A beginner’s guide to the Memorandum of Transfer (MOT) and Stamp Duty in Malaysia

The Memorandum of Transfer is one of the first and last pieces of documents that every home buyer will sign in their ownership of a property, while stamp duty is a tax imposed on documents in the sale or transfer of a property.

© Theerapan Bhumirat | 123rf

Acquiring a property is a significant life milestone. However, the process can be tedious. It may take months or years and the number of documents and procedures you have to deal with can be mind-boggling!

Most home buyers are familiar with Sale and Purchase Agreement (SPA) and loan agreement, but few understand the significance of a particular supporting document – the Memorandum of Transfer (MOT). How is this simple piece of paper important? Aren’t all the terms and conditions of your purchase already laid out in the SPA?

The short answer is an MOT enables you to have your name registered on a land title. Below are some key elements about the Memorandum of Transfer that could help you understand its role in home ownership.

1. What is the Memorandum of Transfer?

An MOT forms part of the documentary package that a buyer of a new property (strata or individual title) must sign in order to transfer the ownership of the property from the developer (or in the case of a subsale property, from the proprietor) to its new owner.

Oftentimes, if a bank loan is taken out to finance the purchase of the property, the MOT is prepared and signed together with the Sale and Purchase Agreement and loan documents. This way, the home buyer would be spared the hassle of multiple visits to the lawyer’s office to sign the documents. An exception to this is when a property is still under construction, the home buyer will sign the MOT once the strata or individual title has been issued.

While the signing of the MOT confirms the intention to transfer ownership, in reality, the MOT only comes into play when the name of the new owner needs to be registered on the strata or individual title by the land authorities. In other words, when the proprietor/developer/seller (transferor) is giving ownership of the land or subdivided parcel to the homebuyer (transferee). The MOT is basically a document that lists down the particulars of the seller and buyer and land title details for the knowledge and reference of the land authorities.

This process usually happens behind-the-scenes. The buyer would only be aware that transfer of ownership has occurred when they receive a letter or phone call informing them that the new title is ready for collection. In secondary market purchases, the buyer would usually receive vacant possession and keys to the property along with the new title. When purchasing from a developer, the buyer would receive the new title a few years after receiving the house, keys and vacant possession as in most cases the master title would not have already been subdivided. Recently however, steps have been taken to enable buyers of primary property to receive their subdivided title along with the house and other key documents from the developer.

While the above applies to buyers of property, the MOT is also used to transfer ownership of property between spouses and from parents to children. More often than not, transfers of property between family members do not involve an exchange of money. As such, a Sale and Purchase Agreement would not be used in those circumstances.

2. What are the steps and documents involved during Transfers of Ownership?

First, an MOT form (Form 14A) will be prepared bearing the names of the transferor (current owner) and transferee (new owner) and their addresses as well as the title details of the property.

Transfers must be for a form of consideration such as monetary value or love and affection, which would be spelt out in the MOT. For an MOT to be legally effective, the document must be stamped and adjudicated at the Inland Revenue Board and the stamp duty paid.

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At the same time, if a bank loan had been taken to pay for the property, a Memorandum of Charge (MOC) will also be prepared to be signed by the borrower and lending bank. The MOC (Form 16A) is to inform the land authorities that the bank has the beneficial ownership or charge over the property and in the event that the borrower defaults on the loan, the bank may seize and auction the property to recover the balance of the defaulted loan. The MOC must also be stamped and the stamp duty paid on the value of the loan.

Once the MOT and MOC have been signed and stamped, and a requisite fee payment is made (usually RM100 each for the MOT and MOC), the documents along with the current land title will then be registered in the records of the land authorities. A revised title will be issued with the ownership and charge listed on the title.

NOTE: Titles that have been charged to a bank will be kept by the bank until the loan has been paid. Thereafter, the discharge procedure will be initiated by the borrower to have details of the bank removed from the title.

READ: What is a Strata Title and Why is it important for homeowners?

3. What happens if the property’s title has not been issued?

The MOT is only used for transfers of ownership of property where the title has already been issued. In cases where the title to the property has already been issued but the seller has not transferred the title over to his name (also known as perfected the title) and now wants to sell his property, the transfer of ownership to the buyer could happen either through a Direct Transfer or Double Transfer.

A Direct Transfer is where the developer consents to transfer the ownership in the title directly to the buyer and only the developer and new buyer would sign the MOT. This is quite common for freehold properties with non-perfected titles.

A Double Transfer is where the developer doesn’t consent and a transfer of ownership from developer to seller and seller to new buyer would have to be done. This is a fairly lengthy process as two MOTs would have to be signed and registered and the title would have to be doubly revised. Most Double Transfers happen to leasehold properties where the seller has not perfected the title.

In cases where the developer has not applied for the subdivision of the master title into either the strata or individual title, a Deed of Assignment would be used to record the transfer of ownership of the property from the seller to the buyer or between spouses, parent and children. Additionally, a document called the Developer’s Consent must be obtained along with the Deed of Assignment.

4. What is Stamp Duty? How does it relate to the Memorandum of Transfer?

All properties are subject to tax in Malaysia and the sale and transfer of a property is no different. One area that home buyers should budget for is the stamp duty imposed on the MOT. A stamp duty is the fee to be paid on the instruments of transfer (MOT) and charge (loan agreements), and falls into two categories:

Ad Valorem: calculated based on the value of the property or loan agreements

Nominal duties: chargeable on a fixed duty depending on the type of legal document. Most commonly legal agreements, copies of policies and agreements

Calculation of Stamp Duty

The stamp duty for the sale and transfer of a property is calculated based on the purchase price. In addition, if a loan was taken out to finance the purchase of the property, the stamp duty payable would be a flat rate of 0.5% of the total loan amount.

