Know the basics before buying a property

Buying a property can be a complex affair. To make it easier for you, here are some of the basic terms you should know prior to buying a property.

By Khalil Adis

Buying a property requires a lot of research in order for it to generate income. In Singapore, where I am from, it is fairly easy to know where the hotspots for property buying are. Being a small island, properties in Singapore tend to appreciate over time due to the “island effects”. Island effects refer to an area where land is scarce but there is always demand for property resulting in an increase in property prices. In addition, property-related information such as the future master plan and price trends are readily available on our government websites.

Malaysia, however, is a different animal altogether. Property information here are far and few between, and if available the data is usually not updated. In addition, Malaysia has vast land encompassing 13 states. This has made it challenging for anyone to navigate the property market across Malaysia.

In addition, Malaysians are very creative when it comes to the different property types, I’d say, even more so than Singaporeans. I mean you have SOVOs, SOFOS, SOHOs (you get my drift). Therefore, it is no wonder in can be a disorienting experience for those wanting to invest, especially if you are a newbie.

If you are thinking of buying a property but are unsure how to, fret not. There are basic rules that you can apply when buying a property. Whether you are a first-time home owner or a seasoned investor, this book will cover the different property types across Malaysia in locations that are very much sought after among local and foreign investors.

Here are the four basics before buying a property:

Basic number one: Leasehold or freehold?
These properties can be either freehold or leasehold. Both refer to the mode of holding the land (how long you can own the property for). In Malaysia, the most common mode of holding is via freehold (meaning you can own the property forever). However, of late, leasehold is becoming more common. Leasehold gives you a limited period to own the property which is usually 99-years or 129-years.

Basic number two: Residential property
Now let’s cover the first property type. Residential properties refer to properties that are used for your own stay, or what we call our “home sweet home”. In Malaysia, it is defined as “housing development” under the Housing Development (Control and Licensing) (Amendment) Act 2007 (HDA). This property type is a basic human need that is generally used for long-term occupation. While a residential property is usually used for your own stay, you can generate income from it if you were to sell the property or rent it out under this act, where owners are protected to use the property for “human habitation”. Whether you are living in a landed home or condominium or an apartment, you are essentially living in a residential property.

Basic number three: Commercial property
The second property type is commercial. Commercial properties refer to properties that are used to generate income. They include office, retail, shop lots, hotels and shop houses. As an investor, commercial properties enable you to collect rent, either on a monthly or quarterly basis. Some business owners buy a commercial property as it protects them from rising rental costs. This enables them to manage their cost more effectively. There are many types of commercial properties available in the market. The following are among some of the most common types in Malaysia: Office, SOVO/SOFO/SOHO, retail, shop lots, shop houses and hotel suites.

Basic number four: GST
As of 1 April 2015, GST of 6 per cent is applicable when you buy commercial properties across Malaysia. Do note, even if you had purchased your property before 1 April 2015, GST is still applicable when you service your loans. Assuming you had paid the first 10 per cent before 1 April 2015, then GST is not applicable. However, for the rest of the progressive payments, GST will be levied. Hence, you must ensure you do your financial calculation prior to signing your Sales and Purchase Agreement (SPA) as the GST component is quite substantial.

Khalil Adis is a property writer, author, speaker and consultant. The following excerpt was taken from “Property Buying for Gen Y” slated to be released at all good bookstores in April 2015. You can contact him at khalil@khaliladis.com. - StarProperty

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