Guide to Buying Secondary Market Property in Malaysia (Part II)

Costs involved to purchase a property in the Secondary Market (i.e. sub-sale property).

In Part I of our Guide to Purchasing Property in the Malaysian Secondary Market, we have set out a list of cost involved to assist a potential purchaser in managing their budget and cash flow. This article, being the 2nd Part, seeks to set out details of the milestones that a property buyer is expected to reach to purchase the property.

Offer to Purchase

An Offer to Purchase is a written commitment made by a potential purchaser to a property owner, expressing his intention to purchase the property. Before signing an Offer to Purchase, the purchaser should take note of the following:-

(a) A sub-sale property is normally sold on an ‘as is where is’ basis as at the date of inspection of the property by the purchaser or the day the SPA is signed. There is no defect liability period in a sub-sale transaction. (A defect liability period is a warranty period where the developer is required to repair any defects in the property (in a new development) within a period from the date the purchaser receives vacant possession of the property.) Therefore, the purchaser should pay attention to the state and condition of the property during the inspection of the property before signing the Offer to Purchase. If there is any defect (such as water leakage, loose floorboards or tiles, or cracks in the walls), the purchaser may want to include a term in the Offer to Purchase to require the seller to make specific repairs before delivery of vacant possession of the property, and further to request a joint inspection before delivery of vacant possession of the property to ensure that the seller has performed all the requisite repair works.

(b) If the sale of the property comes with fixtures and fittings (such as kitchen cabinets, fans, air-conditioners, lights, and any other items which are affixed to the property), the purchaser should request a list of fixtures and fittings to be attached to the Offer to Purchase.

(c) The purchaser should enquire whether the property is tenanted as it would affect the purchaser’s plan to renovate or move into the property. If the property is subject to tenancy, the solicitors would usually prepare an assignment of the tenancy agreement to assign all the seller’s duties and obligations under the tenancy agreement and all the rights, benefits, and interests therein to the purchaser.

(d) The Offer to Purchase normally states that the purchaser is required to sign the SPA within 14 or 21 working days from the date of acceptance of the Offer to Purchase by the seller (Execution Period). If the purchaser intends to apply for a loan to finance the purchase of the property, it is important to state in the Offer to Purchase that the Execution Period is subject to loan approval by the bank or the financial institution.

(e) The purchaser should also enquire whether the property is a freehold or a leasehold property. If it is a leasehold property, how many years of lease remain? It is tougher for the purchaser to obtain financing for leasehold property as the bank or the financial institution will normally require a certain minimum number of years remaining on the lease before it is willing to accept the leasehold property as collateral for financing purposes. Further, the sale and purchase transaction of a leasehold property may take a much longer time to complete as state authority’s consent is usually required for the transfer of a leasehold property from the seller to the purchaser.

The Sale and Purchase Transaction

As discussed above, the completion period in a sub-sale transaction (i.e. the period given to the purchaser to pay the Balance Purchase Price) is usually three months from the date of the SPA or the date of fulfillment of the relevant conditions precedent as stated in the SPA, with a one-month extension which is subject to late payment interest (Extended Completion Period). If the purchaser fails to pay the Balance Purchase Price within the Extended Completion Period, the seller has the right to forfeit the 10% deposit as liquidated damages.

The seller is usually required to deliver vacant possession of the property to the purchaser within the number of days specified in the SPA (usually three to five working days upon receiving the Balance Purchase Price by the seller’s solicitors as stakeholders) together with the keys and access cards of the property.

The solicitors acting for the parties will do apportionment calculation (usually as of the date of delivery of vacant possession) for all the outgoings including the quit rent, assessment, maintenance charges, sinking fund, fire insurance, electricity bill, water bill, and sewerage charges. The seller is required to provide proof that all the said outgoings have been settled up to the date of delivery of vacant possession. The purchaser should notify the relevant authorities or departments (such as the city council, management office, Tenaga Nasional Berhad, and Pengurusan Air Selangor Sdn Bhd) regarding the change of ownership of the property.