New launch or subsale property in Malaysia - Which is better?

*This article was updated on 1 July 2022.

In the Malaysian housing market, deciding between a subsale house or a new launch property requires many considerations. This is especially true as we enter the post-pandemic era of 2022.

Buying a property can be a daunting experience, for first-timers, second-timers or even property investors. Whether you are buying to live in or for investment purposes, buying properties requires a lot of homework and research as one single mistake can cripple your finances.

One of the first questions most property buyers ask is: Should I buy a new launch unit (under-construction property) or a sub-sale one? How do you decide? Additionally, 2022 marks the beginning of the post-pandemic era which also requires a fresh new perspective.

Malaysia’s Home Ownership Campaign (HOC) ended in December 2021. The campaign, which carried exemptions for stamp duty on the Memorandum of Transfer (MOT), was an attractive feature for purchasing new launch properties. As things currently stand, stamp duty exemption will now be given to both instrument of transfer and loan agreement for the purchase of a first home worth not more than RM500,000. This means that purchase of subsale properties that meet the requirements are also eligible for the exemption

What is a new launch property?

The Malaysian property market favours the “sell and build” concept, where the developer starts selling before construction work begins. For property buyers, they would usually cross their fingers and hope for the best when they buy property off the plan from developers. If they are lucky, they will get a reasonably decent if not perfect unit plus they may see a significant appreciation in value once the project is complete.

New launch properties, otherwise known as under-constructions units, which belong to the primary market are popular among house buyers because of the discounts and rebates offered by developers.

Pros of buying a new launch property

Here are some pros and cons you need to weigh before you decide to buy a new property from a developer:

Information is easy to look for

It is very easy to spot a new development in the location of your choice. For all developer projects, you can just walk into their office or sales gallery or easily identify them at a property fair or launch.

The pandemic has also accelerated the adoption of digital marketing among property developers. In 2022, most new launch properties are announced and advertised on social media – quite a few housing projects featured virtual property listings too to enable home seekers to recce properties virtually from a safe place. A wealth of information and property guides on the current housing market is available online and this makes it easier for you to conduct your property research.

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Getting a blank canvas

You are going to be the first owner of the property. Everything from the fixtures and fittings to the unit’s paint job is going to be in the best condition. Knowing there are no previous occupants serves as a psychological peace of mind for owners.

Discounts galore

Perhaps the biggest advantage of purchasing a new launch property is the discounts and rebates that property developers often offer, especially for first-time homebuyers. These can even be in the form of free fixtures and fittings such as cabinets, wooden flooring, alarm systems, carpets and dishwashers as well as interior design or renovation packages.

All these offerings are meant to offset your down payment or cover part of the other upfront fees. However, you should be aware that sometimes these are mere marketing ploys and some property develops artificially inflate the prices of the property.

The choice is yours

The earlier you decide on your purchase the more options you have when it comes to choosing the best unit. So if you have set your mind on buying a particular development, being an early bird is advisable.

It comes with a warranty or defect liability period (DLP)

Brand new properties from the developer typically come with a defect liability period or DLP of up to 24 months. It entitles the owner to get the developer to rectify any defects in the unit, like a bathroom leakage, cracks in the wall, or door hinges that are not properly installed.

Cons of buying a new launch property

Financially locked until completed

When you buy an under-construction property, you will have to wait for three to four years until it is completed. During this time, your credit with the bank is locked away for the total loan sum and it will be difficult to buy another property.

You need to be able to spot defects

Earlier, we mentioned that you are protected by the Defect Liability Period (DLP). This acts like a warranty period where any defects in the property will be rectified by the property developer without any additional cost. However, you will need to be able to spot these defects upon receiving vacant possession (obtaining keys from the developer), especially the ones which are hidden from the naked eye!

You have the option of hiring skilled professionals through a new home defect inspection service. They usually inspect and run tests on all components of a home, such as architectural, electrical, and mechanical parts. However, if you are confident in your own knowledge and want to save some money, you can choose to inspect the house yourself.

