A subsale house is a second-hand property that is sold in the secondary market. Unlike new properties or under-construction properties, a subsale one usually has a pre-existing owner who bought it from a developer during a property launch. If you are thinking of purchasing a home in the subsale market, this beginner’s guide is for you!
It could be the right time now to buy the sub-sale home which you have been eyeing on for some time. The Malaysian government recently announced that property owners who sell off their residential properties from 1 June 2020 to 31 December 2021 will be exempted from paying the Real Property Gains Tax (RPGT). Thus, owners who were previously holding off from selling their property, might be more willing to settle for lower selling prices as they will be enjoying significant savings from the RPGT exemption.
Nonetheless, purchasing a sub-sale home could be an intimidating process for a first-time homebuyer, but it does not have to be if you understand the process involved. Let’s dive into our step-by-step guide on securing your dream home:
1. Calculate the costs of buying a subsale house & set a budget
The purchase of a sub-sale home in Malaysia typically requires a minimum of 10% downpayment. It involves 2 stages, where the buyer will first pay a simple earnest deposit (about 1-2% of the purchase price) upon signing the Letter of Offer or Booking Form. This booking fee indicates the buyer’s commitment in ensuring the deal goes through while waiting for their loan application to be approved by a financial institution. Usually, a third party such as a property agent or lawyer is engaged to hold the earnest deposit in escrow ahead of the completed transaction. The remaining of the downpayment (about 7-8%) and stamp duty fees will follow once you sign the Sales and Purchase Agreement (SPA).
On top of that, you will need to fork out monies for the closing costs – stamp duties, valuation fees, and legal fees. Although it is not obligated by law, it is encouraged to hire a lawyer when purchasing a sub-sale residential property to ensure that you end up with a fair deal. A legal professional will assist you in preparing all the legal paperwork related to your property purchase and will be able to advise you on the best legal recourse if things don’t go according to plan. Legal services include finding out any hidden clauses in the SPA that you will be signing off on and carrying out due diligence work on your behalf, such as land title checks at the local Land Office.
There is also the mortgage insurance cost, which is roughly 3% of your property value – there are 2 options to pick from, the Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA). Lastly, you should remember to have some funds in reserve for your renovation cost. The extent of renovation and refurbishment will depend on the overall condition of the subsale house – but most experts recommend not spending more than 10% of your home value on renovations.
Let’s say your target property has a transaction price of RM600,000 – your budget estimate will be as follows:
Cost Calculation (RM)
|Down payment||Minimum 10%||RM600,000 X 0.1 = RM60,000|
|Stamp Duty||Stamp Duty on SPA & Memorandum of Transfer
First RM100,000: 1%
RM101,000 – RM500,000: 2%
RM500,001 – RM1 million: 3%
Above RM1 million: 4%Stamp Duty on Loan agreement
0.5% of loan amount (90% of property value)
|Stamp Duty on SPA & Memorandum of Transfer
First RM100,000: RM100K X 0.01 = RM1,000
RM101,000 – RM500,000: RM400K X 0.02 = RM8,000
Next RM100,000: RM100K X 0.03 = RM3,000
Stamp Duty on Loan agreement
|Mortgage Insurance||Typically 4% of property value||RM600,000 X 0.04 = RM24,000|
|Valuation fees||First RM100,000 = 0.25%
Next residue up to RM2 million = 0.2%
|First RM100,000 = RM100K X 0.0025 = RM250
Residue of RM500,000 = RM500K X 0.002% = RM1,000
|Legal fees||Sale & Purchase Agreement (SPA) legal paperwork fees
First RM500,000: 1%
Next RM500,000: 0.8%
Next RM2,000,000: 0.7%
Next RM2,000,000: 0.6%
Next RM2,500,000: 0.5%Loan Agreement legal fees
First RM500,000: 1%
Next RM500,000: 0.8%
Next RM2,000,000: 0.7%
Next RM2,000,000: 0.6%
Next RM2,500,000: 0.5%*Plus, a few hundred Ringgit in disbursement fees for SPA and Loan Agreement.
|SPA legal paperwork fees
First RM500,000: RM500K X 0.01 = RM5,000
Next RM100,000: RM100K X 0.008 = RM800
Loan Agreement legal fees
|Real estate agent’s fees||About 2% to 3% of property price||RM600,000 X 0.02 to 0.03 = RM12,000 to RM18,000|
|Repair and renovation costs||Up to 10% of property value||RM600,000 X 0.1 = RM60,000|
|TOTAL COST||RM 189,550|
TIP: Most booking forms for the purchase of subsale properties are prepared by property agents and have a standardised format. You should look out for the phrase “subject to XX% loan approval” as this would determine if the earnest deposit is recoverable in the event that your home loan is rejected and the booking form becomes void.
