Hidden costs you should know when buying a property

Hidden-costs

When considering buying a property, it is not just about having sufficient money to pay for your down payment and you are set to go. If you do not know the hidden costs (after you have booked your property), you will be in a big surprise when you later discover you have to pay a lot more which can be outside your initial budget.

When buying a sub-sale property, you would need to pay a 10% down payment as most banks only offer financing of up to 90% (for the first two residential properties) of the property price. For the purchase of a third property, the margin of financing is not more than 70% of the purchase price.

For new properties, a lot of developers nowadays would normally give a rebate of up to 10% or more to encourage people to buy as there is no need to fork out any down payment at all.

In addition, purchasers must know there are other hidden costs involved in every property purchase. They can be quite substantial especially if the property purchase price and financing amount is high.

In this article, we will look at the following costs which you must be aware of before making any commitment to purchase any property:

1. Sale & Purchase Agreement: Legal fees, stamp duty & disbursements
2. Loan Agreement: Legal fees, stamp duty & disbursements
3. Memorandum of Transfer: Legal fees & stamp duty
4. Valuation fees (sub-sale property)
5. Home repairs/renovation costs (sub-sale property)

1. SALE & PURCHASE AGREEMENT (S&P):

A. Sale & Purchase Agreement Legal Fees:

Professional Legal Fees (latest update – starting from 15th March 2017):

For The First RM500,000.00 – 1.0% (subject to a minimum fee of RM500.00)
For The Next RM500,000.00 – 0.80%
For The Next RM2,000,000.00 – 0.70%
For The Next RM2,000,000.00 – 0.60%
For The Next RM2,500,000.00 – 0.50%

B. Stamp Duty: The stamp duty chargeable is RM 10.00 per copy.

C. S&P Disbursement Fees (stamp duties, searches fees, transportation charges, registration fees, printing charges, etc.): Only a few hundred Ringgit.

2. LOAN AGREEMENT (Starting From 15th MARCH 2017):

A. Professional Legal Fees:

For The First RM500,000.00 – 1.0% (subject to a minimum fee of RM500.00)
For The Next RM500,000.00 – 0.80%
For The Next RM2,000,000.00 – 0.70%
For The Next RM2,000,000.00 – 0.60%
For The Next RM2,500,000.00 – 0.50%

B. Loan Agreement Stamp Duty: Total loan amount x 0.5%

Exemptions (for the purchase of 1st home only):
Loan agreement up to RM300,000: 100% exemption given on stamp duty
RM300,000 x 0.50% = RM1,500 (exempted)

Example:
Loan Agreement stamp duty:
RM500,000 x 0.50% 2,500.00
Exemption Amount 1,500.00
Balance to Pay 1,000.00

QUICK MENTAL CALCULATION:
RM500,000 x 1% = RM5,000 divided by 2 = RM2,500
Remember to less RM1,500 exemption for the purchase of 1st house

Loan Disbursement Fee (registration of charge fee, land search fee, bankruptcy search fee and solicitors attending to the financing documentation etc.): Ranging from RM1,000 to RM1,500.

3. MEMORANDUM OF TRANSFER (MOT)

The MOT is a document to transfer ownership of title from developer to the buyer.
For new properties under construction, it is not so soon buyers are required to pay for the MOT stamp duty as developers are normally not in a position yet to apply for individual titles under the master title. Depending on the size of development and the developer, it may take 6 months (from vacant possession date) to several years for the individual titles to be issued by the authorities (after the application for subdivision of the master title by the developer).

MOT Stamp Duty: This is the stamp duty for transfer of ownership title . It is payable by the purchasers/transferees at these rates:

2017 STAMP DUTY RATE
1% on the first RM100,000 of the value of transfer;
2% on the value of transfer of the next RM400,000; and
3% on the value of transfer of more than RM500,000.

2018 STAMP DUTY SCALE
First RM100,000 1%
RM100,001 to RM500,000 2%
RM500,001 to RM1,000,000 3%
RM1,000,001 and above 4%

Exemptions (for the purchase of 1st home only):
Up to RM300,000: 100% exemption given on stamp duty

Example 1:
First RM100,000 1% 1,000.00
RM100,001 to RM300,000 2% 4,000.00
Total 5,000.00 (exempted)

Example 2:
Property Price RM500,000
Property Stamp duty:
First RM100,000 1% 1,000.00
RM100,001 to RM500,000 2% 8,000.00
Total 9,000.00
Exemption Amount 5,000.00
Balance to Pay 4,000.00

QUICK MENTAL CALCULATION:
1st RM500,000: RM9,000
RM3,000 stamp duty for every RM100,000 onward (from RM500,001)
E.g. If RM1,000,000, it will be RM15,000 (RM3,000 x 5) + RM9,000 = RM24,000
Remember to less RM5,000 (100% exemption up to RM300,000) for first time home buyer

4. VALUATION FEES (SUB-SALE PROPERTY)

Valuation fees is the fees paid to valuers for valuing the sub-sale property where formal valuations are required by banks.

There is a standard scale for valuation:
1/4% on the first RM100,000
1/5% on the residue up to RM2 million
1/6% on the residue up to RM7 million
1/8% on the residue up to RM15 million
1/10 on the residue up to RM50 million
1/25 on the residue over RM50 million

Source: http://lppeh.gov.my/WP2016/fees/

Minimum Fee: Subject to a minimum fee of RM400 per property.

5. HOME REPAIRS/RENOVATION COSTS (SUB-SALE PROPERTY)

When buying a sub-sale property, you must set aside some money for some repairs (e.g. leaking pipes/roof), new tiles and new coat of paint etc. All these minor touch ups costs money.

Conclusion

To avoid paying the down payment, look for property launches where the developer offers rebates of at least 10%. However, most developers have conditions attached to the rebates given. For example, when they offer rebates of 8% +2% (10%), the developer would most likely require you to sign the S&P within 21 days in order to be eligible for the 2% rebate.

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