Planning to buy a strata property? Here’s what you need to know about quit rent & parcel rent

The Selangor Land and Mines Office (PTGS) has replaced the land tax (quit rent) with parcel rent billing for stratified buildings. Let’s take a look at how this affects you as a homeowner.

apartment-flat-malaysia-condo

© Junee Lim | 123rf

The adoption of parcel rent billing came into effect on 1 June 2018. Under the old system, quit rent was charged to the Joint Management Body (JMB) of stratified buildings. Now, instead of billing the building management, parcel rent is charged to each individual unit owner.

Why the conversion to parcel rent?

The case of strata owners defaulting on maintenance and building fees including quit rent is still the largest thorn in the side of most management bodies. Many condominium or apartment owners fail to pay their duties on time and this has a cascading effect.

The change was made last year on June 2018 to help unit owners who want to sell or transfer ownership of the property. Before this, any owner who wants to sell or transfer ownership has difficulty in doing so if records at the land office showed that the other property owners still have not paid their rent.

Let’s say you decide to sell off your 5-year old condominium unit, it might not be possible as unbeknownst to you, a bulk of your neighbours have not been paying their quit rent over the years. This automatically means that the JMB of your strata building is currently owing PTGS up to a few hundred thousand ringgit in unpaid arrears!

READ: A beginner’s guide for strata property owners in Malaysia

With the new rent system, selling off or transferring the ownership of your property should be much easier.

Before this, any strata titleholder who wanted to transfer the ownership of their unit could find themselves unable to, if records at the land office showed arrears on the stratified building’s master title land tax. – Haniza Talha, Selangor Housing & Urban Living Committee chairman

The conversion was not without any hiccups – the change from quit rent to parcel rent shocked many strata owners as they saw a huge jump in their monthly land tax payments.

According to recent online media reports, the drastic increase that residents are seeing is between 500% to *800% from the previous amount. For instance, Peter Foo, 76, from Petaling Jaya has to now pay RM292 as compared to RM34.11 previously, for his housing unit, which is categorised as a commercial development. This is a 756% hike.

Here, we will share a brief guide for aspiring homeowners, on what they should know about land tax before buying a strata property in Malaysia.

MORE: What to do if your ‘new’ property has defects & 4 other must-knows about Defect Liability Period (DLP)

What is quit rent, anyway?

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It may seem like a rather unusual term at first, but quit rent is actually one of the most common and fundamental systems in Malaysia’s property scene.

Referred to as ‘cukai tanah’  in Malay, quit rent is a form of land tax which owners of local properties have to pay to the Malaysian government through the Land Office, or Pejabat Tanah Dan Galian (PTG).

This payment is calculated by multiplying the size of an owned property in square-feet or square-metres by a specified rental rate. For instance, if your property covers an area of 3,000 sq ft, and the specified rate is RM0.04 per-square-foot, your quit rent would be RM120.

The quit rent for properties that are of the exact same size may not necessarily be the same across Malaysia, though. This is because the specified rate differs from one state to another, so a 2,500 sq ft home in Penang can either be cheaper or more expensive than an identical unit in Kedah.

Additionally, and ironically, you cannot quit paying this rent either. It is charged annually, so you will need to pay your quit rent every year until you transfer the ownership of your property to someone else.

And what is parcel rent?

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Here’s a fun fact! The relationship between parcel rent and quit rent is just like the one between Neslo and mocha. They are essentially the same drink but are still different due to small variations.

In the case of parcel rent and quit rent, those small variations would refer to one main thing: strata.

To put it simply, parcel rent is actually a type of quit rent that is specifically meant for strata properties which are governed by the Strata Management Act (SMA) 2013 and the Strata Titles Act (STA) 1985.

What are the strata properties? These are properties or developments that are organised by splitting a piece of land or a building into parcels or boxes.

Popular forms of this class of properties include apartments, townhouses and gated housing communities. Ever been to Desa ParkCity? That is an example of a massive strata development!

Each parcel is owned by the party that purchases it from the developer, while common areas like parks or a swimming pool are recognised as general parcels which belong to the developer.

FIND OUT: How does DSR affect my home loan eligibility & how to calculate it?

Here’s why parcel rent is more expensive than quit rent

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If you think that these 2 rent payments are pretty similar, you might want to think again. There’s definitely more than meets the eye when it comes to these concepts, especially when you’re dealing with high-rise and multilevel buildings like apartments and condominiums.

With quit rent, the payment for an apartment building is divided between all the owners of parcels or units in that building. For example, if apartment Block A consists of 10 vertically-arranged parcels and covers an area of 4,000 sq ft, the quit rent of RM200 for that building – given a rate of RM0.05 per-square-foot – would be split amongst these parcels and each parcel owner would pay only RM20 a year as quit-rent.

In the context of a parcel rent system, however, each parcel owner would have to pay for that 4,000 sq ft and would be required to make individual payments of RM200 annually.

This would mean that each owner has to pay a higher amount than in a quit rent environment, but it also allows the Land Office to keep tabs on individual parcel owners and prevent them from defaulting on their rent payments, which is a very severe problem in high-rise strata buildings.

So why should I care?

You do not really have a choice – not paying your rent payments could lead you being chased out of your own house. Can you imagine that? Spending years paying your house loan just to be kicked out because of a tax. Refusing to pay your rent payments after two notices will result in the unit being taken back by the state government and can be sold/auctioned to another buyer.

So, please take note, especially for starters, when purchasing a property, it is always important to know and understand the kind of rent you’ll have to pay, particularly when you have to make these payments repeatedly for years, which would affect your finances.

It’s also good to know how this rent is calculated, as Land Offices across Malaysia have begun implementing parcel rent systems throughout the country, and the lines between strata and non-strata properties continue to grow unclear. As such, you wouldn’t want to be confused by a sudden change in your rent payment amount!

Last but not least? Regardless of whether it’s a simple quit rent system or a parcel rent system, you can’t avoid these payments. One good news for Selangor residents is that they can now pay their parcel rent online – PTGS has recently introduced an online payment method at ehasil.selangor.gov.my.

Before you start hunting for your dream home, be sure to find out what is the maximum amount that you can borrow from 17 banks across Malaysia. You can do this easily via the iProperty’s Home Loan Eligibility Tool also known as LoanCare in just three easy steps. 

*This article was repurposed from “Quit Rent & Parcel Rent: Here’s What You Need to Know Before Buying a House“, first published on Loanstreet.com.my | Edited by Reena Kaur Bhatt

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