Welcome to Malaysia! Here’s How to Expand Your Industrial Property Portfolio in Selangor, Malaysia
Malaysia ! The beautiful Malaysia! The land of opportunities welcomes foreign investors while making sure their interest is protected with well- regulated with financial and practical oversight of every important aspect of your industrial property purchase. From construction to property loans, Malaysia has established a foreigner friendly policy. Your journey to Malaysian Industrial Property Expansion Begins Here!
Can Foreigners Buy Industrial Property in Malaysia?
Foreigners should abide by specific requirements and restrictions enforced under the National Land Code 1965 (“NLC 1965”) and the Guidelines on the Acquisition of Properties (“EPU Guidelines”) issued by the Economic Planning Unit (“EPU”), before proceeding with the purchase of any industrial property in Malaysia. It is interesting to note that land is a State matter ie. the rules vary by State. The focus of this article is to provide examples of buying an industrial property in Selangor, the State which recorded the highest foreign direct investment in Malaysia.
Definition of a Foreigner
The definition of a foreigner can be found in the primary legislation which is the NLC 1965. Section 433A of the NLC 1965 and the Companies Act 2016, define a foreigner as follows:-
1. “Foreign Company” is either
(a) a company, corporation, society, association or other body incorporated outside Malaysia
(b) An unincorporated society, association or other body which under the law of its place of origin may sue or be sued, or hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia
(c) A company incorporated with 50% or more of voting shares held by non-citizen/foreign company or by both; OR
(d) A company incorporated with 50% of more of voting shares held by company in (c);
Therefore, a foreigner can be summed as an individual who is a non-citizen of Malaysia or an entity that is a Foreign Company.
Six Specific Requirements
When purchasing a property in Malaysia, foreigners should look into and comply with the following six (6) main requirements :-
1.Minimum Purchase Price
4.Economic Planning Unit
5.Entry Transaction Costs
This article is aimed to guide foreigners on how to purchase industrial property specifically in Selangor, Malaysia.
1.Minimum Purchase Price
This is the first requirement that a foreigner needs to be aware of.
What is “minimum purchase price”? A foreigner can purchase an industrial property in Selangor if the purchase price of the industrial property is above a certain threshold. The threshold applicable depends on each state and is generally set by the state government and each respective state at a high value.
This is to ensure that the general property market in Malaysia is not driven or owned by foreigners.
In Selangor, the minimum threshold for foreigners to acquire an industrial property is RM 3,000,000.
The next important requirement that a foreigner needs to be aware of is the types of property that they are allowed to purchase. Generally, as long as the property is above the minimum threshold, a foreigner can purchase the property.
However, there are certain properties that are off-limits to foreigners. Below are the types of property that are off-limits to foreigners:-
• Industrial Properties valued at less than RM 3,000,000;
• Low or Low-Medium Cost factories;
• Properties with a description of “Malay Reserved Land”;
• Any property allocated under “Bumiputera interest” in a development project.
• Agricultural land (however, it should be noted that foreigners are not permitted to acquire agricultural land except by way of lease)
3. Foreigner Consent
Apart from the two requirements above, a foreigner purchasing industrial property in Malaysia must be made aware of the requirement to apply for foreign consent.
Pursuant to the NLC 1965, Section 433B provides that prior approval from the relevant State Authority is required for any acquisition of property by non-citizens and foreign companies.
Each State Authority in Malaysia has its own internal way of approving this foreigner consent. Applicants are required to submit forms and application fees to be paid; and each state has its own application fee sum. As a rule of thumb, as long as the first two requirements above are met, the application should not be rejected.
Foreigners need to find out whether purchasing the property would require approval from the Economic Planning Unit (“EPU”). EPU is another government body under the Ministry of Economic Affairs. Hence the purchase of property by a foreigner may require EPU’s Approval.
EPU has come out with its own guidelines and is effective from 1 March 2014. In accordance with the Guidelines on the Acquisition of Properties (“EPU Guidelines”) (click here), there are two situations that would require EPU’s Approval for the acquisition of property.
The first situation is when there is a direct acquisition of property valued at RM20million and above which results in the dilution in the ownership of property held by a Bumiputera interest and/or government agency.
