Property investment is a lucrative market and a great retirement plan if well planned and executed. However, property investment is not as simple as purchasing a property in a good area and hoping that the price will appreciate.
Buyers will be able to learn from here what are the documents involved in purchasing a property, such as:
- Budget Planning & Costs Of Loan Documents
- 4 Payments For A Newly Launched Property:
- Pros And Cons Of Property Buying
- 7 Property Buying Criteria
- 7 Questions To Ask Your Agent Before Purchase
- Mortgage Loan Documents & Property Jargons
- 4 Documents You Need To Sign
- Transfer Of Property Ownership
Budget Planning & Costs Of Loan Documents
The most important thing to first determine is the budget. While purchasing a new property may be easier due to the possible discounts provided by the developer.
The purchaser will still need to know how much they can afford monthly, and the upfront amount that they will need to purchase the property.
Finding out how much you can afford to pay for a property is as simple as following the steps in this guide.
Once the property buyer determines how much they can afford for their monthly repayment, they will need to know about the upfront costs that they have to come up with for the legal documents, Memorandum of Transfer (MOT) and lawyer fees
4 Payments For A Newly Launched Property:
The downpayment for a property is usually fixed at a minimum of 10%, and depending on how much the bank is willing to loan the property purchaser, the downpayment may vary.
For example, if the bank is willing to provide a loan of 90%, then the purchaser will only need to pay a 10% downpayment – but if the bank is willing to provide a loan of only 80% then the property buyer will need to give a 20% downpayment.
For purchasers who have never utilized the funds in their EPF Account II before, they may opt to withdraw some of the funds to partially pay for the development, but this can only be done after they obtain their Sale & Purchase (S&P) agreement.
2. Sale And Purchase Agreement Fees
This brings us to the Sale & Purchase Agreement (also known as SPA, SNP or S&P).
The S&P document is the most important one that the property buyer will have, as it will encompass the blueprint of the property.
The creation of this document will be charged according to specific price tiers, which the price tier will be based on the price of the property.
3. Loan Agreement Legal Fees
Following that, the property buyer will also need to pay the Legal Fees which is otherwise known as the Lawyer Fees.
These fees are charged for the time and expertise of the lawyers in creating the legal documents, and these fees are also charged based on a price tier that follows the price of the property.
And because these documents need to be submitted to the governing body as well, there will be a Stamp Duty charge on it. The Stamp Duty will be 5% of the total loan amount.
Also chargeable to the client is the 6% government tax on the fees, and disbursement charges of between RM1,000 – RM1,500.
4. Stamp Duty On Memorandum Of Transfer (MOT)
The final fees that purchasers will need to pay upon completion of the development is the Memorandum of Transfer (MOT) fees.
These fees are to transfer the ownership of the property to the rightful owner.
The properties will usually only begin to be transferred to the owners approximately 6 months after its completion, as it will still need to go through the various safety checks.
The MOT fees will also be charged based on a price tier that follows the property purchase price.
These fees will be charged the 6% government tax, and Disbursement Fees of between RM1,000 and RM1,500.
Pros And Cons Of Property Buying
New developments are usually preferred by buyers will less capital, as they will be entitled to the various freebies usually offered by the developer.
Depending on the developer, some of the usual freebies offered are as below:
- Free Legal Fees
- Free Stamp Duty
- Free downpayment
There are however other costs that need to be anticipated when purchasing a property, as per below:
- Mortgage Reducing Term Assurance (MRTA) / Mortgage Level Term Assurance (MLTA)
- Fire insurance
- Loan Instalment
- Utilities deposit (Electricity and water)
- Repair or renovation costs
- Maintenance fees
7 Property Buying Criteria
Once a buyer knows his budget, the next thing that they will need to do is find a property that is suitable to their requirements – whether they wish to buy for investment or for own stay.
Below are a set of criteria that they should look into when purchasing a property.
While location is an important factor, there is a difference to purchasing for own stay or for investment. For example, if a property for investment should have its own target audience.
Will they be students, families, or perhaps even bachelors? Should be located next to a public transportation system?
If purchasing for own stay however, buyers may want to be located in a more secluded area away from the hustle and bustle.
2. Education Institutions
This is another criteria that will be important to buyers with the intent of purchasing for their own stay, depending on whether they have schooling children.
If purchasing for investment, a buyer may want to take note of the institutions of higher education in the area if they are targeting the student rental market.
This should be an area of prime concern for property buyers, regardless of whether they are buying for own stay or for investment, especially with the increasing crime numbers.
