By Sarah Kambali & Marcus Leong

The Malaysian property market remains attractive to foreigners and expats who either wish to live or invest in Malaysia. According to statistics, Malaysian properties are affordable and offer reasonable returns. However, foreigners, whether individuals  or companies, should abide by specific requirements and restrictions enforced under the National Land Code 1965 (“NLC 1965”) and the Guidelines on the Acquisition of Properties (“EPU Guidelines”) issued by the Economic Planning Unit (“EPU”), before proceeding with the purchase of any property in Malaysia. This article will provide examples of buying a property in Selangor, Kuala Lumpur and Johor for both foreign individuals and foreign companies.

Introduction

Definition of a Foreigner

The definition of a foreigner can be found in the primary legislation which is the NLC 1965. Section 433A of the NLC 1965 and the Companies Act 2016, define a foreigner as follows:-

  1. “Foreign Company” is either (a) a company, corporation, society, association or other body incorporated outside Malaysia; (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; (c) a company incorporated with 50% or more of voting shares held by non-citizen/foreign company or by both; OR (d) a company incorporated with 50% of more of voting shares held by company in (c);
  2. “Non-citizen” is a natural person who is not a citizen of Malaysia.

Therefore, a foreigner can be summed as an individual who is a non-citizen of Malaysia or an entity that is a Foreign Company.

Five Specific Requirements

When purchasing a property in Malaysia, foreigners should look into and comply with the following five (5) main requirements:-

  1. Minimum Purchase Price
  2. Off-limit Properties
  3. Real Property Gain Tax application on Foreigners
  4. Foreigner Consent
  5. Economic Planning Unit

This article will guide and assist foreigners on how to purchase property in Malaysia, specifically for the states of Selangor, Kuala Lumpur and Johor.

 

1. Minimum Purchase Price

In our view, this is the first requirement that a foreigner needs to be aware of. 

What is “minimum purchase price”? This simply means that a foreigner can purchase a property in Selangor, Kuala Lumpur or Johor if the purchase price of the property is above a certain threshold. The threshold applicable depends on each state and is generally set by the government and each respective state at a high amount.

In other words, the government and the respective state have made this as a requirement, a seemingly high-end purchase price, to ensure that the general property market in Malaysia is not driven or owned by foreigners.

The following is a summary of the purchase price thresholds applicable to foreigners who are considering purchasing property in Selangor, Kuala Lumpur and Johor:-

A. Selangor

In Selangor, the minimum threshold for foreigners to acquire a property is RM1,000,000. However, in Selangor, foreigners must take note that the minimum threshold to purchase different types of units differs from zone to zone.

Zone 1 

  • Petaling, Gombak, Hulu Langat, Sepang, Klang
    • Minimum residential price : RM2,000,000.
    • Minimum commercial and industrial price : RM3,000,000.

Zone 2

  • Kuala Selangor, Kuala Langat
    • Minimum residential price : RM2,000,000.
    • Minimum commercial and industrial price : RM3,000,000.

Zone 3

  • Hulu Selangor, Sabak Bernam
    • Minimum residential price : RM1,000,000.
    • Minimum commercial and industrial price : RM3,000,000.

B. Kuala Lumpur

The minimum threshold for foreigners to acquire a property in Kuala Lumpur is RM1,000,000.

C. Johor

The minimum threshold for foreigners to acquire a property in Johor is also RM1,000,000.

 

2. Off-limit Properties

The next important requirement that a foreigner needs to be aware of is the types of property that they are allowed to purchase. Generally, as long as the property is above the minimum threshold, a foreigner can purchase the property.

However, there are certain properties that are off-limits to foreigners. Below are the types of property that are off-limits to foreigners:-

  • Properties valued at less than RM1,000,000;
  • Low or Low-Medium Cost houses;
  • Properties with a description of “Malay Reserved Land”;
  • Any property allocated under “Bumiputera interest” in a development project.

On the other hand, the following are the types of property that foreigners are allowed to purchase in each respective state:-

A. Selangor

Foreigners intending to purchase a property in Selangor are allowed to purchase the following types of property:

  • Residential units, which are under Strata Titles only;
  • Commercial units; and
  • Industrial units or land.

B. Kuala Lumpur

Foreigners intending to purchase a property in the capital of Malaysia are allowed to purchase the following types of property:

  • Residential units, both landed (individual title) and under Strata Titles;
  • Commercial units;
  • Industrial units or land; and
  • Agricultural land.

