Guide to Selling Secondary Market Property in Malaysia

This article aims to provide some guidance to individual owners (Malaysian citizens and permanent residents) on selling a secondary market property (i.e. a sub-sale property), including the costs involved, preparation of documents, procedure and the timeline for completion of the sale and purchase transaction.

Costs Involved

There are several costs involved in selling a secondary market property, among others: -

(a) Estate Agency Fee

It is common for a property owner to engage the services of a real estate agent in a sub-sale transaction, particularly to market the sale of the property, make arrangements for viewing and booking of the property, negotiate with the prospective purchaser, finalize the deal, and follow up on the subsequent sub-sale transaction. The estate agency fee is usually 2 - 3 % of the selling price of the property and is capped at a maximum of 3% of the selling price. In practice, the estate agency fee is deducted from the booking fee or the earnest deposit paid by the purchaser to the seller’s real estate agent during the signing of the Offer to Purchase.

(b) Legal Fee

The legal fee involved in a sub-sale transaction is regulated under the Solicitors’ Remuneration (Amendment) Order 2017 as follows: -

Apart from the above legal fee, the other costs and disbursements incurred in a sub-sale transaction (such as land search, bankruptcy search, transportation, postage, printing, stamping and affirmation fees for statutory declaration, and application fee for state authority’s consent, if applicable) are usually ranging from RM1,000.00 to RM1,500.00. Legal fees and disbursements are usually paid to the solicitors during the execution of the sale and purchase agreement (SPA).

(c) Real Property Gains Tax (RPGT)

(i) RPGT Rates

RPGT is a form of capital gains tax levied by the Inland Revenue Board of Malaysia (IRB) on chargeable gains derived from the disposal of real property. The RPGT rates are set out under Schedule 5 of the Real Property Gains Tax Act 1976 (RPGT Act) which has been amended several times over the years to cater to the economic needs in Malaysia. The present RPGT rates vary from 0% to 30%, depending on the holding period (i.e. the period between the acquisition date and the disposal date of the property). With effect from 01.01.2022, the RPGT rates for individuals (Malaysian citizens and permanent residents) are as follows: -

(ii) Payment of RPGT

Under Section 21B of the RPGT Act, the purchaser is required to retain an amount equivalent to 3% of the purchase price (Retention Sum) and thereafter to remit the Retention Sum to the Director-General of the IRB as an advance payment of the RPGT. In practice, the Retention Sum is usually retained by the purchaser’s solicitors from the deposit paid by the purchaser during the execution of the SPA, and thereafter to remit the same to the IRB within 60 days from the date of disposal of the property. The Retention Sum is to be applied against the RPGT payable by the seller. If there is any excess, IRB will refund the seller subsequently.

(iii) RPGT Returns

Both the seller and the purchaser have to notify the IRB regarding the disposal and the acquisition of the property respectively by submitting the relevant RPGT returns to the IRB within 60 days from the date of the SPA or from the date of approval of the State Authority’s Consent (whichever is applicable) in accordance to the provisions of the RPGT Act. For the seller, the prescribed return form is CKHT 1A. If there is no RPGT payable (either the seller applies for RPGT exemption or the property is disposed of at a loss), prescribed CKHT 3 has to be submitted to the IRB together with CKHT 1A within the same time frame. For example, if the seller applies for the once-in-a-lifetime RPGT exemption under Section 8 of the RPGT Act, the seller would need to submit CKHT 3 to IRB.

Preparation of Documents

Both the seller and the purchaser have to notify the IRB regarding the disposal and the acquisition of the property respectively by submitting the relevant RPGT returns to the IRB within 60 days from the date of the SPA or from the date of approval of the State Authority’s Consent (whichever is applicable) in accordance to the provisions of the RPGT Act. For the seller, the prescribed return form is CKHT 1A. If there is no RPGT payable (either the seller applies for RPGT exemption or the property is disposed of at a loss), prescribed CKHT 3 has to be submitted to the IRB together with CKHT 1A within the same time frame. For example, if the seller applies for the once-in-a-lifetime RPGT exemption u Section 8 of the RPGT Act, the seller would need to submit CKHT 3 to IRB.

1. individual title or strata title of the property;

2. identification card of the property owner;

3. (If the strata title of the property has yet to be issued by the relevant authority) principal sale and purchase agreement, previous sub-sale agreements (including Deed of Assignment (by way of transfer)), and all past and present loan documents (including Deed of Assignment (by way of security) and Deed of Receipt and Reassignment), if any;

4. the latest outgoings bills and receipts, including Quit Rent, Assessment, maintenance charges, sinking fund, and other utilities such as water, electricity and sewerage charges;

5. fire insurance certificate; and

6. income tax number and branch (for the purpose of submission of RPGT returns).

Sub-Sale Procedure

(a) Offer to Purchase

A sub-sale transaction usually begins with the signing of the Offer to Purchase. The purchaser usually pays the booking fee or the earnest deposit amounting to 3% of the selling price to the seller’s real estate agent as stakeholders during the signing of the Offer to Purchase.

The purchaser is normally 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). The Execution Period is usually subject to loan approval granted by the bank or the financial institution in favour of the purchaser, unless the purchaser is a cash purchaser. If the purchaser applies for a loan to finance the purchase of the property, the bank or the financial institution will usually send its panel valuer to the seller’s property for valuation.

(b) Payment of Deposit

The total deposit to be paid by the purchaser in a sub-sale transaction is normally 10% of the selling price, 3% of which is paid during the execution of the Offer to Purchase (as discussed above), and the balance of 7% will be paid to the seller’s solicitors as stakeholders during the execution of the SPA.

(c) Payment of Balance Purchase Price

Subject to the terms and conditions of the SPA, the balance of 90% of the selling price (Balance Purchase Price) is usually paid by the purchaser, either by cash or by way of loan, within 3 months from the date of the SPA or the date of fulfilment of the relevant conditions precedent (such as obtaining state authority’s consent, obtaining developer’s consent/confirmation, obtaining an order for sale, etc.). The conditional period for the fulfilment of the relevant conditions precedent is usually 3 – 6 months from the date of the SPA.

If the purchaser fails to pay the Balance Purchase Price within the stipulated time frame, the seller is generally required to grant the purchaser a one-month extension, subject to 8% late payment interest to be charged on the unpaid Balance Purchase Price calculated daily until the date of full payment of the Balance Purchase Price by the purchaser.

In the event, that the seller’s property has not been discharged or redeemed from the seller’s financier before the execution of the SPA, and if the purchaser applies for a loan to finance the purchase of the property, the loan disbursement would usually occur in 2 stages. The first stage is where the purchaser’s bank or financial institution disburses part of the loan sum to the seller’s financier to redeem the seller’s property. The second stage is where the purchaser’s bank or financial institution disburses the balance loan sum to the seller’s solicitors as stakeholders upon receiving all the original security documents.

(d) Delivery of Vacant Possession

The seller is usually required to deliver vacant possession of the property to the purchaser within 3 – 5 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 (if any).

(e) Apportionment of Outgoings and Change of Ownership

The solicitors acting for the parties will do apportionment calculations (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. Both parties 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.