The property market is a lucrative long term investment plan which often bears great results if proper research is conducted.
New investors are however often at a lost of where to begin, hence PropertyGuru has created a complete set of guides to purchasing subsale and new developments, and commercial developments.
New buyers will be able to learn how to buy a property along with the documents involved, and experienced buyers will be able to clarify any doubts on the intricacies of document signing.
Planning Budgets & Costs Of Loan Documents
The key factor to begin purchasing a property is in knowing what is your budget.
Knowing your budget enables you to know how much you can afford in purchasing a property and it will be beneficial for any buyer to understand the differences between a freehold, a leasehold and a bumi lot
Purchasing a subsale property is often done by those who have the capital for it. The rule of thumb is to have at least 20% of the property Sale & Purchase price before attempting to acquire it.
For example if the property costs RM500,000, the purchaser should have a minimum of RM100,000 to pay for all the legal fees and etc.
Below are some of the legal costs involved when it comes to purchasing a subsale property:
1. Valuation Fees And Cost
Valuation fees is what is paid to professional valuators to determine how much a property is worth at current market value.
As a buyer, this will provide the knowledge of how much loan they can get from the banks, and as a seller this will help determine how much they can sell the property at.
The valuation fees are typically borne by the seller, although it can be pushed onto the buyers in some cases.
The charges for the valuation fees is fixed depending on the selling price of the property.
2. Real Estate Agent’s Fees
Subsale properties also come with Real Estate Agent fees – a cost that is not applicable to new developments.
A good agent will also assist in preparing the necessary documents, following up with the banks on the approval of the documents and assisting both buyer and purchaser until everything is finalised.
Upon deciding on a suitable property, if earnest in purchasing it, a buyer will need to provide a downpayment
The downpayment for a subsale property is always 10%, hence the need for a minimum 20% cash in hand before attempting to acquire a subsale property.
They will however need to provide the Sale & Purchase Agreement of the property to the EPF officers before they will be able to withdraw the funds from their EPF Account 2.
Hence they will need their own funds to pay for the downpayment first.
4. Sale And Purchase Agreement Fees
The Sale & Purchase Agreement (also known as SPA, SNP, or S&P) is the most important legal document when it comes to purchasing a property.
It is the document that provides the blueprint of the property and the agreement between the buyer and seller.
The charges for this document is based on a price tier depending on the purchase price of the property. The charges for the S&P agreement also follows the same price tier as for developer units.
5. Memorandum Of Transfer (MOT)
A Memorandum of Transfer (MOT) is a procedure that transfers the deed of the property from the seller to the buyer.
Stamp Duty charges apply to the Memorandum of Transfer, which also follows a price tier depending on the property selling price. These charges are government tax and Disbursement Fees chargeable.
6. Loan Agreement Legal Fees
Lawyer fees are unavoidable when it comes to purchasing a property.
The fees cover the costs of preparing and handling the documents, and following through on sending them to the appropriate authorities.
The charges will also include the Stamp Duty charges for the legal documents when submitting them to the government office, as well as the government tax on the legal documents and disbursement fees.
As with the other legal documents, the Loan Agreement Legal Fees also follow a price tier subject to the property purchase price.
7. Other Charges
The other costs that property buyers need to prepare for are as below:
Property Buying Criteria
Buying a property requires a large capital and long term commitment, whether the property is for own stay or investment. The property should therefore be well selected.
Below are some of the key factors that purchasers will need to look at when purchasing a property.
The location of a property is of the utmost importance whether the property is for personal stay or investment. Different criteria applies to investment properties and own stay properties.
For example, purchasing a property for own stay next to an LRT station may not be very feasible due to the noise and the crowd during peak hours, but is extremely practical if purchasing it as an investment.
2. Education Institutions
Whether a purchaser wishes to buy a property close to an education institution or not also depends on whether they have a family with school going children, or whether they are targeting families with school going children.