Taking on more risks

As the project is yet to be completed, you don’t know exactly what it would be like. You will have to choose your unit and predict market demand. This includes the possibility of developments such as highways and public amenities like bus stops being built at their doorstep. Also, as you are buying the property based on plans and models, the quality is not guaranteed.

There are cases of developers abandoning the project due to a lack of financing, too. In fact, there have been a rising number of delayed housing projects in the past 2 years, as you can see here: Rising number of “sick” housing developments in Malaysia: Why is this happening?

This is why it’s important to conduct extensive research and choose reputable developers when buying off the plan.

What you see may not be what you get

Keep in mind that not all the fittings, furniture and electronics come with your purchase. Do ask the sales personnel about it and they will clarify what items are included and what are not.

You need to be patient

While having a warranty is good, developers may take a while to actually act on the defects and repairing one may cause another to crop up later on.

SEE WHAT OTHERS ARE READING:
How to make sure your home defects are fixed properly during the DLP?
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What is a subsale property?

Subsale properties are purchased in the open market or secondary market, – from the previous homeowner, most probably an individual.

When purchasing a subsale property, it is important to ensure that the owner is the legal owner of the property. You can obtain all relevant information on the property by conducting a land title search on the property at the relevant land office and get confirmation of the registered owner including finding out whether the said property has any encumbrances. By investing in a subsale property, investors know what they are actually getting for the money they paid – which leads us to our next point.

Pros of buying a subsale property

What you see is what you get

Get a real feel of what you are buying. When buying a property via a new launch, you can only imagine what the view would be like. But for a completed property, you can take a real look at the view. You also do not have to second guess how it will be. You can see the unit, the view, the finishing and also your neighbours. On top of that, real figures such as rental and transaction prices will be available.

Immediate cash flow available

When you buy subsale, you will be able to rent it out immediately and collect rent to pay for the mortgage. If you are lucky, you may also have an existing tenant paying rent at market price. Not having to spend money on real estate agent fees to get a tenant will already save you money.

No risk of construction delays

Completed properties are as-is and ready for you to play the role of landlord. Whereas with new launches, there is always a risk of not meeting their deadlines or developers can go missing, abandoning the project altogether.

Fast move-in

Once you’ve locked down a suitable property for yourself, it usually only takes about two months for the legal paperwork to be executed and you will be able to move into the property.

Cons of buying a subsale property

Can be challenging to look for potential properties

Looking for a good subsale deal means you need to view a range of individual units, in various conditions. You will have to inspect the condition of the units, market valuations and rentals of properties repeatedly till you find a suitable one. You will also need to negotiate with different owners, agents and lawyers. Check out our article on How to buy a subsale property in Malaysia in 7 steps.

Seller hazards

There are some seller hazards that you could face when you are in the midst of settling the deal. The seller may not want to sell the property or may increase the price. If the price is above the bank’s valuation, you will have to fork out your own money for the shortfall in the price.

Buyer hazards

Cheap really doesn’t mean good. If the seller is too keen to get rid of the property, to the point that he is willing to slash prices to get rid of it, then you should approach with caution. You wouldn’t want to end up having to deal with properties with previous cases of crimes or murder having taken place in them or if the previous owner got a loan from illegal money lenders with that address.

Additional fees

Unlike new property developments, subsale properties involve valuation fees and Real Estate Agent fees.

Valuation fees are the fees paid to professionals for evaluating how much the property is worth at today’s housing market value. They are calculated based on the following:

• First RM100,000 = 0.25%
• Next residue up to RM2 million = 0.2%

Meanwhile, property agent fees are usually borne by the seller but may occasionally be transferred to the buyer instead. They usually range from 2% to 3% of the property purchase price.

