Buying a Property in Malaysia
Malaysia is one of the most ethnically-diverse places in the world, and has gained in popularity with expatriates from both Europe and the US despite the relative geographical distance from both regions. With a tropical climate to attract those in colder parts of the world, and an equally warm welcome to foreign settlers, Malaysia has become one of the prime relocation destinations in South East Asia.
When you look a little closer, Malaysia has all of the attributes that make it a perfect overseas property destination. English is widely spoken, foreigners are welcomed, the country is relatively affluent, and is stable both politically and economically. The cost of living is also low, particularly for those with an income from overseas, and living standards are high.
The natural environment is beautiful and diverse as the country is divided into two distinct parts, while tropical heat is the order of the day for most of the year, making residents grateful for the near-ubiquitous air conditioning. The multi-cultural, multi-racial aspect of living in Malaysia is backed up by its position as a hub of transport in the region. Flights leave Kuala Lumpur International Airport for all major cities in South East Asia and further afield, and it is a major stopover for travellers from Europe to Australasia.
Popular buying locations
As a country made up of thirteen different states and three different territories, Malaysia is one of the most diverse places in South East Asia. The country is split geographically into two parts – Peninsular Malaysia and Malaysian Borneo – and separated by the South China Sea .The tropical climate is due to the country’s close location to the equator.
The capital, Kuala Lumpur, is the focus of the property market in Malaysia, and it retains a good deal of British influence from its days as a colonial outpost. The city has come on to the world stage in recent years, having hosted sporting and cultural events that brought the world’s media spotlight. The development of KL, as it is known, into a world-leading city has been helped by the building of the Petronas Towers, for a time the tallest buildings in the world.
Kuala Lumpur has the distinction of being a low-density city and spread across a large area, despite the magnificence of the skyscrapers in the central districts. This means that there is the opportunity for developers to build gated developments of individual properties in lush and green surroundings. Developers are also building what might be called traditional city apartments in tower blocks around the city and the marina, but KL is one of the few places in the world where you have the choice to have city centre property or more private and separate homes still within easy commuting distance of the centre of the city.
With the standard of living being so high, most of the new-build property in KL is of high quality and will suit anyone used to a western style of life. Most people who have lived in a major city previously will marvel at the amount of space available, as well as the prices of what is available. Also of note is the low crime rate of Kuala Lumpur, making the city even more attractive to foreign settler who may not know their way around or may be nervous of travelling around on their own.
While the vast majority of the property sold to overseas buyers in Malaysia is within the metropolitan region of Kuala Lumpur, there are a number of projects located away from the capital that will provoke a good deal of consideration in those who know the country and may be looking for something a little bit different. Georgetown, the capital city of the Penang region, a small island off the north-western coast of the mainland, has a thriving financial and waterfront district, with some attractive developments of both apartment buildings and condo-hotels.
Other developments can be found near the city of Johor Bahru in the south of the country, and Sungai Petani in the north. Should you be tempted to buy outside of KL, be prepared to be a little more isolated. You may need to be reasonably fluent in local dialects in order to make sure you can survive comfortably. You should also try to make sure that you have visited the region in all seasons and spent some time there on your own in order to be certain that the move will be the right one for you. One of the most important things to consider is the travelling time should you need to get back to the UK in an emergency. Living in one of the more far-flung locations will afford you great properties in great locations, but your travel time back to the UK might be measured in days rather than hours.
Expatriates are legally allowed to buy property in Malaysia, although there are some restrictions to keep in mind. Foreigners are permitted to buy two houses at a cost no less than RM 150,000 (around £23,500) each, and are then allowed to apply for finance at a typical rate of 60 per cent loan-to-value (LTV). Some states have now abolished the upper limit on loan values and LTV rates, but make sure to take expert advice before committing yourself to any loan for property in Malaysia.
There is also a programme in place that has been recently introduced by the government in order to encourage foreign retirees to the country. The ‘Malaysia My Second Home’ (MM2H) programme has removed some of the obstacles that were in place for foreigners buying in the country, and smoothed out the process.
The other major restriction to consider is that in some areas of the country, it is only possible for local people and other indigenous groups to buy and sell land or property. If you are considering buying your own plot of land upon which to build, it is vital you check this ahead of signing any contracts.
The buying process
Property in Malaysia is often bought by foreigners, and with the Malaysia My Second Home programme, the government is encouraging retirees to come to the country and invest in real estate. The process for buying property in Malaysia is straightforward and well-established, but you should make sure that you have appropriate legal representation from an independent lawyer from the beginning. Too many people realise too late that they need to have legal advice, and risk either losing the property because they are too unsure to sign documents, or buying somewhere and committing to an expensive course of action without knowing exactly what they are signing.
After an offer is made and accepted, the terms of the offer are set down in an official signed letter. At the same time, the purchaser pays three per cent of the purchase price as a deposit to secure the property. This is followed by the signing of a sale and purchase agreement after 14 days, at which point a further 7 per cent of the purchase price is paid. The remainder of the funds should be transferred and the necessary paperwork completed within three months of the initial agreement.