The second situation is when there is an indirect acquisition of property by other than Bumiputera interest through acquisition of shares, resulting in a change of control of the company owned by a Bumiputera interest and/or government agency, having property more than 50% of its total assets, and the said property is valued more than RM20million.
If any Foreigner purchases industrial property which falls within these two situations, EPU Approval is required for such a purchase and transfer of the industrial property to take place. Hence, it is crucial to examine shareholders of the company who is the vendor.
5. Entry Transation Costs
5 (a) Stamp Duty
Property purchases in Malaysia are subject to payment of stamp duty by the Purchaser at the point when the Memorandum of Transfer (MOT) is stamped. This is in accordance to Stamp Duty Act 1949 and its amendments.
Stamp duty rate on Loan Agreement payable by borrower is 0.5% of Loan Amount.
5 (b) Legal Fees
Solicitor’s Remuneration Order 2005 outlines the legal fees payable for the preparation of Sale and Purchase Agreement including registration of transfer as well as preparation of security / loan documents.
5 (c) Valuation Fees
In the event the Purchaser takes a loan or would like to conduct its own valuation to verify the value of property (in the absence of Valuation report prepared by Vendor), Valuation fees in accordance to Scale of Fees (Schedule 7) of Valuers, Appraisers and Estate Agent Rules 1986 are as follows :-
6 (a) Real Property Gain Tax (RPGT)
RPGT is a form of tax levied by the Inland Revenue Board of Malaysia on capital gains arising from the disposal or sale of real property or shares in a real property company (RPC). If there is a loss on disposal, no RPGT is payable.
Through Budget 2019, a few changes were made to the Real Property Gains Tax Act 1976 pertaining to RPGT. Amongst others, the increase the retention sum from 2% to 7% of the Purchase Price for a property owner who is a foreigner; and the change of RPGT rates. Latest RPGT rates levied on changeable gains made are as follows
6 (b) Legal Fees
Legal fees is payable for the preparation of Sale and Purchase Agreement (similar to legal fees payable upon Purchase). Vendor and Purchaser are to appoint Separate Solicitor to protect their respective interest.
6 (c) Estate Agent Fees
By engaging an experienced industrial real estate agent will ensure the interest of the Vendor is well protected as the Vendor remunerates the estate agent.
The scale of fees capped at 3% of Disposal price is governed by Schedule 7 of Valuers, Appraisers and Estate Agent Rules 1986.
Malaysia is a foreigner-friendly country and does not stop foreigners from purchasing industrial properties in Malaysia; whether it is for the purpose of own manufacturing use or for investment. However, a foreigner would need to comply with specific requirements set out to buy and own properties in Malaysia. Hence, it is important for foreigners to be aware of these requirements.
How to Buy An Industrial Property In Malaysia As A Foreigner
We have gone through the rules and regulations, as well as the eligibility for criteria. So what about the process? Here’s a super simple step by step.
Step 1: Explore the industrial properties for sale in Malaysia to find the right one that meet your requirements.
Step 2: Submit intention to buy through a Letter of Offer or developer’s sales form with intent to purchase, and agreed upfront payment (usually 2%).
Step 3: Apply for financing of property if required. The margin of finance available with Malaysian banks varies depending on your financial standing
Step 4: Provide your lawyer with the relevant documents
Step 5: Within 14 days of letter of offer, a Sale and Purchase Agreement (SPA) should be signed. This lays out the terms and conditions of the sale, including details of what is covered in the sale such as infrastructures to be provided. At this stage, a 10% down payment is required. The 2% paid at Step 2 contributes towards this 10% deposit total.
Step 6: With the agreement made, your solicitor will apply for final state authority consent. It’s important to make sure your property meets the noted requirements by state prior to this point.
Step 7: Pay the remaining balance of 90% on the property purchase price as defined under the SPA.
Step 8: Developer delivers vacant possession within 24 or 36 months under development. In subsale/secondary market purchases, the transfer date is based on the agreed timeframe as per the SPA, and signing of the Memorandum of Transfer.
We would be pleased to provide solutions to your tenancy requirements for factory and warehouse including sublet. Do contact Joyce at +6017 333 8007 or firstname.lastname@example.org to learn more about the industrial property we have that is up for sale or rent!