Latest stamp duty charges & 6 other costs to consider before buying a house in 2020

*This article was updated on 19th May 2020. 

First-time home buyers need to be aware of the closing costs involved when acquiring a residential property. In 2020, purchasers can look forward to full stamp duty exemption for properties bought under the Rent-to-Own (RTO) scheme.

© baona | Getty Images

Hunting for a dream home is an experience that a first-time home buyer is not likely to forget. However, you might overlook certain critical elements in calculating the total expenditure of acquiring your home.

First-time home buyers scouting around at various locations, either by visiting the development or by browsing online, are likely to focus only on the biggest expenditure involved – the selling prices of units. You might be further enticed by promotions, discounts and rebates by developers. However, it is not just the down payments and progress billings that will make up your total costs.

There are other important costs in the home purchasing process that you need to factor in, especially towards the end of the transaction. These are variable, third-party fees that are often referred to as closing costs. Ignore them and you may risk financial setbacks and disappointment in realising your dreams of owning a home.

Below are a few significant closing costs that you need to include in your property budget planning:   

1. Stamp duty

An unavoidable cost in real estate purchases, stamp duty is the tax placed on your property documents during the sale or transfer of the property – as specified under the First Schedule of Stamp Duty Act 1949. The tax includes stamp duty on the Sale and Purchase Agreements (SPA) of your property and stamp duty for the Memorandum of Transfer (MOT), both of which are calculated based on the purchase price. You will also need to pay stamp duty on your loan agreement based on a flat rate of 0.5% of the total loan. 

The sale or transfer of properties in Malaysia which are chargeable with stamp duty must be stamped within 30 days from the date of the execution (property transaction )

During Budget 2019, the government announced a stamp duty hike for properties costing more than RM1 million, where the rate was increased from 3% to 4% – this came into effect on 1 July 2019. The latest stamp duty rates (on the SPA & MOT) are calculated on a tiered basis as below.

PRICE TIER STAMP DUTY (% of property price)
First RM100,000 1%
Next 400,000 (RM101,000 – RM500,000) 2%
The following amount up to RM1 million(RM500,001 – RM 1 million) 3%
Thereafter (> RM 1 million) 4%

Stamp Duty Calculation

For instance, when purchasing a property which costs RM750,000, you will have to pay a total of:

{(First RM100,000 X 1%) + (Next RM400,000 X 2%) + (Remaining RM250,000 X 3%) } + 0.5% of loan amount (90% of RM750,000)
= {RM1,000 + RM8,000 + RM7,500} + 0.5% X (RM675,000)
= RM16,500 + RM3,375
=RM19,875

Stamp Duty Exemptions in 2020

However, there are a few stamp duty exemptions available for first-time home buyers – with the most recent being a full stamp duty exemption on the instrument of transfer for residential properties purchased under the Rent-to-Own Scheme and with selling prices not exceeding RM500,000. Do note that the government has yet to announce the details of the RTO scheme – which developers are involved, how it will be executed, where do you apply for it, etc. We hope it happens soon!

Details of the available stamp duty waivers are as below:

Property Purchase Price Terms Stamp Duty Exemption

Properties purchased under the Rent to own (RTO) Scheme

PPP ≤ RM500,000

 

1) SPA Date or Rental Agreement Date: 1 January 2020 – 31 December 2022
2) Purchase 1 residential property (a house, condo unit, an apartment, a flat)
3) Malaysian citizen & first time home buyer
4) The financial institution is approved by BNM to provide financing for the RTO scheme
5) The housing developer is registered with the National Housing Department. 

Full stamp duty exemption on transfer instrument and loan agreement (14A/DOA) for:

  • transfer of residential home from the housing developer to financial institution 
  • transfer of residential home from financial institution to buyer for rental agreement executed 
RM300,000 < PPP ≤ RM500,000

 

1) SPA Date: 1 July 2019 -31 December 2020
2) Purchase 1 residential property (house, condo unit, apartment, flat)
3) Malaysian citizen & first time home buyer
Full stamp duty exemption on transfer instrument and loan agreement for the first RM300,000 only. The remaining amount will be subjected to the prevailing rate of stamp duty. 
PPP ≤ RM300,000 1) SPA Date: 1 January 2019 – 31 December 2020
2) Purchase 1 residential property (a house, condo unit, an apartment, a flat)
3) Malaysian citizen & first time home buyer
Full stamp duty exemption on transfer instrument and loan agreement (14A/DOA) 

Read: Is it smart to buy a house during a recession?

2. Legal fees

lawyer-property-malays

© bee32 | 123rf

Unless you have a legal background and possess some of the required expertise and knowledge, you are most likely to engage in legal assistance for your real estate purchase. Your appointed solicitor will prepare all the necessary documents and contracts to facilitate the transfer of the property.

The legal fees for preparation of the Sale and Purchase Agreement are calculated as a percentage of the purchase price, varying from 0.25% up to 1% depending on the value of the homes.

