to in paragraph (b) together with a non-citizen or a foreign company referred to in paragraph (a), at the time of the proposed acquisition.

And “non-citizens” was defined as “natural person who is not a citizen of Malaysia.”

[2] Under Section 4 of the Companies Act 1965:

“foreign company” means—

(a) a company, corporation, society, association or other body incorporated outside Malaysia; or

(b) an unincorporated society, association or other body which under the law of its place of origin may sue or be sued, or hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia;

[3] Section 433B of the National Land Code 1965

[4] http://www.epu.gov.my/en/guideline-on-the-acquistion-of-properties

[5] http://www.penangbar.org/files/2014/cpc-2014-1.pdf

[6] http://www.ptj.johordt.gov.my/images/Pekeliling/2014/pekeliling%20PTG%20Bil%202-2014.pdf

[7] Guidelines On The Acquisition Of Properties (effective on 1 March 2014) Economic Planning Unit, Prime Minister Department, http://www.epu.gov.my/en/guideline-on-the-acquistion-of-properties

[8] Penang – Guideline On The Acquisition Of Properties, CPC 1/14, Penang Bar Committee, http://www.penangbar.org/files/2014/cpc-2014-1.pdf

[9] Pekeliling Pengarah Tanah Dan Galian Johor Bil 2 Tahun 2014, (D15/92 (WA) JILID 4 (20)