Due diligence is an essential requirement when buying property in Malaysia. However, it can be challenging for foreigners, especially those who have yet to learn what due diligence applies. This article will discuss the nuances of conducting real estate due diligence in Malaysia and tackle crucial information for an effective property-buying process.
What is due diligence when buying a property in Malaysia?
Due diligence refers to the reasonable steps taken by an individual to fulfill a legal requirement, particularly in the context of buying or selling property. Legal due diligence in Malaysia when buying property includes title verification, home inspection, financial evaluation, and more. These background checks ensure the buying process is in order and help identify any potential issues or liabilities associated with the property, whether legal, financial, or physical. Foreign buyers can ensure that the property they consider is a sound investment by conducting thorough real estate due diligence in Malaysia.
Malaysia real estate due diligence checklist
Various aspects of the due diligence process are required when buying property in Malaysia. Below is the Malaysia real estate due diligence checklist you need to consider.
Title verification
Checking the title deed to verify the legitimacy of a property is an essential due diligence in Malaysia. A title deed is a legal document that proves ownership of a property. It contains information about the property’s size, location, and the owner’s rights. This document is essential for transferring ownership from one person to another. Conducting title verification is a fundamental due diligence to safeguard against fraud and ensure the deal’s legitimacy.
To obtain official verification and a physical copy of the title deed of a property in Malaysia, you can visit the Land Office in the state where the property is located. You must provide the property’s title number or other relevant details to access the records and pay a disbursement fee typically ranging from RM 10 ($2.10) to RM 50 ($10.50). Furthermore, many Land Offices in Malaysia now offer convenient online services for title searches and payments. For example, you can conduct a private title search and make payments at the Kuala Lumpur Land Office via its e-Tanah portal.
Property inspection
A property or home inspection is another essential step in conducting real estate due diligence in Malaysia. Home inspections are non-invasive assessments of a home’s condition, typically conducted before a sale. This property due diligence in Malaysia is performed by trained professionals who identify potential issues, such as necessary repairs or maintenance. While buyers often request inspections, sellers may also initiate them to address potential problems and increase the property’s appeal. It can help buyers and sellers make informed decisions about the transaction. Home inspection costs around RM 500 ($105) to RM 1,000 ($210) for a property below 1000 square feet and RM 800 ($168) to RM 1,500 ($315) for properties 1,000 to 1,600 square feet.
Legal and regulatory due diligence
It is essential to conduct due diligence in Malaysia concerning foreign property ownership. Researching or finding legal advice to buy property in Malaysia is necessary. As background, foreigners can purchase property in Malaysia but must adhere to specific regulations, including:
- Property price threshold: Depending on the state, a minimum threshold exists for properties allowable for sale to foreigners. Properties valued at less than RM 1 million ($210,000) are not allowed for sale.
- Properties built on Malay Reserved Lands: The properties built on Malay Reserved Lands are exclusive to Malay and cannot be rented or sold to foreigners buying property in Malaysia.
- Low and medium-cost housing: Low and medium-cost housing is intended for local citizens.
- State-level variations: Land laws and restrictions can differ between states and federal territories.
Furthermore, understanding lease agreements falls within Malaysia’s scope of legal due diligence. Verify the type of property tenure, whether freehold or leasehold and review the lease terms and any renewal options if you buy a leasehold property. Moreover, ensure that any development plans or projects affecting the property are duly approved.
Financial due diligence
Financial due diligence is included in the due diligence checklist that you must consider. This step involves property valuation to establish the purchase price. Professional valuers use their expertise in assessing the property’s location, condition, and other relevant factors to determine its market value. This valuation helps buyers establish a verified and accurate price offer for the property.
Licensed property valuers in Malaysia charge fees based on the property’s market value, as outlined in the seventh schedule of the Valuers, Appraisers, and Estate Agent Rules 1986. The fees are typically paid by the property buyer and follow a sliding scale shown below:
| Property market value | Valuation fee |
|---|---|
| First RM 100,000 ($21,000) | 0.25% |
| Next RM 2 million ($420,000) | 0.20% |
| Next RM 7 million ($1.47 million) | 0.167% |
| Next RM 15 million ($3.15 million) | 0.125% |
| Next RM 50 million ($10.5 million) | 0.10% |
| Next RM 200 million ($42 million) | 0.067% |
| Excess over RM 500 million ($105 million) | 0.04% |
How to perform due diligence for real estate?
Conducting due diligence can be done personally; however, professionals like lawyers and valuers are required to aid in the professional aspects of the process. These professionals are essential for the thoroughness of the due diligence process since their expert insights provide solid bases for financial decisions. A property lawyer can explain to you the conditions that must be respected and can take care of the formalities of the purchase process. A property inspector can ensure the property’s quality, and insights from a professional valuer can help you make an accurate price offer. Finally, your presence is significant in the conduct of due diligence. Get involved in the whole due diligence process since your opinion matters.
Common pitfalls during a property due diligence in Malaysia
There are pitfalls during property due diligence, and it is essential to recognize them to ensure the process is successful. Below are the pitfalls of real estate due diligence in Malaysia:
- Rushing the process: Due diligence is not a one-day process you can rush. It includes numerous steps and requires sufficient time for a thorough investigation. This is a common pitfall for foreign buyers when buying property in Malaysia.
- Failing to verify title and ownership: Issues arising from failure to verify title and ownership are often caused by fraudulent titles, unclear ownership structures, and multiple property claims. Individuals may attempt to sell properties they do not rightfully own by forging documents, making false inheritance claims, or exploiting gaps in previous transactions. Ownership disputes can arise due to undefined joint ownership, inheritance conflicts, or missing documentation. In some cases, multiple parties may claim ownership of a single property.
- Underestimating legal and financial costs: You will incur expenses when conducting legal due diligence in Malaysia. Fees can be substantial in cases involving complex transactions or requiring professional help from lawyers or valuers. It is essential to account for the price of conducting due diligence when buying property in Malaysia.
Frequently Asked Questions (FAQs)
What is the timeline for property due diligence?
The timeline for property due diligence in Malaysia can vary depending on the complexity of the transaction and the specific requirements of the property you’re interested in. The first phase of the due diligence process involves preliminary checks, initial research, and evaluation. The second phase involves detailed evaluation; the last stage is the final decision and closing of transactions.
What is legal due diligence in Malaysia?
Legal due diligence in Malaysia is a comprehensive process that involves reviewing various legal aspects of a property or transaction. It aims to identify potential risks, liabilities, and legal issues that could affect the deal.
Why do foreigners need to perform due diligence in Malaysia?
Foreigners must perform due diligence in Malaysia to ensure the property they consider is a sound investment. Due diligence is a tool for mitigating issues over a property, avoiding future expenses, and ensuring they get the best deal.
How long does the due diligence process take?
Due diligence in Malaysia takes weeks to months, depending on the processes involved, requirements, and their complexities.