2. Determine the right subsale home for you and your family
Do take into consideration factors such as the location of the property and its neighbourhood; the size of the property; the proximity and accessibility to your workplace, essential amenities such as schools, hospitals, leisure and religious facilities; and if the subsale house is located in a safe and clean environment.
Another important factor that you should consider is the age of the subsale house and also find out the remaining duration of the land tenure before you make your purchase. Subsale homes with leasehold titles may turn out to be less attractive to many as their lease expiry might be within the next few decades. Hence, it is always good to check the status of the sub-sale residential property with the local land office as part of your due diligence process.
Also, be sure to check the property title and the names of the official owners at the land office to ensure that your property seller is a legitimate one. There are some instances where conmen have tried selling properties that do not officially belong to them and buyers only found out about the scam when it’s too late.
It would be best if your target property is located in a neighbourhood you are familiar with, however if you are planning to move to a different location, it is best if you could:
- Find a trusted agent who is familiar with the area that you are interested in to obtain as much helpful information as possible.
- Talk to friends or colleagues who might live there.
- If it is a condominium/apartment, do get touch with the management office to gather information about the property and its surrounding neighbourhood.
- Seeing is believing. Find out by exploring the area yourself. Viewing the actual subsale units will enable you to make a more informed decision.
Note: Subsale properties do not come with a defect liability period (DLP). A DLP refers to a warranty that is provided by the developer for brand new properties. Under the defect liability period, the developer is required to fix any defects in the newly bought property within a given period. You do not have the same luxury when purchasing a sub-sale residential property. Therefore, it is important to take note of the smallest details when you are viewing the unit, while also keeping an eye out for any common defects such as roofing problems or a water leakage.
TIP: Check out iProperty.com.my’s customised Point-of-Interest search which is a map-based feature that allows you to see the distance from your property to important locations in the area.
3. Find the best property deal within your budget
How can you evaluate the current market value of subsale homes in the neighbourhood that you are interested in and see if the pricing falls within your budget? For Malaysian properties, brickz.my has a good wealth of information for you to start out with. It provides the latest transaction price of landed houses and high-rise units of secondary properties in all suburbs within the country.
Via the website, a property buyer or a home seeker can get reliable, accurate and up-to-date transaction price information for the subsale market in Malaysia. You can also instantly see the property’s latest sales history, its sale value, per sq ft price, as well as median prices of properties in the area that you are interested to purchase. By having transparent sub-sale property data easily available, it gives home buyers like yourself an upper hand in negotiations.
For extra measure, you may want to hire an accredited professional to carry out an independent valuation of the property you are interested in – especially if you are dealing with a seller who is requesting for a higher selling price than what you expected. Do note that any upgrading or renovation works done by the property seller would affect the final property price – two homes with the exact same layout and built-up size could have very different price points albeit being located in the same neighbourhood.
You can also check out subsale listings here, and enjoy a streamlined search experience via features such as the Similar Properties listing feature and Transaction Price history information. Capital Growth and Estimated Rental Yield information are also made available to help buyers in their decision making.
TIP: Find a reliable property agent who specialises in the area you are interested in – besides having good market knowledge, they will try their best to secure you a home which has the best balance between your wants/needs and financial capability.
4. Secure a home loan
Once you have found your dream property, you can start shopping for a home loan after paying your earnest deposit. It is essential for you to get your financing ready before signing the SPA.
A a typical mortgage tenure is about 30-35 years long. Using the RM600,000 property as an example, a 30-year home loan with an interest rate of 3.4% would mean a monthly instalment payment of RM2,395 for the next 360 months. Hence, making the right choice to fit your repayment abilities is important.
