Foreign purchasers searching for Malaysian investment property: Thresholds and restrictions for property in Kuala Lumpur and Selangor (updated for the year 2020)
There has been a recent influx of interest in Malaysian properties by foreign property investors with the emergence of some bargain hunting opportunities in Malaysia’s still soft property market. Since the announcement of Budget 2020 last year, the government has decided to reduce the thresholds for high-rise buildings in urban areas for foreigners in Malaysia. However, this announcement is currently being followed only by the Federal Territory of Kuala Lumpur, and not the other State Governments.
Property investment in Malaysia, primarily in Kuala Lumpur and Selangor, offers potentially attractive returns in both rental yields and capital gains. This is due to Malaysia’s steady economic development, a relatively young working population, and increasing infrastructure connectivity throughout Malaysia, including high speed rail connection with Singapore in the near future.
However, foreign investors who wish to invest in Malaysian properties should be aware of certain restrictions and requirements applicable to them when searching for Malaysian property to purchase. This article shares some pointers for foreign buyers on how best to prepare for their purchase of Malaysian property.
How do we define a ‘foreigner’?
A foreigner is: –
- an individual who is not a citizen of Malaysia; or
- a foreign company incorporated in Malaysia; or
- a company incorporated in Malaysia with 50% or more of its voting shares held by a non-citizen.
What is the ‘minimum threshold of prices’?
In general, foreigners are only allowed to buy properties that exceed certain minimum prices, which vary from state to state.
For example, foreigners may only buy properties in Kuala Lumpur above RM 1,000,000. Although it was announced in the previous budget that there would be a reduction of the minimum threshold for high-rise buildings sold on the secondary market in Kuala Lumpur to RM 600,000 only for the year 2020, this has yet to be made official and so it would appear that the RM 1,000,000 threshold still stands.
Meanwhile for properties in Selangor, foreigners may purchase properties that are above RM 2,000,000 (for *Zone 1 & 2) and RM 1,000,000 (for *Zone 3)
* Zone 1 – Districts of Petaling, Gombak, Hulu Langat, Sepang and Klang
* Zone 2 – Districts of Kuala Selangor & Kuala Langat,
* Zone 3 – Districts of Hulu Selangor and Sabak Bernam
Limited Types of Property
A foreigner is also limited to buying only selected types of properties, which again may vary from state to state. For example, a foreigner can buy all types commercial and industrial property in both KL and Selangor.
When it comes to residential property, a foreigner may buy stratified residential property in Selangor but not landed residential property. On the other hand, while it is possible for a foreigner to buy both landed and stratified property in KL, it is not allowed to buy low or medium cost residential properties.
To add to the complication, there are certain types of properties in KL and Selangor that foreigners are completely prohibited from purchasing;
- Malay reserved land;
- properties sold by public auction; and
- properties allocated to Bumiputra
Consent and Approval
A foreigner who wishes to buy property in Malaysia needs to apply for an approval to do so from the state authority. This application is usually done by the solicitors in the course of the purchase transaction.
Under the Economic Planning Unit guidelines on the acquisition of property, direct acquisition of property valued at RM 20 million and above would require approval from the Economic Planning Unit.
In order for such approvals to be granted, there may be registration fees, which in some states, are charged as a % of the value of the property, imposed by the state authority.
Purchasers will need to factor in incidental costs that will typically be incurred before purchasing a property as most of these costs will need to be paid to the solicitor handling your matter, simultaneously upon signing of the agreement. Some examples of incidental costs are;
- real estate negotiator fees (usually paid by seller)
- property valuer fees (if a loan is taken)
- legal fees
- stamp duty
- registration and State consent fees (if applicable)
There is no limit to the number of properties that can be owned by a foreigner for the purpose of living in, or for investment. However, it is important for foreign buyers of Malaysian property to be aware of and seek specific advice on the latest requirements and restrictions that may be applicable to them.
This article was written by Shawn Ho (Partner) & Suzanne Fam (Senior Associate) from the corporate practice group of Donovan & Ho. Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020. We are also ranked as a Recommended Firm by IFLR1000 2020.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. We also advise on property transactions and real-estate related tax planning. Feel free to contact us if you have any queries.