C. Johor

Foreigners intending to purchase a property in Johor are allowed to purchase the following types of property:

  • Purchases directly from the Developer include:-
    • Residential units;
    • Commercial units; and
    • Industrial units, with no restrictions as of the number of units. However, this is subject to certain criteria.
  • Purchases not through a Developer or secondhand or sub-sales:-
    • Residential units;
    • Commercial units;
    • Industrial units, with no restrictions as of the number of units. However, this is subject to certain criteria; and
    • Agricultural land (however, it should be noted that foreigners are not permitted to acquire agricultural land except by way of lease).

 

3. Real Property Gain Tax application on Foreigners

The Real Property Gains Tax (“RPGT”) is also an important consideration for a foreigner who is disposing off his or her property. RPGT is a form of tax levied by the Inland Revenue Board of Malaysia and is chargeable on property owners when they dispose of their land or real property with a resale price that is higher than the purchase price.

In accordance with the Malaysian government’s Budget 2019 announcement, a few changes were made to the Real Property Gains Tax Act 1976 pertaining to RPGT. The changes made were on the increase of the retention sum from 2% to 7% of the Purchase Price for a property owner who is a foreigner; and the change of RPGT rates. Below is a reproduction of the latest RPGT rates against gains/profit made:

RPGT RatesIndividuals (Citizens & PRs)Individuals (Non- Citizens & Foreigners)Companies
Disposal in 1st year30%30%30%
Disposal in 2nd year30%30%30%
Disposal in 3rd year30%30%30%
Disposal in 4th year20%30%20%
Disposal in 5th year15%30%15%
Disposal in 6th year and beyond5%10%10%

This rate is correct at the time of writing this article. However, given the new budget to be announced soon, it is hoped that the RPGT rates will be revised; especially for those disposing property beyond the 5th year mark.

 

4. Foreigner Consent

Other than the three requirements above, a foreigner purchasing property in Malaysia must be made aware of the requirement to apply for foreigner consent.

Pursuant to the NLC 1965, Section 433B provides that prior approval from the relevant State Authority is required for any acquisition of property by non-citizens and foreign companies.

Each State Authority in Malaysia has its own internal way of approving this foreigner consent. Applicants are required to submit forms and application fees to be paid; and each state has its own application fee sum. As a rule of thumb, as long as the first two requirements above are met, the application should not be rejected.

 

5. EPU Approval

Last but not least, Foreigners need to find out whether purchasing the property would require approval from the Economic Planning Unit (“EPU”). EPU is another government body under the Ministry of Economic Affairs. Its main objective is to prepare development plans for the country. Hence the purchase of property by a foreigner may require EPU’s Approval. 

EPU has come out with its own guidelines and is effective from 1 March 2014. In accordance with the Guidelines on the Acquisition of Properties (“EPU Guidelines”), there are two situations that would require EPU’s Approval for the acquisition of property.

The first situation is when there is a direct acquisition of property valued at RM20million and above which results in the dilution in the ownership of property held by a Bumiputera interest and/or government agency. 

The second situation is when there is an indirect acquisition of property by other than Bumiputera interest through acquisition of shares, resulting in a change of control of the company owned by a Bumiputera interest and/or government agency, having property more than 50% of its total assets, and the said property is valued more than RM20million. 

If any Foreigner falls within these two situations, EPU Approval is required for such a purchase and transfer of the property to take place. 

Generally, the properties that do not require EPU Approval are as follows:-

  • acquisition of residential unit valued at RM1,000,000 and above;
  • acquisition of commercial unit valued at RM1,000,000 and above;
  • acquisition of agricultural land valued at RM1,000,000 and above or at least five (5) acres in area for the following purposes: 

(i) to undertake agricultural activities on a commercial scale using modern or high technology; or 

(ii) to undertake agro-tourism projects; or 

(iii) to undertake agricultural or agro-based industrial activities for the production of goods for export.

  • acquisition of industrial land valued at RM1,000,000 and above; and
  • transfer of property to a foreigner based on family ties (only allowed among immediate family members). 

 

Conclusion

Malaysia remains as one of the most attractive countries to invest in as it saw a 109.7% increase in foreign direct investment during the January to September period in the year 2018. Malaysia is a foreigner-friendly country and does not stop foreigners from purchasing properties in Malaysia; whether it is for the purpose of staying or for investment. However, a foreigner would need to comply with specific requirements set-out to buy and own properties in Malaysia and it is important for foreigners to be aware of these requirements. 

By Sarah Kambali & Marcus Leong

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