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  • Buying a condo in KL

    Posted on November 11th, 2010 Andreas Linder 3 comments
    Resort style condo

    Resort style condo

    Wow, this must be by far the most serious project I have ever undertaken. Investing in a place to live for myself and my wife. In Sweden the most common way is that you rent from a property holding company, but here in Malaysia it’s different. You usually rent from an individual owner instead. So, come to think of it, it’s actually only natural to consider investing. After all, why would you want to pay off someone else’s mortgage when the monthly “rent” you pay could go to yourself instead.  I spent about one year to look at places of interest, dealt with so many property agents, learned so much about condos and learned so much about Malaysian laws. Boy did I wish that someone before me wrote an article like this! Just thinking of the many things to explain almost gets me exhausted. I’ll start off with what is the fun part… viewing new prospects :)

    Where to start?
    First of all, the most important thing is to decide which area you want to live in. Important factors to consider (in my opinion) are: distance to work (shorter is better), traffic situation (less traffic jam is better), price range and attractiveness of the area. A good start is to make local friends and ask for their opinion. Once you have this figured out, you have probably shortlisted one to three areas to look at.

    Leasehold or freehold?
    In Malaysia condos are built on land that is either leasehold or freehold. Freehold means that once you buy a condo unit, you also own part of the land that the condo is built on. Leasehold however means that the developer has a contract with the government for lease of the land for a minimum of 100 years. After the contract expires, the government may choose to take back the land, or extend the lease contract. Since this involves a certain risk should you choose to keep your condo unit for almost 100 years, leasehold units are normally cheaper than condos built on freehold land. Freehold land on the other hand is easier to sell to foreign investors. Leasehold is said to be more common in areas with a lot of commercial value. This is one factor to take into consideration when choosing your area of investment. Our condo unit is built on leasehold and the price we got was considerably cheaper than if we would have chosen a neighbouring area with freehold land.

    How to hunt
    Time to get busy on the phone… In KL I found two effective ways,  to search for a condo for sale. One is to go through some of the insane amounts of property agents available, the other is to just ask the condo management if they know of any owners willing to sell. The latter requires more work, but is the easier way of getting a bargain. Some managements unfortunately have agreements with property agents and will just refer you to them. Agents usually have a fee of around 2-5% of the selling price and owners normally jack up the price to not lose out on the sales price. Thus it’s more profitable to deal directly with owners, if you can find a way to get directly to them.

    A good place to start hunting agents and/or interesting units is iproperty.com.my, but the best agents generally come from recommendation from your friends. If your friends are locals, it’s an even higher chance the agent is good at a reasonable price. That is… if your friend is not looking for a kick back on giving business to a particular agent. Here the only one thing to really trust is your own gut feeling.

    Agents are normally a necessity since they have access to a large number of units. For me, it was necessary to view quite a number of units to get a better picture of what was available on the market, and to find out what I really wanted myself. Whenever I could I tried to get to speak with the neighbours if possible. Rule of thumb is to never fully trust an agent since they are always working on a commission. Neighbours on the other hand are indisputably the best source of information that the owner and agent doesn’t want you to know about. If the management of the condo is good, if the unit might have had problems in the past, like leakage etc.

    Condo vs serviced apartment
    In a condo there are sometimes 2 types of units, a normal unit and a serviced apartment. The difference is basically that a serviced apartment is a condo unit with added on services. This can include i.e. cleaning, laundry and other services that you normally find in a hotel.  There could also be sprinkler systems installed among other things that you don’t find in a normal condo unit. These units are considered commercial and hence the price is also higher as is the maintenance fee etc.

    3 or 4 rooms?
    In Sweden we count the living room as one room, but not in Malaysia. Condos and apartments are measured in how many bedrooms they have. Thus a 3 room condo in Malaysia is actually a 4 room unit by Swedish standards. Sometimes you see 3 + 1 rooms advertised, which basically means that there are 3 bedrooms and one extra room more suited for storage or for a live in maid. Units are also measured in square feet instead of square meters which is the standard unit in most of Europe. Another difference is that in Malaysia the area also include the walls and not the actual living space. This means that a 1000 sqf unit only might have 950 sqf of living space… confusing? I know!