This is also the point at which all fees and taxes must be paid and up to date. Stamp duty is attracted onto every transfer of property deeds in Malaysia, and work on a sliding scale based upon the property value. This scale leaves the buyer paying between one and three per cent of the purchase price in stamp duty. Agent’s fees, if applicable, are also paid by the purchaser.
Finance is available for foreigners to buy their property in Malaysia. However, as with many countries that are developing, their economies and the systems associated with the property-buying process, the process of getting mortgage approval can be monumentally slow and frustrating.
Many buyers are well-advised to start the process of getting their finance in place right at the beginning of their search for property, in order to minimise delays when they have found exactly the property they are looking for. In that way, if you have an agreement in principle in place early on, you then have a more set budget, and can get the wheels in motion to get the process completed once you have found the property you want to buy.
Typically, mortgages are available for up to 60 per cent of the value of the property across the country, but this can change in different regions. Also, if you are buying as part of the Malaysia My Second Home scheme, this ceiling to mortgage and loan values has been removed, allowing more flexible lending.
In many cases, the process of mortgage approval is so slow and frustrating that the three-month period for the final payment of the property sale has to be extended for a month. For this reason, many people decide that they are better off raising the finance for the property in Malaysia outside of the country and going there as a cash buyer. Not only will this allow you a little more space in negotiations, but also will allow you to track changes in interest rates and the economy more easily.
Fees and taxes
Your own legal fees for buying a property in Malaysia will have to be taken into account, and should amount to no more than four per cent of the purchase price. On top of this, you will need to pay agents fees if you use one, which is usually three per cent of the property price. Some agents in Malaysia will say that they require payment of their fees upon the acceptance of an offer, but you would be wise to hang on if at all possible until the deal has been satisfactorily completed.
At the other end of your time owning a property in Malaysia, there will be Capital Gains Tax to be paid, and this will vary depending on how long you have owned the property. This sliding scale starts at 30 per cent for people who have owned for less than 2 years, which then drops to five per cent for people who have owned for five years or more. This is another initiative of the Malaysia My Second Home scheme to encourage inward investment.
There are taxes to be levied on rental income on property in Malaysia, but there are also plenty of exemptions and savings, meaning that you can greatly reduce the tax burden on your income. Inheritance tax is not payable in Malaysia.
Visas, residency and work permits
Malaysia has a modern approach to visas and residency. As a former British colony, and somewhere that retains incredibly strong links with the UK, British citizens do not need to apply for a visa to enter the country. This extends to nationals of other Commonwealth countries and the US.
Work permits are necessary for all foreigners who wish to take up employment, and are usually applied for by the employer on behalf of the employee. These are granted for periods ranging from a few months to several years, and apply only to the permit holder – dependents or partners must apply for their own permits in order to work.
Malaysia is one of the most stable and economically successful places in South East Asia, and on this basis, it is also a great place to invest in property overseas. There are two main markets for investors to target – international business and tourists. The international business community is attracted to Kuala Lumpur and its members look for the more ‘executive’ types of property that are available. Proximity to the business districts, as well as good quality property in exclusive developments are what attract the best rental rates and the fewest void periods.
On the other hand, the tourist market tends to concentrate itself on the coastal areas to the south of the mainland, as well as the north west regions of the country around the island of Penang. This would be an ideal place to look into the condo-hotel market as there developments are extensive and well-managed.
The economy and government of Malaysia are stable and well-respected internationally, and unlike many of the so-called ‘tiger’ economies of the region, managed to survive the fall in the technology markets in the 1990s that affected many other countries so badly. Like Singapore, Malaysia’s economy has not been reliant on just one industry for prosperity.
The major indicators of economic health are also good – GDP growth is strong at around seven per cent, inflation is low as is unemployment, and crime is rare.
Both health and education systems in Malaysia are efficient, well-run and inexpensive. Medical services are among the best in the region, with many doctors and healthcare professionals having training in the West. Pharmacists are well-trained in dispensing the plentiful medicines in the larger towns and cities, and many people go straight to a pharmacy for minor ailments. In addition, most healthcare professionals will speak English, making things even more reassuring.
Malaysian residents have free access to healthcare, but most refer themselves directly to private clinics and practices, most of which require payment up front. For this reason, joining a health insurance scheme before you set off for Malaysia will save you paying out of your own pocket for some expensive treatments.
Another medical consideration to take into account is the prevalence of tropical illnesses, and you may wish to consult your GP on which jabs to have done before you leave the UK.
Kuala Lumpur has been one of the major stopping-off points for long-haul flights for some years now, so flying to Malaysia should present no significant problems with plenty of flights and airlines to choose from. Once in the capital, the preferred mode of transport is the car. KL is more spread out than many cities in the region, and the road system is well-developed and well-maintained. To make life even easier for drivers from the UK, Malaysians drive on the left side of the road.
In addition, both bus and rail systems are extensive in Kuala Lumpur, and allow ease of movement around the city. This continues for rail transport across the rest of the country, with major town and cites served by clean, cheap, air-conditioned trains.
Malaysia is often overlooked by overseas property investors looking to head into the markets of South East Asia, at times being ignored ahead of Thailand and China for the impressive capital gains and social development. However, Malaysia offers a lot more in the way of stability for the overseas property buyer, and will make a welcoming destination for expats and retires looking to settle there permanently.
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