For the typical homebuyer in Malaysia, land title and property title are things you want to consider beyond the budget and property analysis. Freehold properties are generally perceived to be better than leasehold properties because of the transactional convenience.
Other than Freehold and Leasehold, you should also be aware of Bumiputera Lot – typically known as Bumi Lot.
Here in this article, we will explore the different land titles, property titles and the associated benefit and drawbacks.
Freehold vs Leasehold
1. What is freehold property?
To buy a freehold property is to own both the property and the land on which the property is built. Freehold properties are highly sought after because of the permanence in land ownership that is lacking in a leasehold property.
Freehold properties are highly coveted because of the following factors,
- Less freehold properties in the city
Freehold properties are abundant in older development that have been around for many years. However, recent development are predominantly built on leasehold land. With the low supply and high demand for freehold properties, freehold properties in recent years have transacted at a premium. - No lease, no cost for lease renewal
As mentioned before, freehold properties is built on personal land belonging to the buyer. In contrast, the state government owns the leasehold land and lease out the land to the individual buyers. Over time, the lease reduces and a premium can be paid to renew the lease. This is an additional cost to leasehold property purchasers. - Ease of transaction
Freehold properties belong to the owner and any freehold property transaction involves only the seller and the buyer. In contrast, leasehold properties technically belong to the state government and any leasehold property transaction will require the state government’s consent. While it is typically not a concern, getting the consent approved is time consuming and a drawback for sellers looking to liquidate their properties in a rush.
Freehold property belongs to the buyer but it does not mean the government cannot reacquire the land. In fact, under the Land Acquisition Act 1960, the state government reserves the right to reacquire any land under specific circumstances typically for the benefit of the public.
Land acquisition by the state government is an interesting topic and a lengthy one. If you wish to understand more about the specific circumstances that allow for Compulsory Land Acquisition, do check out this article.
In the case where Compulsory Land Acquisitions do happen to you, appropriate compensation will be provided at a fair market valuation. However, it is best to be aware of your right as the landowner and react accordingly to ensure you receive the best compensation you ought to receive.
2. What is leasehold property?
Buyers of leasehold property should understand that they do not own the land on which the property is built. In this case, the state government owns the land and lease it to the buyer so that the property can be built upon it. In West Malaysia, the typical lease period is 99 years while land in East Malaysia is leased out for 999 years.
The main concern with leasehold properties is the lease period. If you own a leasehold property, it is definitely harder to sell the property when the remaining lease period is less than optimum. In most cases, it will be a better idea to renew the lease before trying to sell the property if the remaining lease period is less than 50 years.
If the lease for leasehold property is not renewed and it terminates upon the end of the lease period, the land is returned to the state government and you no longer have a right to the land. When that happens, you are trespassing on government land and your home can be demolished.
Renewing or extending the lease on your leasehold property is actually pretty straightforward. As the homeowner, you will need to visit the land office and request a lease extension/renewal. Upon approval, you are required to pay a premium depending on the number of years left on your lease.
To estimate the lease premium here is the calculation formula for a residential unit in Selangor,
1/4 x 1/100 x the land’s market valuation (RM per sq.ft) x years of extension x land area (sq.ft)
Selangor Land Rules 2003 & Selangor Quarry Rules 2003
From a mathematical perspective, you will notice the formula takes into consideration the current land’s market valuation. Personally, I would recommend renewing the lease sooner rather than later. As time passes and land value increases with inflation and demand, the premium to renew the lease is more expensive when done later.
For Selangor leasehold property owners, you should also take advantage of the option to pay a premium of RM1,000 to renew your land lease. However, a caveat will be registered on the property with the land registrar to prevent you from selling the property. If you wish to sell the property, you will need to pay the full premium to release the registrar caveat.
Master title, Individual title and Strata title
1. What is master title?
A master title refers to the ownership document over a plot of land during the development stage prior to the division into individual lots or parcel lots. It will have one ownership number to cover all the individual lots and is typically registered in the name of the developer.
During the time when the master title is registered in the name of the developer, the developer has the right over all the transactions of the land. After the units are sold and developed, the developer will apply for transfer of ownership to the respective purchasers in the form of individual title or strata title; the master title will then be revoked.
