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We've all heard of 'horror' stories about the property market in Malaysia, from ‘inheriting’ a large amount of unpaid utility fees from the previous owners, having to pay more than expected, ownership disputes, defects and so on. There have even been cases of proceeds from selling a house being allegedly misused by a third party.
Given that buying a house is one of the biggest investments in the lives of most Malaysians, stories such as these definitely run through the minds of many who are interested in exploring the property market. Hence, to allay any fears a prospective home buyer might have, we’ve compiled a list of common mistakes when purchasing a property in Malaysia from a legal viewpoint.
The latest in our insights into conveyancing, we’ve previously shared a step-by-step guide for purchasing a subsale property in our country, why a lawyer is needed for the process and how much stamp duty, legal costs and more one needs to spend when purchasing a property. Check out our full coverage on the subject here.
As for the subject matter at hand, we’ll be dividing the common mistakes when purchasing property into 4 sections. Specifically, the pre-agreement stage, the agreement stage, financing the purchase and completion of the transaction.
Pre-agreement stage
During the pre-agreement stage of a property purchase, one of the most glaring mistakes one can make is not conducting a proper title search on the property. This is because a buyer may unknowingly purchase a property with caveats, encumbrances or ownership disputes attached to it.
With every property transaction, there are usually some forms of restrictions-in-interest that dictate how one goes about conducting the transaction.
Here are some of the more common restrictions that prospective home buyers need to look out for:
- The title for the property is a Leasehold title
- There is a charge on the property (usually from a bank)
- The property is designated as a ‘Bumi Lot’
- The property is designated as ‘Malay Reserved’
- The property may require state consent
All of the above restrictions may delay the transaction’s initial timeline or, worse, prevent the transaction from taking place outright.
Agreement stage
Moving on to the agreement stage of a property purchase, among the most common mistakes committed by home buyers include the five below:
1. Signing any document presented without first reading it or seeking independent legal advice
It is imperative that you not sign any letters of offer from banks or vendors without prior advice from a legal practitioner. This is because doing so could be detrimental, as such documents may be complicated in nature and contain terms that a layman without legal knowledge may misinterpret.
Moreover, a Loan Agreement and a Sale and Purchase Agreement are complex documents which may require an experienced individual to help you navigate the obligations within said agreements.
2. Not engaging a proper, experienced conveyancing lawyer to handle the transaction
Not all lawyers are the same, just like how not all doctors are the same. Would you trust a general practitioner to perform an open-heart surgery on you?
Accordingly, a civil litigation lawyer may not be as well-versed in conveyancing matters as a specialised conveyancing lawyer. In simple terms, conveyancing is the branch of legal practice that deals with the process of transferring a property title or real estate asset from one individual to another.
Moreover, it’s also related to the granting or creation of encumbrances over a land title, such as a charge or mortgage. Hence, a conveyancing lawyer is a legal professional who, among other things, assists a party in a property transaction between a buyer and a seller by complying with the land law procedures.
With that in mind, not engaging with a conveyancing lawyer may lead to buyers missing out on or overlooking key details in the transaction. Furthermore, a civil litigation lawyer may also not perform certain due diligence as well as an experienced conveyancing lawyer.
3. Failing to meet the deadlines for exemption applications or payments
As we’ve elaborated in our previous conveyancing insight, filing Real Property Gain Tax (RPGT), known as Cukai Keuntungan Harta Tanah (CKHT) in Bahasa Melayu, and paying the stamp duties are integral steps in the process of purchasing a property. Therefore, taking note of them is imperative.
Specifically, failing to meet RPGT deadlines for the exemption applications (if eligible) may result in additional payments. Meanwhile, missing the stamping deadline will result in penalties.