Safety is of the utmost importance, as it provides the house’s occupants a sense of security.
It was also discovered in our survey to 1,000 Malaysians that this is the most important factor for homebuyers.
4. Proximity To Workplace And Amenities
This is another criteria that is important for the convenience of daily commuting. Because this concerns how early you would need to wake up to avoid the traffic jam!
Whether accessible via public transportation or simply access roads is important for the occupants of a property.
The size of a property is important, as growing families will need a bigger home while a bachelor can be satisfied with a simple Studio unit.
The facilities of a property is also important, whether it is a land property or a high rise. The facilities necessary for a development is also highly dependent on the occupants of the property.
The age of a development very important factor, as older developments require more maintenance and upkeep as compared to newer developments.
Mortgage Loan Documents
Proper preparation of the loan documents is important in ensuring that your loan is not rejected.
Upon applying to several banks to get the best mortgage loan rates, purchasers should thereafter begin preparing the necessary documents.
If the loan request is approved, the Letter of Offer will be given to the purchaser within approximately a week.
Below are some of the terms that property buyers will encounter in their loan documents:
1. Type Of Loan
There are a number of different mortgage loans in the market, depending on what the borrower’s requirements are.
Among the available ones are the Standard Home Loan, Flexi Home Loans, Home/Personal Loan Package and the Islamic Home Loans.
Of the most common loans in the market is the Standard Home Loan. This loan’s interest rates are calculated based on either fixed or floating interest rates.
Depending on the borrower’s needs, they can either select fixed rates which will not be affected by the market, or they can opt for floating interest rates which will be affected in case of change of Overnight Policy Rates (OPR).
The Flexi Home Loan is a loan option for those with extra cash in hand.
This option allows individuals to put their money in a dedicated account which the property monthly instalments will be deducted from, where the extra cash will offset the interest rates.
In times of need, these funds can be withdrawn and the interest rates on the mortgage loan will be recalculated accordingly.
The Islamic Home Loan is similar to the Standard Home Loan, except that it is tailor-made for Muslims.
This loan uses a different way to determine how much the bank will earn from providing the loan, based on the Base Finance Rate (BFR).
2. Amount Of Loan
Following this, the most important factor is how much the bank is willing to loan to the borrower.
The loan amount will be reflected in the Letter of Offer, informing the loaner how much the bank is willing to lend them.
3. Purpose Of Loan
Stated in the Letter of Offer will also be the Purpose of the Loan, which in this case the purpose would be the financing of a property.
4. Description Of Property
Slightly similar to the Sale & Purchase Agreement (S&P), the Letter of Offer will also state on a bigger picture the description of the property.
Whilst the S&P will give the blueprint of the property, the Letter of Offer will state the type of property the banks are financing.
Next to the loan amount that the bank is willing to provide, the duration of the loan plays an equally important role.
As of the year 2019, the longest loan term is 35 years – previously 40 years, or until the borrower turns 70 years old – whichever earlier.
This is however the maximum time, and the number of years can be shortened drastically depending on the age of the borrower. The older the borrower, the shorter the number of years.
6. Processing/Set Up Fee
The set up fee is a one time fee charged by the bank. The amount to be paid will be stated in the Letter of Offer.
7. Monthly Service Charge
For the bank’s monthly services, a small fee will be charged as well. This charge will be known as the Monthly Service Charge, and it will also be stated within the Letter of Offer.
8. Prevailing Interest And Repayment
The Letter of Offer will also show a detailed chart for the repayment schedule, and the interest rates that the property buyer will be charged.
Based on the loan amount and the loan tenure, the monthly instalments will be calculated accordingly.
10. Security Documents
Security documents are for the security of the bank in ensuring that the client has sufficient funds to service their loans. Different documents may be required for different circumstances.
Prepayments cover the possibility of the borrower making an excess payment.
The Letter of Offer will state what benefits the borrower will enjoy for making an excess payment, or completing their loan repayment early, if any.