4. Proximity To Workplace And Amenities
Property buyers who are interested in purchasing a property for their own stay will want a property that is close to there place of work. This will eliminate the hassle of long commutes daily.
A property investor will however want to purchase a property that is close to high density workplaces such as the Kuala Lumpur City Centre (KLCC). This will ensure a steady flow of renters.
Being located close to highways and major access roads are pointless if there are geographical barriers in the way.
For example, if you can easily see the New Klang Valley Expressway (NKVE) from your home, but it takes 20 minutes just to get to it daily due to the lack of accessibility, being located close to the highway would be pointless.
Size matters when it comes to purchasing a property, whether it is a family, growing family or bachelor purchasing it.
A property investor will also want to take this into account when considering their target market.
Depending on the buyer, facilities will play a major role in the purchase of a development. A family buying for own stay may want the facility of a swimming pool and nursery for their toddlers.
While a student may not be interested as they will just need to room to sleep in – and the more affordable the room, the better.
7 Questions To Ask Your Agent Before Purchase
Upon compiling a list of properties that you are interested in, make appointments with the agents to view the properties.
Below is a list of questions that you will want to ask the agents when visiting the property.
- Is the property freehold or leasehold?
- If it is a strata-titled property, how much are the maintenance fees?
- How many parking lots does your unit come with?
- What is this area like? Your agent will likely know much more about the area than you do unless you grew up in the area.
- Are there any upcoming changes in the neighborhood? This is especially important if there are empty plots of land nearby.
Buyers who are in the market for investment properties will want to ask the below questions.
- What is the estimated rental in the area?
- Are there any rental restrictions?
Mortgage Loan Documents & Property Jargons
Upon deciding on your preferred property of purchase, the property buyer should then begin searching for the best loan option.
The way to do this is by applying to several banks, and see which one gives the best rates and options.
Upon selecting the bank that offers the best interest rates, the next step to take would be to prepare the required documents.
To view the complete list of required documents if you are buying the property as an individual, company, foreigner working in the country or perhaps even a Malaysian working abroad, visit the Loan Documents page.
Upon selecting their preferred bank, property buyers will then need to begin the document signing process.
Below are some of the terms that they will encounter in the Letter of Offer, detailing the specifics of the loan.
1. Types Of Loan
There are typically a few different types of mortgage loans for property buyers to choose from, depending on the requirements of the property purchaser.
The typical ones are the Standard Home Loans, and the Flexi Home Loans.
There are also the Home/Personal Loan Package which typically carry higher interest rates, and the Islamic Home Loans which utilises a slightly different method of calculation.
Standard Home Loan
|The Standard Home Loan is the most common type of loan in the market. This loan’s interest rates are fixed from the day the property purchaser takes the loan, regardless of any market changes or change of Overnight Policy Rates (OPR). The advantage of this loan is that the loaner will have the safety of mind knowing that even if the market fluctuates their interest rates will remain the same.|
|Flexi Home Loan||The Flexi Home Loan is an alternative to the Standard Home Loan. Property purchasers with extra cash flow usually prefer to take this loan, as their interest rates are lower the more money they put into the account. The advantage is that not only does the loaner enjoy changes in the rates if there are market changes, they also enjoy lower interest rates the more money they put into the account – while enjoying the flexibility to take the money out at any time.|
|Islamic Home Loan||The Islamic Home Loan is tailor-made to the Muslim community. While similar to the Standard Home Loan, this loan utilises the Base Finance Rate (BFR) to determine how much the bank will earn from the loan.|
2. Amount of Loan
This will be one of the biggest point of interest for the property buyer, as this part of the Offer Letter will dictate how much the bank is willing to loan to the property buyer.
Depending on how much the bank is willing to loan to the property buyer, the balance will need to be paid to the developer as downpayment.
3. Purpose Of Loan
Also stated in the Letter of Offer will be the purpose of the loan. The section will indicate that this loan is for the property purchase.
4. Description Of Property
Slightly similar to the Sale & Purchase agreement, the Letter of Offer will have a description of the property in question that the property buyer wishes to purchase.
This is another important section in the Letter of Offer, as it will indicate how long the property buyer has to repay the loan. The longer the duration the lower the repayment per month and vice versa.
6. Processing & Set Up Fee
If the loan is accepted by the property buyer, there will be a processing fee which is otherwise known as the set up fee to create the necessary documents.
7. Monthly Service Charge
For the bank’s monthly series of collecting the loan, there will also be a monthly service charge. The charges for these are usually on the lower side of less than RM20.