    Bare units
    Units come as either; bare, partly furnished or fully furnished. A bare unit is really… bare. Usually a fan will be pre-installed in the living room. The bathrooms normally come with a bowl and a sink, but the kitchen just comes with a tap and the cheapest sink possible. No cabinets or appliances will be installed. There will be some (never enough) electrical points, but don’t expect any lights to be installed.  For a bare unit, expect about 10-15% of the sales price to be added on as additional cost just to do up the place. On the upside is that bare units of course are the cheapest to buy. Plus, it’s nicer to do up a place according to your style and preference. Especially kitchens are not really up to European standards, so even if you find a unit with a functional kitchen, chances are that you would want to remake it anyway.

    Partly furnished
    This means that ceiling lights will be installed and sometimes air cons too. Some partly furnished units come with air con for every room, some come with only one installed for the living room, or the master bedroom. Partly furnished also means that there are kitchen cabinets installed sometimes together with appliances. If you are lucky the bathrooms will also come with cabinets, but this is no general rule. To summarize, partly furnished is a condo unit with most things except furniture pre-installed. They come at a higher price than the bare unit, but it saves you the trouble and head ache getting workers to renovate the place from scratch. As a rough estimate, a partly furnished unit could be 10-15% more expensive than a bare one.

    Fully furnished
    Yeah right… as the title implies, you think that you could move right in and start living your life in a fully furnished and decorated unit. In most cases, this is sadly not true. The owner will furnish the place as they want and the title fully furnished is very subjective. An old sofa with a TV from the last century, a mattress on the floor in each room and folding chairs and table in the living room could very well be marketed as a fully furnished unit. There is no way to tell without viewing it. On the other hand, there are very nicely decorated units that fully lives up to the name. These are of course the most expensive units compared to the last two mentioned. As a rough estimate, a fully furnished unit could be 15-30% more expensive than a bare one.

    Auctioning, too good to be true?
    From time to time you probably will spot advertisements from banks auctioning out units at a bargain price. This is really tempting seeing that you could buy a unit at 20-30% lower price than the market rate. However, beware that there can be hidden costs coming with the auctioned unit. There is a reason behind that the previous owner couldn’t pay his bank loans to the point that the bank repossessed it. When you buy an auctioned unit, you will also take over any debts that the previous owner never paid, i.e. management fees. There may be ways to play private investigator to find out more, but the banks will not disclose any information about their auction sales. Another really stupid thing is that you cannot view a unit to be auctioned. This means that there is no way you can tell if renovation will be needed or if the unit had problems that will be costly to rectify. To summarize, auctioned units is gambling… you might get lucky, but then again, you might get screwed… big time.

    You never have enough storage.
    In Sweden a unit is normally accompanied by a storage space either in the basement or in the attic for you to store old furniture, suit cases or just junk. In Malaysia the condos don’t have this storage. If you need storage, you will either use one of the bedrooms, or if the condo comes with a storage room included. Most people here will use the wet kitchen or dryad as part storage space, part washing space, part heavy cooking space (if you plan to cook a lot… which is not very likely). Most condos come with at least 2 outdoor areas, where one is the balcony, usually connected to the living room and one at the back, usually connected to the kitchen.

    Which condos are good?
    The grade of a condo can be assessed by finding out who the developer of the condo is. Ask around for peoples opinions on developers. Some are known for bad management of the condo, or for using cheap contractors which causes problems and in the end may lead to required repairs or extensive renovation work. Bank loan officers are more than happy to assist you in getting this information.  They can also advise on good condos to look at in the area of your interest. Also… don’t forget that friendly neighbour that you hopefully bumped into when you last viewed the unit. Especially older Chinese ladies are great to befriend, since they tend to guard their possession more fiercely than other people. Some say they are more whiny than others, but nonetheless they can provide valuable information.

    Don’t forget to ask how much the maintenance fee is per month and if the condo has a sinking fund. The higher the maintenance fee, the more likely that facilities are kept in working order and that cleaning and security is running smooth. Maintenance fee is more or less general based on the age of the condo and the “rank” of the area you are choosing. The more high end the area, the higher the fees. A sinking fund is basically a renovation account for when the condo need repairs or upgrading. Without a sinking fund, or if the sinking fund fee is very low, owners may be charged a fee to cover the costs of the work to be done.

    Made up your mind?
    So you saw a few units and one of them keep jumping back into your mind? Well, that probably means that you’ve decided on where you wanna live. It’s time to start negotiations. Start the bargaining with the agent/owner and remember, there is no business in Asia where you cannot bring down the price, or at least get a better deal. It’s all up to your bargaining skills.

    Normally you are required to pay a deposit of a couple of thousand ringgit to verify that you are seriously considering to buy the unit you are negotiating. This money may be forfeited if you change your mind, this is important to keep in mind! The benefit is that you are locking it down so that you won’t lose it to other buyers.