Housing insurance is also usually offered by the banks. This cost can be included in the property loan, if the borrower wishes for it to be.
The other option that the borrower can opt for is to purchase the housing insurance from an external insurance company.
Signing The Documents
Upon confirming their acceptance of the loan from the bank, the property purchasers will need to begin signing a series of legal documents.
1. Signing The Letter Of Offer
The first document that the property purchaser will need to sign is naturally the Letter of Offer from the bank.
The property purchaser should have a few banks to choose from if they submitted applications to several banks, hence they should choose the bank that gives them the best terms.
Upon signing the Letter of Offer, the borrower will need to pay a downpayment of 2% to 3% of the property purchase price.
These monies will usually be held by a neutral party, typically an agent or a stakeholder account. If an agent holds onto the monies, they are known as an escrow agent, a grantee.
As the usual downpayment is 10% of the property purchase price, the balance of the 10% will usually be paid after the Sales & Purchase Agreement is signed.
2. Signing Of The Sale & Purchase Agreement
The next document that will need to be signed is the Sale & Purchaser (SPA/SNP) agreement. The property purchaser is usually given a grace period of approximately 2 or 3 weeks to sign the document.
If the time is exceeded, the borrower will need to ask for an extension on the Letter of Offer from the bank.
During the 2 or 3 weeks grace period, the buyer will need to get their lawyers to draft the SNP agreement based on both the buyer’s and seller’s agreement.
Upon completion of preparing the documents, the property purchaser will then need to pay the balance of the property downpayment.
The property purchaser should always prepare their funds beforehand, especially if their funds are located overseas or are tied up in other investments.
After paying off the remaining downpayment, the property purchaser will then proceed to complete signing the S&P documents.
3. Signing The Loan Agreement
The Loan Agreement is one of the final documents that need to be signed by the property purchaser.
This agreement is between the bank and the property purchaser, which the Loan Agreement will state all the terms of the mortgage loan.
The Loan Agreement is typically skewed to protect the banks’ interests. The cost of creating the Loan Agreement will be borne by the property purchaser.
If the property buyer is purchasing a multi-storey or multiunit development, they will need to sign another document – the Deed of Mutual Covenant.
This deed will regulate the rights of owners to the multi-storey or multiunit development.
The types of items that may be covered in the deed are as below:
- Allowance of pets in the building
- Usage of units
- Who specifies the management fees
- Appointment procedure of building manager
- Matters pertaining to the maintenance or renovation of the building
4. Memorandum Of Transfer
The final document that the purchaser will need to sign is the Memorandum of Transfer (MOT). Signing this document will transfer the property’s deed from the seller to the buyer.
Upon signing all the documents, the purchaser will need to submit everything to the respective parties.
Upon signing off everything, the purchaser will need to make the final payments on their legal fees, Stamp Duty and other charges.
The property buyer’s lawyer will then proceed to ensure that all of the property’s outstanding fees are fully paid up, such as the property’s land tax, quit rent and utility bills.
The seller’s lawyer should be able to provide the Agreed Apportionments. This document will detail the bills that have been paid, including the maintenance fees and sinking fund if applicable.
The lawyer will only make the final payment after ensuring that everything is in order, to the seller’s lawyer.
Both party’s lawyers will then prepare the necessary documents to acknowledge the exchange of monies.
Vacant Possession And Keys – Subsale Development
At the end of the 2 or 3 weeks, all the documents should have been prepared and signed already, with monies exchanged.
Once these are completed, the key handover can be done. Both party’s lawyers will meet up to complete the transfer process. The keys will then be handed over to the buyer.
Upon receiving the keys, the property buyer should also ensure from his end that all the bill payments are in order, whether they are the quit rent and assessment fees, or the management fee and various other utility bills.
Thus concludes the guide to purchasing a subsale property. Looking to buy a new property instead of a subsale property? Fear not as we have an equally comprehensive guide to purchasing a newly developed project!