Under Budget 2019, the stamp duty rates were increased from 3% to 4% for properties costing more than RM1 million, and are calculated on a tiered basis as follows:

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%

Say for instance you purchased a property valued at RM600,000 and you took a loan of RM540,000. Your total stamp duty would be:

(First RM100,000 x 1%) + (Next RM400,000 x 2%) + (Remaining RM100,000 x 3%) + (RM540,000 x 0.5%)
= (RM1,000 + RM8,000 + RM3,000) + (RM2,700)
= RM12,000 + RM2,700
= RM14,700

5. What are the available stamp duty exemptions in 2020?

While this is a substantial sum to pay, the government under its recent short-term economic recovery plan (PENJANA) has reintroduced the Home Ownership Campaign (HOC 2020) which offered significant reductions to the stamp duty payable for qualified home buyers.

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Stamp Duty Exemptions under Homeownership Campaign

Under HOC 2020, Malaysian home buyers who sign and stamp their SPAs from June 1, 2020 to May 31, 2021 may receive full stamp duty exemption on their MOTs and loan agreements depending on property value.

Take note that this only applies to residential properties. SOHOs, SOVOs, SOFOs and serviced residences designated for commercial use are not eligible. Also, the property must be from the primary market, i.e. homes that have been launched or completed.

MOT STAMP DUTY (% of property price)
First RM100,000 Exempted
RM100,001 – RM500,000 Exempted
RM500,001 – RM1,000,000 Exempted
RM1,000,000 – RM2,500,000 3%
LOAN AGREEMENT  
Up to RM2,500,000 Exempted

CHECK OUT: Home Ownership Campaign (HOC) extended until 2021! Here’s what homebuyers should know

Stamp Duty Exemption for First Time Home Buyers

First time home buyers who do not qualify under HOC 2020 might be able to enjoy stamp duty exemption under the Stamp Duty (Remission) Order 2019 depending on the value of the property. For residential properties in both primary and secondary markets valued under RM300,000, the full stamp duty of RM5,000 is exempted whereas for properties valued between RM300,000 to RM500,000, the first RM300,000 is exempted and the remaining amount would be subject to the prevailing stamp duty rate.

For example, if your first home is valued at RM500,000, your stamp duty calculation would be:

(First RM100,000 x 1%) + (Next RM400,000 x 2%) – RM5,000
= (RM1,000 + RM8,000) – RM5,000
= RM9,000 + RM5,000
RM4,000

Stamp Duty Exemptions for Transfers between Loved Ones

As mentioned above, transfers of ownership between family members or loved ones would come under “love and affection” and are subject to certain exemptions on the stamp duty. Note however that this is only applicable to transfers between husband and wife, and parent and child.

Transfers between spouses will be exempted from stamp duty, while between parent and child, there is a 50% exemption.

Transfers between siblings or cousins or between boyfriends and girlfriends, however are subject to the full stamp duty rate.

Are there any other closing costs when buying a house?

Besides stamp duties on MOTs and loan agreements, buyers would need to be aware of the following closing costs when purchasing a residential property in Malaysia:

Real Property Gains Tax (RPGT)

RPGT is tax you pay when you sell your property. The rates are between 5% to 30% depending on how long you have owned the property. RPGT is only payable if you profit from the sale. For more information on RPGT, refer to this guide.

Legal fee

The fee your lawyer will charge you for the Sale and Purchase Agreement in your property purchase is based on a scale that corresponds with the property value.

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%

Other costs that come under legal fees include land searches, land caveat fees, title issuance fees and other miscellaneous disbursements.

Valuation fee

This is applicable if you take a bank loan to finance the purchase of a property. All banks would require valuation by an independent land surveyor on a property before they approve a loan. This land surveyor fee is charged by the bank and included in the bank’s Letter of Offer, so do check your Letter of Offer properly before signing it to avoid any unwanted surprises.

The surveyor fee is calculated based on a percentage of the property value:
For the first RM100,000 = 0.25%
Next residue up to RM2 million = 0.2%

Agent fee

Buyers of secondary properties usually engage a property agent or broker and the fee payable to the agency is usually 2% to 3% of the property value. Oftentimes, this would come out of the initial 10% earnest deposit paid at the beginning of a property purchase. Having said that, some agencies might charge less than that amount or as a fee that is separate from the earnest deposit payment.

Mortgage insurance – MRTA/MLTA

Most banks nowadays would require buyers to purchase some form of insurance on the property in a housing loan to protect the value of the property. The most common would be Mortgage Reducing Term Assurance (MRTA). The cost of MRTA is largely dependent on the age of the borrower and the total mortgage on the property (roughly 3% to 5% of the total mortgage). Another insurance offered by banks is Mortgage Level Term Assurance (MLTA) which provides for the repayment of your outstanding home loan as well as a guaranteed cash value back at the end of the scheme.

And there you have it – a simple but crucial document that stands between you and having your name registered on a land title.

Are you looking for great property deals? Search for your dream home from this list of new projects starting from RM 266,000!

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