It is important for homebuyers to note that the developer is allocated a timeframe of 6 months to transfer ownership to the respective owners once the development acquires the Certificate of Completion and Compliance (CCC).
Another thing homebuyers should know, as long as the ownership is not transferred from the master title to the individual titles, any transaction made between yourself and the subsequent buyer will require confirmation from the developer.
So it is really important that homebuyers ensure that the transfer of ownership is done accordingly upon the completion of the property development.
2. What is individual title?
An individual title is a document indicating ownership over the individual plot of land and the building built on it. The individual title is derived from the master title and is typically issued to the individual owners of landed properties.
Once the transfer of ownership from the master title to the individual title is successful, the individual title will now hold the right of ownership over the individual land lot and building built upon it, rendering the master title previously held by the developer worthless.
While individual titles are commonly applied to landed properties such as terrace houses, semi-detached houses, shop lots and factory units, there are some instances where landed property can be issued under a strata title. This exception happens when the landed property is in a compound with shared facilities, be it a swimming pool or a gated and guarded compound.
3. What is strata title?
A strata title is a document indicating ownership over a single parcel lot in a building or a development. The strata title is typically issued for individual units in a high-rise building or landed properties in a compound where there exist common facilities.
To put it into simple words, if you own a strata title property, you are the rightful owner of the individual unit (be it an apartment unit, condominium unit or the landed property). On top of that, you are also the co-owner of the common area and facilities together with other owners. The maintenance of the common facilities such as staircase, common roads, swimming pool is now the joint responsibility of you and the other owners within the building or residential compound.
These responsibilities are typically managed by the Joint Management Body (JMB) and governed by the Strata Management Act 2013. Essentially, the Joint Management Body (JMB) formed from the individual owners is entrusted under the law to collect a nominal maintenance fee for the upkeeping of the common facilities. If any owner decides to default on the maintenance fee, legal action can be taken against them.
4. How do I know if my property is under a strata title?
The strata title is clearly indicated in the Sales and Purchase agreement and should be mentioned to you clearly by the sellers, their representatives and the conveyancing lawyers throughout the sales process. Besides the Sales and Purchase agreement, the strata title is also indicated on the property’s grant.
| Individual Title | Strata Title | |
|---|---|---|
| Description of Ownership | Purchaser has full ownership of the land and the building built on it. | Purchaser has full ownership of the individual unit. The ownership to the land is shared among the multiple owners. |
| Type of Properties | Issued to landed properties without shared facilities, 1. Terrace houses 2. Semi-detached houses 3. Bungalows 4. Shop lots 5. Factory lots | Typically issued to high rise properties and landed properties with shared facilities, 1. Condominium 2. Apartments 3. Landed properties within a guarded compound |
| Transfer of Ownership | Application for transfer of ownership is straightforward and quick. | Application for transfer of ownership is comparatively slower than individual titles. |
| Responsibilities | Purchaser is fully responsible for the property and any individual facilities introduced on the individual land. | Purchaser is fully responsible for his individual unit. The shared facilities is the shared responsibilities among the multiple owners and is managed by the JMB. |
| Regulations | Not applicable | Governed under Strata Management Act 2013 |
Bumi Lot and Bumi Discount
1. What is the definition of Bumiputera?
Bumiputera is a term coiled for a collective group of people in Malaysia with different ethnicity, including the Malays, indigenous people of Peninsular Malaysia (Orang Asli), indigenous people of Sabah and Sarawak (Dayak) and non-Malay Muslims.
2. What is a Bumi lot?
Bumi Lots are properties that are open for sale and lease to Malaysian citizens of Bumiputera status only. The Bumi lot, also known as Bumiputera Lot Quota is first introduced in 1971 through the New Economic Policy to facilitate and increase Bumiputera ownership in Malaysia real estate.
The New Economic Policy 1971 mandated that every new development must allocate at least 30% of its unit as Bumi Lots. However, since all land matters fall under the jurisdiction of the State Government, the Bumi Quota differs from state to state and is best referred to at the land office in the respective States.
In case you are wondering, it is possible for an individual of Chinese ancestry to own a property reserved for Bumi Lot on 2 conditions,
- The individual of Chinese ancestry has accepted the Muslim faith and is given Bumiputera status.