Costs of buying a new launch property Vs subsale property

	New launch property	Subsale property
Down payment	Minimum 10%, but most developers now offer at least a 2%-3% rebate, allowing you to fork out a lower down payment. Many developers also offer an early bird discount (should the buyer purchase a property during a campaign period or within 30-60 days).	Minimum 10%. Those purchasing their second or third property can expect a lower margin of financing from the banks, hence the downpayment can range from 20-30%.
Sale and Purchase Agreement (SPA) and 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%	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%
Stamp Duty on Memorandum of Transfer (MOT)	First RM100,000: 1% RM101,000 – RM500,000: 2% RM500,001 – RM1 million: 3% Above RM1 million: 4%	First RM100,000: 1% RM101,000 – RM500,000: 2% RM500,001 – RM1 million: 3% Above RM1 million: 4%
Stamp duty on SPA	RM10	RM10
Stamp Duty on Loan agreement	0.5% of the loan amount	0.5% of the loan amount
Miscellaneous	Mortgage insurance (MRTA/MLTA) Fire insurance Utility deposit Minor renovation costs (not compulsory)	Mortgage insurance (MRTA/MLTA) Fire insurance Electricity reconnection fee, water and sewerage reconnection fee Home repairs and refurbishments (this could vary greatly depending on the state/age of the property)
Valuation fees	Not applicable because the value of the property would have already been obtained by the property developer.	First RM100,000 = 0.25% Next residue up to RM2 million = 0.2%
Real estate agent fees	Not applicable because the property is sold directly by the property developer.	About 2% to 3% of property price

Below are price calculation examples between a new property launch and a subsale property which both have an initial cost of RM600,000. For the new property launch, the developer has offered a 2% downpayment rebate and a 3% early bird purchase discount.

Cost of new launch property

1. Down payment of 8% (2% rebate by developer) = RM48,000

2. SPA legal fees:

First RM500,000: RM500,000 x 0.01 = RM5,000
Next RM100,000: RM100,000 x 0.008 = RM800
Total = RM5,800

3. Loan Agreement legal fees:

First RM500,000: RM500,000 x 0.01 = RM5,000
Next RM500,000: RM40,000 x 0.008 = RM320
Total = RM5,320

4. Stamp duty on the MOT 

First RM100,000: RM100,000 x 0.01 = RM1,000
RM101,000 to RM500,000: RM400,000 x 0.02 = RM8,000
Next RM100,000: RM100,000 x 0.03 = RM3,000
Total = RM12,000

5. Stamp duty on SPA = RM10

6. Stamp duty on the Home loan

0.5% of the loan amount
0.5% X RM540,000
Total = RM2,700

7. Early bird discount (3%) = -RM18,000

The total amount require to be paid upfront for the new launch property = RM55,830

Alternatively, you can use this Stamp Duty and Legal fee Calculator for easy calculation.

Cost of a subsale property

1. Down payment (10%) = RM60,000

2. SPA legal fees:

First RM500,000: RM500,000 x 0.01 = RM5,000
Next RM100,000: RM100,000 x 0.008 = RM800
Total = RM5,800

3. Loan Agreement legal fees:

First RM500,000: RM500,000 x 0.01 = RM5,000
Next RM500,000: RM40,000 x 0.008 = RM320
Total = RM5,320

4. Stamp duty on the MOT:

First RM100,000: RM100,000 x 0.01 = RM1,000
RM101,000 to RM500,000: RM400,000 x 0.02 = RM8,000
Next RM100,000: RM100,000 x 0.03 = RM3,000
Total = RM12,000

5. Stamp duty on SPA = RM10

6. Stamp duty on the Home loan

0.5% of the loan amount
0.5% X RM540,000
Total = RM2,700

7. Property valuation fee:

First RM100,000 = RM100,000 x 0.0025 = RM250
Residue of RM500,000 = RM500,000 x 0.002% = RM1,000
Total = RM1,250

The total amount require to be paid upfront for the subsale property = RM87,080

With under-construction or new launch properties, you may fork out fewer upfront costs, as the developer may offer discounts and rebates to offset your down payment, or cover part of the other upfront fees. But you should also be aware that some developers may artificially inflate property prices to offer seemingly attractive rebates.

So whether you’re buying a property to stay in or invest in, you must research sufficiently to ensure you do not buy an overpriced property or a property that you will have difficulty re-selling or putting it up for rent.

If you enjoyed this guide, read this next: When buying secondary market property, make sure your lawyer applies for a “Certificate” to check for outstanding charges

This article was repurposed from “Under Construction Vs. Sub-sale Property: What To Consider?” on iMoney.com.my