    Rules for foreigners
    Foreigners in Malaysia have a set of rules in acquiring a property. Luckily they don’t apply to me since I’m married to a Malaysian so I may not be 100% accurate here, but I’ll do my best. Since 2010 the minimum price of a property must be RM500 000 or roughly 160 000 USD for a foreigner to buy. This amount of money however will get you a very nice unit, unless you go with the crowded, overpriced expat areas. In the end, it’s all to the buyer’s preference.

    Bank loan tips
    If you are looking to get a bank loan in Malaysia, foreigners are only allowed to loan maximum 75% of the property value, the remaining 25% has to come out of your own pocket. Local Malaysians on the other hand are allowed up to 90% of the property value. There might be exceptions of course, but none that I’m familiar with. Once you are discussing loans with the bank, make sure you barter and be tough! A pain in the ass customer is likely to walk off with a considerably better deal than a customer who accepts almost anything. Depending on the offers you are given you might choose to go with a local or an international bank. Yes, shop around at different banks to get the most attractive offers. There are even agents that will hunt the most attractive deals for you to save you the work. Their fees are normally very modest and our agent even offered her services for free should we not be happy with her work. In the end we chose to go with an international bank since they tend to have the most competitive interest rates and they also tend to have better service in comparison to the local banks. One thing to remember is that even if you choose to accept an offer from a bank you can always refuse to close the deal with them. Even at the point where you are given the official approval document of the bank loan you can still turn them down in favour for a bank with a better offer. Only when you sign the loan agreement contract you are legally bound by the bank, not before that.

    So, that covers everything?
    Once you have a bank loan you are comfortable with and decided to go ahead there are more costs to consider. You have to pay a lawyer… twice. Once for the actual sale of the unit, and once for drafting up the bank loan contract and finalizing the sale. If you can… try to use the same lawyer for both tasks. Although it’s forbidden for lawyers to give discount on their fees, you can still negotiate a rebate if the same lawyer get more business from you. We saved RM1000 on this ourselves. There are also stamp fees and property evaluation fees to consider. A rule of thumb is to add another 5% of the unit price as additional costs to be added to the sales price.

    Previous owner has to settle
    One thing is very important to check… if the owner has settled all his/her old debts that dates before it came in to your possession. Your lawyer normally is the guy who should be on top of this, but it’s better you check yourself. I found out that our previous owner was still owing the management thousands of ringgit in unpaid management fees very close to the conclusion of the sale. Not until your lawyer gives the green light, then your bank will disburse the money you loaned to the previous owner. So it’s important that you really verify that there will be no hidden costs for you once the unit is yours. A good place to start is with the management office. Ask them for a list of outstanding payments for the unit you are in the midst of buying. For the rest, consult the lawyer… make him work for the hefty fee you are paying him :)

    How long does it take?
    Our unit took about 6 months to buy and it was a fairly straight forward case. If you have funds enough to not take a bank loan, the process may be shortened to only 1-2 months, but this is a case to case scenario.

    Finally…
    Once the sale is concluded, the work is still not done. You might wanna get insurance for your new condo unit. This is too big of a topic to cover here, I also personally find it very boring. Again… here you probably want to go with an insurance agent to set up everything for you. There are tons of them and if you are staying in Malaysia chances are that you met at least a dozen of them already. You have to confirm that the developer has changed your name on the official documents from the old owner, to your name. If not, you may have problems with management fees, sewage fees, etc etc. I, myself is at this very stage at the moment of writing this article. When I have updates, I will try to remember putting them here.

    Good luck if you are planning to get your own place in Malaysia!

    /Andreas L

     

    3 responses to “Buying a condo in KL”

    1. Foreigners coming into Malaysia on the My Second Home Scheme (MM2H) can get up to 85% loans for property buying if they have their fixed deposit with the bank who is lending. My bank (CIMB) confirmed this.

    2. Hi John,

      That is true I suppose, but most international banks grant even 90% bank loans for properties. That is even without the deposit. One example is Standard Chartered that is currently my own bank for my property loan. Another bank is HSBC that friends of mine are using that have similar terms. These people are on work permits.

      Thanks for your thoughts on this though. :)
      /Andreas

    3. Hi Andreas

      Thanks a lot for the info.

      I am an expat stayin in KL. I am about to close a deal however my preferred MOF is 90%. I heard that even OCBC offers upto 90%, is that true?

      Also, can you share the details of the Stan C or HSBC agent so that I can get in touch with them.

      Thanks
      Rahul

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