- The Bumi Lot property is released by the state government, allowing the possibility of transaction from the first owner to the new owner of Chinese ancestry.
Another thing to note, it is best not to confuse Bumi Lot and Malay Reserved Lands (discussed below).
3. What is a Bumi discount?
Bumi discount is the mandated minimum discount on properties offered only to Malaysian citizens of Bumiputera status. The minimum discount on these properties falls under the jurisdiction of the state government and differs from state to state.
Typically, the Bumi discount is offered on Bumi lots and is only applicable for properties purchase directly from the property developers. Bumi discount does not apply for the transaction of sub-sale units with Bumi lot status.
Instead of advertising specified units as Bumit Lots, it is now a common practice among property developers to draw up the list of units bought by Bumiputera buyers. Upon the consent of these Bumiputera buyers, their units will then be marked as Bumi lots.
4. Are there any drawbacks to Bumi lots?
The main drawback to Bumi lots is the limited pool of second-hand buyers. Since the property is marked as a Bumi lot, it can only be sold to another individual of Bumiputera status. This restriction has caused lower demand for Bumi lots, inhibiting Bumi lot properties from appreciating at the same rate as neighbouring non-Bumi lots.
Having said that, this drawback cannot be applied in general for all locations. In townships such as Putrajaya and Shah Alam where there is a dense population of Bumiputeras, the previously mentioned drawback is less prominent. Property owners in these locations have historically had an easier time selling off their properties as compared to Bumi lot properties in Old Klang Road and Kuala Lumpur City Centre.
5. How do you sell a Bumi lot to a non-Bumi?
While it is difficult, it is possible to sell Bumi lots to a non-Bumi buyer in Malaysia. In these instances, the Bumi lot is considered to be “released” from its restriction and is allowed to be sold to a non-Bumi buyer.
In order to attain a “release”, the seller must complete the following procedures,
- Apply to the Land Office for consent to transfer by providing compelling reasons; no demand for the unit after years of advertising, with proof.
- If the application is rejected, you will need to submit an appeal to the Land Office.
- If the application is approved, you will need to return the discount amount from the intial purchase back to the property developer.
Another thing to take note, “released” Bumi lot property do not mean the property is converted into non-Bumi property. The idea behind it is that the property is temporarily released for sale to a non-Bumi buyer. If the new owner wishes to sell the property, it is still bound by the same restrictions a Bumi lot has.
To put it into simpler words, if a non-Bumi owner wishes to sell his Bumi lot property, he can only sell it to Bumiputera buyers or seek approval from the Land Office to “release” the property for sale to non-Bumi buyers.
6. Can you convert a Bumi lot into a non-Bumi lot?
It is not possible to convert a Bumi lot property into a non-Bumi lot property in Malaysia.
7. How do you check for Bumi lot status?
It is best to check with property developers whether if the property of interest is endorsed as Bumi lot. For sub-sale properties, the Bumi lot status will be indicated on the property grant. For further clarification, it is advisable to check with the Land Office before making any purchase decision.
Malay Reserve Land (MRL)
1. Is Malay and Bumiputera the same?
Malay and Bumiputera do not have the same definition. Malay refers to the specific ethnic group of people who professes the religion of Islam, habitually speaks the Malay language and conforms to Malay custom. In contrast, Bumiputera refers to any Malaysian citizen of indigenous ancestry.
2. What is Malay Reserve Land?
Malay Reserve Land, also known as “Tanah Rizab Melayu”, can only be owned and held by the Malays or a Malay entity as stated under the Malay Reservation Enactment 1913.
The Malay Reservation Enactment 1913 also imposes restrictions on Malay Reserved Lands, distinguishing them from the Bumi lots,
- Properties built on Malay Reserved Lands cannot be rented out to non-Malays
- All business operating on Malay Reserved Land must be owned by Malay entities
3. Is it possible to sell Malay Reserve Land to non-Malay?
It is virtually impossible to “release” Malay Reserve Land to non-Malay buyers.
However, there have been records where Malay Reserve Lands are granted release when another property of similar value and size is declared as a replacement. This is a difficult process that falls under the grey zone of the legislation.
Final Words
Thank you so much for reading this article. I hope the information shared through my writing has been helpful in your journey in building your investment portfolio.
Until the next article, take care and stay safe.