4. Failing to include key timelines/deadlines in the Sale and Purchase Agreement
A property transaction depends on timelines and deadlines. As such, a Sale and Purchase Agreement should ALWAYS include key timelines such as the following:
- Timeline for the payment of deposits
- Timeline for the loan approval
- Timeline for the consent to transfer the property
- Timeline for the completion and possible extensions
5. Not including terms and conditions that are designed to protect the buyer’s interests
Another common glaring mistake by prospective home buyers during the agreement process is not including terms and conditions that are designed to protect their own interests. Always remember that the agreement should ALWAYS clearly state what would happen should certain events, such as the below, transpire:
- Non-payment of the purchase price
- Late payment interest
- Rejection of State Consent to transfer - the property can’t be sold
- Defect Liability Period (if property is currently under construction)
Financing the purchase and the payments to be made
Meanwhile, among the common errors made when financing the purchase of the property include:
1. Paying any money directly to the vendor or agent
While some would think that paying money (i.e. deposits) directly to the agent or vendor would be best, this could not be further from the truth. Instead, it is advisable for all payments to be made to the lawyer in charge of the transaction first as a stakeholder to protect the buyer.
This is because, in the event of the transaction being cancelled and money needs to be returned, a lawyer is duty-bound to refund the money, whereas the vendor or agent would not. This arrangement is meant to protect the buyer’s interests.
2. Not securing a home loan early on
The timeline to secure a loan starts immediately following the execution of the Sale and Purchase Agreement. Hence, any delays in getting the loan may delay the completion of the transaction.
Therefore, any loan rejections and delays could result in a breach of terms, which in turn will lead to penalties, interest payments and potentially the termination of the transaction and forfeiture of deposits.
With that in mind, it is advisable for the buyer to contact the bank as soon as a property has been identified to begin the process of pre-screening and others to see if a loan is available before signing the Sale and Purchase Agreement.
Completion of the transaction
Among the common errors most home buyers make when nearing the finish line of a property purchase are:
1. Delaying the transfer of the title
Most Sale and Purchase Agreements have a deadline for the transfer of the property to the buyer. A delay in the final title change could result in a default in terms of the agreement.
Furthermore, if you were to miss the deadline for the stamping of the Memorandum of Transfer (MOT), there will be a penalty payable for the late stamping and late registration.
2. Overlooking other outstanding charges
Don't make the mistake of thinking that a transaction is complete just because the purchase price has been paid. While that is usually the case, it is advisable to pay attention to any unpaid charges which have yet to be settled before completion, as they may then become the buyer's responsibility/liability.
These charges may include:
- Unpaid Quit Rent and Assessments
- Outstanding maintenance fees
- Utility bills
3. Not properly inspecting the property prior to and during Vacant Possession
When you are about to collect the keys to the property, it is advisable that you ensure a property handover. Moreover, you should consider doing a final inspection of the property before taking the keys, even if you have done an inspection prior.
Specifically, it is best to pay attention to the following:
- The items and fixtures within the property match the itemised list that is usually included in every Sale and Purchase Agreement
- That the utility accounts have been transferred to your name
- That all the keys and access cards given are functional
We truly hope our series of insights into conveyancing would help you as you navigate through the challenging property market in Malaysia. For more articles such as this, do follow us on Facebook and Instagram or visit our official website. You can also read our articles on the popular Malaysian news aggregator app Newswav here.
About us
Ahmad Danial Iswatt & Luqman is an esteemed law firm that delivers best-in-class legal solutions to individuals, businesses and legal entities in Malaysia and beyond. We offer ease of mind to our wide range of clients by dismantling complex legal challenges with novel solutions through exceptional legal advisory and representation.
Our distinguished partners of diverse backgrounds and expertise have achieved significantly favourable results in all levels of courts in Malaysia, from high-profile civil and criminal litigation proceedings to complex cases in which the outcomes have become binding precedents for the laws of the country. Backed by a growing team of exceptional lawyers and capable support staff, we aspire to be at the forefront of the legal sphere to satisfy our clients’ dynamic demands and ever-increasing complexity.
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