8. Prevailing Interest And Repayment
In lieu of late repayment there will be additional interest to be paid. The rates will be stated in the Letter of Offer.
With a combination of the loan duration and total loan amount the monthly instalment will be calculated.
10. Security Documents
Security documents are required for mortgage loans. Depending on the property buyer’s financial status, below are some of the documents that the banks may require.
- Charge Annexure
- Facility Agreement
- Charge instrument in Form 16A
- Power of Attorney
- Deed of Assignment
- Facility Agreement
- Assignment of rental proceeds
- Charge over the Fixed Deposit
Prepayments cover the additional payments that a property purchaser may make when in the course of serving their loan.
This part of the Letter of Offer details how the extra repayments may benefit the borrower, whether there will be a change in the interest rates, or whether there will be a benefit in settling the loan repayment early.
The Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA) are the two most common property insurance in the market that will help the property loaner to pay off their property in case of death or total permanent disablement.
Our comprehensive guide of Preparing Mortgage Loan Documents will get you up to speed with the loan application process and you might want to know about what are the loan documents that are needed for locals and foreigners.
4 Documents You Need To Sign
Once the property buyer selects their preferred bank for the mortgage loan, the banks will and lawyers will begin preparing the documents.
Below is the list of documents that need to be signed by the property purchaser.
1. Letter Of Offer
The first document that will need to be signed is naturally the Letter of Offer, indicating the property buyer wishes to accept the loan.
And upon signing the Letter of Offer, the property buyer will need to pay approximately 2% to 3% of the loan.
These monies will be held by a neutral part, usually a stakeholder’s account or to an unbiased agent. If paid to an agent, the agent will be known as an escrow agent – a guarantee.
The remaining amount of the 10% downpayment will only need to be aid after signing the Sale & Purchase (S&P) agreement.
2. Sale & Purchase Agreement
After signing the Letter of Offer, the property purchaser will then need to sign the Sale & Purchase (S&P) agreement. Property buyers will usually have a period of between 2 or 3 weeks to sign the agreement.
After the time is exceeded, the property buyer will need to ask the banks for an extension on the Letter of Offer.
Within the 2 or 3 weeks, allocated, not only will the Sale & Purchase agreement be prepared, relevant title searches will also be conducted.
After the S&P documents are completed, both purchaser and seller will need to sign the documents.
In the case of new development, a lawyer representative from the developer’s side will bear witness to the signing of the documents.
It is during this point of time where the remaining downpayment will need to be paid.
Delays at the period are usually caused by funds that are locked abroad, or in Fixed Deposit funds. Property buyers are here usually advised to liquify their funds before had to avoid delays.
The most important items that need to be verified within the S&P are as below:
- IC numbers
- Property premises
- Ensure that all additional details – such as parking lots – are stated in the S&P
- Ensure that all details promised by the sales agent such as additional air-conditioning units, renovations and furnishings are stated in the S&P
3. Loan Agreement
One of the final documents that needs to be signed by the property buyer is the Loan Agreement. This agreement is between the bank and the property purchaser.
All the terms and conditions of the loan will be held within the Loan Agreement. It should be noted that the terms are all usually skewed towards protective the banks’ interests.
The cost of creating this document will however be borne by the property buyer.
If the property of purchase is a multi-storey or multi-unit development, a Deed of Covenant may also need to be signed.
This deed will detail the rights of the owners, and the dos and don’ts of the multi-unit/ multi-storey development.
- Raring of pets in the unit
- Units cannot be used for commercial activities
- Specification of management fees
- Appointment of building manager
- Matters pertaining to the maintenance of renovation of the building
4. Memorandum Of Transfer (MOT)
The final document will only need to be signed upon approximately 6 months after the completion of the development, as the safety checks will need to be carried out first.
This document will transfer the ownership of the property from the developer to the property buyer.
Transfer Of Property Ownership
Upon completion of the development, the property buyer will not be able to move in until the proper safety checks have been conducted and the development receives its Certificate of Completion and Compliance (CCC).
Thereafter, the property buyer will be called over for the key handover session.
After approximately 6 months, the property buyer will need to pay the Memorandum of Transfer (MOT) fees to transfer the ownership of the development to their name.
Thus concludes the guide to purchasing a new property.
However, if you are looking to buy a property that is pre-owned, you might the guide of The Complete Guide to Purchasing a Property in the Subsale Market especially useful to your property buying journey.
Complete your knowledge with knowing:
- The differences between freehold, leasehold and bumi lot.
- Loan documents needed to be prepared by Malaysians and foreigners working in Malaysia or overseas.