You will eventually come to a point in your life where you need to buy a home. But have you saved enough money for the upfront costs? To help give you an idea if you have sufficient savings, we listed down the initial costs of buying a residential property in Malaysia. We also provided sample calculations and ways to reduce your expenses.
DOWN PAYMENT
Banks don’t usually provide full financing to home buyers. Typically, you can only get a financing margin or loan-to-value (LTV) ratio of 90 percent. This signifies that financial institutions will only lend you up to RM450,000 for a property costing RM500,000. For a mansion valued at RM1 million, the loan quantum is RM900,000.
As for the difference, you need to pay that to the developer as down payment. For a RM500,000 home, the down payment is RM50,000, whereas that for a RM1 million abode is RM100,000. That’s no small amount!
STAMP DUTY
This is a tax imposed on different kinds of legal and financial documents. When buying a property, you would need to pay 3 kinds of stamp duties, one for Sale and Purchase Agreement (SPA), another for the Memorandum of Transfer (MOT), and lastly one for loan agreement with a bank.
The stamping for the SPA is under RM100. But the levy for the other two is significantly costlier. In particular, the stamp duty for the loan agreement is a flat 0.5 percent based on the loan’s full principal amount. For example, if the bank lends you RM450,00 (90 percent LTV of RM500,000 property), the stamp duty for the loan agreement is equal to RM2,250.
But the most expensive stamp duty is for the MOT, which is based on the property’s value. Previously, the stamp duty for properties valued at over RM1 million was just 3 percent, but the federal government increased this to 4 percent when it announced Budget 2019. For particulars, please see table below.
This means a residential property selling for RM500,000 has an MOT stamp duty of RM9,000, while one costing RM1 million requires you to fork out RM24,000. For something valued at RM1.5 million, the stamp duty is a whopping RM44,000.
LEGAL FEES
Another significant expense when buying a residential property is the legal fees involved.
The legal disbursement fee on the SPA will only set you back for a few hundred ringgit, but the legal fees for the agreement itself is no trifling sum. Similar to the stamp duty, the rate is based on the home’s selling price, and the details are indicated in the table below.
This means the SPA legal fee for a RM500,000 residence is RM5,000, while one costing RM1 million entails a payment of RM9,000. For a high-end home priced at RM1.5 million, the legal fee amounts to RM12,500.
In addition, there is a legal disbursement fee for the Loan Facility Agreement, but this merely costs several hundred ringgit. However, the more expensive one is the legal fee for the loan agreement, which is based on the amount lent and the rate is similar to the above table.
There is also a government tax on legal agreements, which is equivalent to 6 percent of the overall attorney fees you’ve paid for the home purchase transaction.
OTHER UPFRONT COSTS
Furthermore, there are other miscellaneous expenses you need to take into account, such as the fee for transferring the ownership title and the bank’s charge for loan processing.
But don’t worry as the amounts are a lot lighter on your wallet as compared to the stamp duties and legal fees. For instance, the transfer charge is just a few hundred ringgit, while the lender’s processing fee ranges from merely RM50 to RM200.
Sample calculations
Now let’s do some computations, but we’ll exclude fees and charges lower than RM1,000, such as stamping for SPA and its legal disbursement fee, bank loan processing fee, government tax on legal contracts and the fee for title transfer.
As shown in the above calculations, the upfront cost of a home priced at RM200,000 is nearly RM30,000, a middle-tier house valued at RM500,000 entails a payment of slightly more than RM70,000, whereas a RM1 million luxury mansion would put a dent on your wallet to the tune of more than RM145,000.
Disclaimer: The above figures are in Malaysian ringgit and are for your reference only. These may change subject to the government’s announcements but was up-to-date when the article was written in October 2019.
How To Save on Your Upfront Costs?
If you want to reduce your expenses, you’re in luck as the federal government has launched limited-time stamp duty perks. For details, please check table below:
For more useful guides like this, visit the PropSocial Discussion board.
(Written by G. Zizan, 1st November 2019)