The legal fee rates in Malaysia are as below:

PRICE TIER LEGAL FEE (% of property price)
First RM500,000 1%
Next 500,000 (RM500,001 – RM 1 million) 0.8%
Following RM2,000,000 (RM1,000,001 – RM 3 million) 0.7%
Next RM2,000,000 (RM3,000,001 – RM 5 million) 0.6%
Thereafter (> RM 5 million) 0.5%

Say for instance you are purchasing a property which costs RM750,000, you will have to pay a total of:

(First RM500,000 X 1%) + (Next RM250,000 X 0.8%) 
= RM5,000 + RM2,000 
= RM7,000 

Note that some developers may absorb the legal fees but you will always need to pay the stamp duty yourself as a buyer.

 3. Real Property Gains Tax (RPGT)

rpgt-new-2019-malaysia

© Andriy Popov | 123rf

A buyer with long term planning, beyond owning a first home, should also look ahead to the possibility of eventually selling the property in the future.

This might be for a number of reasons. For example, you might want to upgrade, leave the area for a new job, find a home better suited to your preference or just sell it for financial purposes because the market is booming. Regardless, disposing your home to a new buyer will also entail paying real property gains tax (RPGT) if you are profiting from the transaction.

Doing advance research on RPGT could help you sell your property at the right time and save you a lot of money!

In Malaysia’s Budget 2019, it was announced that beginning 1 January 2019, Malaysian individuals who sell off their property in the sixth (and subsequent) years of ownership will now have to pay a 5% RPGT (no charges were applied before). Meanwhile, those who dispose of their home after less than 3 years will be charged 30% RPGT; 20% in year 4 and 15% in year 5. 

Bear in mind that there are RPGT exemptions for the following conditions:

1) An exemption of 10% of profits or RM10,000 per transaction (whichever is higher) for these 2 scenarios:

Malaysian Citizens & Permanent Residents
a) If an asset is transferred as a gift by a donor who is a Malaysian citizen and the acquirers are either husband and wife, parent and children or grandparents and grandchildren. This exemption is not applicable for transfers between siblings.
b) Once in a lifetime exemption on the chargeable gain on disposal of 1 private residence by a Malaysian citizen or Permanent Resident (PR).

2)  Homeowners who own low or medium cost housing priced below RM200,000 are exempted from RPGT when disposing of their property.

RPGT amendments in 2020

In the recent Budget 2020,  the government made an amendment to the RPGT – Beginning 1 January 2020, for the disposal of older properties which were bought years ago, the base year used to calculate the property gains tax chargeable on its profit from the sale is 1 January 2013.  Previously, 1 January 2020 was used as the initial point of valuation (base year). The base year amendment to 2013 is good news for homeowners as they will now pay less tax upon selling off their property. 

MORE: (Updated May 2020) Latest from BNM: Base Rate, BLR & Effective Lending Rates for banks in Malaysia

4. Property agent fees

real estate agent house

© 123rf

If you engage property or real estate agents, especially in securing property in the secondary market, their fees will be an additional cost on top of the price you pay for your home. Although most buyers nowadays are aware of this, there are some who do not factor agent fees in the total cost. This could be a setback, especially if you are on a tight budget.

The maximum fee chargeable on services provided by agents on the sale of any land and building is normally 3%, although many brokers and agents charge less than that on a case-to-case basis.

As a buyer, make sure that you negotiate and confirm your agent fees before officially engaging them to represent you in any property transactions. This will help when calculating your total cost in advance.

5. Property valuation fees

Unless you’re paying for the property in cash, you’re likely to be looking for a housing loan from banks to fund the purchase. Financial institutions will usually require a valuation of the property before approving the loan, and most banks will charge a fee for these valuations.

Similar to the legal fees, the valuation fee for real estate is calculated as a percentage of the purchase price:

For the first RM100,000 =0.25%
Next residue up to RM2 million = 0.2%

6. Home insurance 

MRTA or MLTA?

© Getty Images

Most banks will require buyers to purchase insurance on their homes as part of the housing loan package to protect the value of the property. This type of insurance is usually referred to as the Mortgage Reducing Term Assurance (MRTA) and its costs are dependent on the age of the borrower (usually the older the borrower, the higher the MRTA) and the total mortgage on the property (usually estimated at 3% to 5% of the total mortgage). 

The MRTA isn’t the only option, however, homeowners can also consider Mortgage Level Term Assurance (MLTA), which offers the repayment of your outstanding home loan as well as a guaranteed cash value back at the end of the scheme.

7. Home renovations

For example, after you have completed the purchase of the house, you might want to change wall colours, doors, floorings, windows, fences, roofing, rooms and other elements of the house to suit your preferences. These could easily add up to your total costs, depending on whether the renovations involved are major or minor.

Here’s a tip: Most experts recommend not spending more than 10% of your home value on renovations. Check out our simple guide on how to plan your home renovation.

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