Also, you might end up getting a lesser financing loan than you expected. A RM600,000 home might turn out to be worth RM550,000 in the eyes of the bank after their valuation assessment. Consequently, you will be eligible for only RM495,000 instead of the expected RM540,000, which could put a dent in your prepared budget. Hence, it is always good to have a little more budget on hand for unforeseen circumstances.
To avoid any nasty shocks when applying for a home loan, make sure to find out what your debt-to-service ratio (DSR) is beforehand. The DSR is used by banks in Malaysia to assess your risk profile and to determine your borrowing power. Try our free home loan eligibility tool, LoanCare to gauge the property price that you can actually afford based on your income level. This tool will also compare your home loan eligibility instantly across 17 banks in Malaysia.
TIP: The Base rate set by banks may be fixed but you can negotiate on the spread/interest rate to obtain a lower Effective Lending Rate on your home loan. However, you should ensure that you have a good credit rating beforehand as the spread largely depends on the borrower’s risk profile.
5. Prepare the Inventory List and sign the Sales & Purchase Agreement
The Sales and Purchase Agreement (SPA) is a complex legal document that details out the terms and conditions of the sale. Do ensure all the details about the subsale home are properly described and spelt out – these include details on the renovations, additions, upgrades or extensions that were performed previously. It is essential to ensure all details correspond to what you have seen with your own eyes. For instance, the number of car park bays that comes with the condo unit that you are purchasing is clearly stated on the SPA to avoid any future dispute.
Before drawing up your SPA, do decide with the property seller which moveable items or fixtures will be removed or left in the home. You may do so by doing a site visit of the property and noting down all the items you want the seller to remove or to leave in the property.
For example, you might want to keep an existing antique clock for your new house, and may request for the seller to retain it for you. Once these items are agreed upon, they will be listed in the inventory list which will be set out in the SPA. The inventory list depicts the items that you will expect to find when you take over the vacant possession of the property. This document also forms part of the SPA that you will be signing off. Good communication with your seller is crucial and an agreement should be obtained before the real sign-off happens.
6. Confirm your loan agreement and property transfer
At this stage, your home loan agreement should be ready for you to sign off to confirm the financing from the bank. Assess and ensure the amount, interest rates, tenure and other terms and conditions on the agreement are accurate and conform to your financial abilities. It is worthwhile to have your lawyer to have a final look through to ensure legality and fairness. Once completed, you’re on your way to officially owning your home – to get it transferred to you by way of a Memorandum of Transfer (MOT) between you and the seller.
The MOT is a document that every property buyer must sign in in order to transfer the ownership of the property from the property seller to its new owner – this document lists down the particulars of the property seller and buyer and land title details for the knowledge and reference of the local land authorities. However, the MOT will only come into play when the name of the new owner needs to be registered on the strata or individual title by the local land authorities.
At this point, you will pay the remaining 7-8% of your home deposit to the bank. Besides that, other relevant fees (mentioned above) such as stamping fees and legal paperwork fees should also be paid.
TIP: If you are a first-time home buyer, you will be eligible for a full stamp duty exemption on the memorandum of transfer and loan agreement for the first RM300,000 (for purchases before 31 December 2020). The remaining amount of the property will be subjected to the prevailing rate of stamp duty.
7. Delivery of vacant possession of your subsale residential property
Vacant possession (VP) is the date for when you can expect to receive your keys to the property. The delivery of VP depends on the payment of the balance purchase price for the property and as well as the Agreed Apportionments, which is a list detailing all the bills which have been prepaid by the previous owner including the sinking fund, water bills and management fees. You will have to reimburse these additional monies to the owner as you have taken over the vacant possession and the seller will no longer be utilising the property and its facilities.
Usually, a 3+1 months timeline will be incorporated into the SPA to provide both the buyer and seller ample time to secure funding, move out and transfer the property ownership. Delivery of Vacant Possession is confirmed once the property seller delivers the keys to the buyer either personally or through the buyer’s lawyers. Upon which, you may move into the property. You are now officially a proud homeowner!
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This article is written by Geraldine and edited by Reena Kaur Bhatt.