It is definitely an exciting experience when you are planning to buy your first house. However, before you sign on the dotted lines, it is best to know how much money you will need to buy your dream house. With the current loan interest rates being at an all-time low in Malaysia, this may be a good time to consider to buy your first house.
In this post, I will share with you how much money you will need to buy a house in Malaysia and also share my personal experience of buying my first house.
So take your notebooks out because there is going to be loads of information coming your way.
Summary of the post:
- New projects vs Sub-sale
- How much money do I need to buy a house in Malaysia?
- Upfront costs – Costs that is paid upfront to own the house.
- Subsequent costs – Costs that is gradually paid after owning the house.
- Difference in cost of buying new projects vs sub-sale
New Projects vs Sub-Sale
Firstly you have to identify if you are planning to buy a new project or a sub-sale. New projects refers to properties which are still under construction and are sold by the developer.
Sub-sale refers to properties that are completed and sold in the secondary market. In layman terms, a sub-sale property is like a second hand product you buy from a seller in the market.
New projects generally have very minimal upfront costs as most of these costs are usually absorbed by the developer. However the same cannot be said about sub-sale houses. Hence this post will have more emphasis on how much money you will need to buy a sub-sale house in Malaysia.
Fret not, if you are looking into purchasing a new project, there will be a segment in this post that will highlight the comparison between a new project and a sub-sale. Look out for that segment in this post below.
How much do I need to buy a sub-sale in Malaysia?
Photo by Sven Brandsma on Unsplash
The costs of purchasing a sub-sale house in Malaysia is mainly divided into 2 types of cost:
- Upfront costs – Costs that are paid upfront to own the house.
- Subsequent costs – Costs that are gradually paid after owning the house.
When we speak of costs, we have to definitely budget it out. If you would like a free personal cashflow template, click on this post about personal cashflow. You can download the template for free!
Upfront Costs
The 5 upfront costs that will be further elaborated below are:
1. Earnest Deposit
2. Down-payment
3. Legal documentation fees
4. Loan related fees
5. Valuation Fees
1) Earnest Deposit
So let’s assume you have identified a sub-sale house that you want to buy. You negotiated with the seller and you both agree on a selling price. You then enter into an “Offer to Purchase Agreement”. Upon signing of this agreement to signify your interest in the purchase, you will have to pay a 2% earnest deposit.
This 2% is calculated on your selling price. This means if your property price is RM400k, your earnest deposit is RM8k (RM400k x 2% = RM8k). This earnest deposit also forms part of your down payment which is the next item.
2) Down Payment
In Malaysia, it is common for the down payment of a property to be 10% whilst the remainder 90% will be financed by a housing loan. Upon signing of the “Sales and Purchase Agreement” (SPA), you will need to pay the down payment of 10% of the property price.
Since you have paid the Earnest Deposit of 2% (mentioned above), you will only pay the remainder of 8% at this stage.
Assuming your property price is again at RM400k, remainder 8% down payment will be RM32k (RM400k x 8% = RM32k).
Hence, total down payment (including earnest deposit) is RM40k (RM400k x 10% = RM40k).
3) Legal Documentation Fees
There are legal documentations required when you buy a house. Hence, you will need a lawyer to help you out with it. Well, if you are a lawyer yourself, you get to save up on this. Good on you!
You will need to engage a lawyer to prepare your SPA and the bank loan documentation.
You can either just choose 1 lawyer to handle both SPA and bank loan documentation OR choose 2 separate lawyers.
In my personal experience, I decided to appoint just 1 lawyer to attend to both documentations to save the hassle of dealing with 2 parties.
Legal fees I incurred for the purchase of my sub-sale house:
a) Legal fees – RM8k: These fees are for services such as document preparations, negotiating with seller on SPA terms, and others. This fee will vary across law firms so feel free to get a few quotations before deciding.
b) Stamp duty for SPA – RM2.8k: This is the amount payable to the stamp office and it is compulsory to be paid. To calculate the stamp duty payable, you can refer to the table below:
The stamping office will value your property (based on their valuations) and charge you the stamp duty accordingly.
In my experience, the stamp office actually valued my property higher than my SPA price. So I had to pay a higher stamp duty based on their valuations.
However, because I transacted during the Home Ownership Campaign in 2019, there was a waiver of stamp duty for the first RM300k for first home buyers. With that, I got a big discount on my stamp duty payment (woohoo!).
Here’s a sample of stamp duty calculation:
c) Stamp duty for loan agreement – RM30 only
The calculation for loan agreement is simpler at 0.5% of the loan amount. As mentioned, I also enjoyed the first RM300k waiver of stamp duty for my loan agreement due to HOC (double woohoo!).
Below was the calculation:
My total legal fees were RM10,830 and against my house price, it would be approximately 3%. Hence, for your purposes of planning, just allocate approximately 3-4% of your property price for legal documentation (TLDR).
On a side note, I would highly recommend the lawyer I engaged for the purchase of my house. As it was my first time, I had gazillion of questions and my lawyer was really informational. They helped to ensure the whole process was as seamless as possible. Hence, if you are looking for a reliable lawyer, feel free to reach out to them:
Arielle Chong & Partners (SS15): 03-5879 7248
4) Loan related expenses
Some minor expenses to note would be processing fee by the banks which was RM200 for me. Another loan related expense would be the mortgage insurance but that can be included in the loan financing from the bank.
5) Valuation fee
If you are buying a sub-sale house, you will need to engage a professional valuer to perform a valuation on your property. This is essential for the banks to know that the house they are financing is at least the value of your SPA price.
Imagine if your SPA price was RM500k and the property was only valued at RM300k, banks will definitely question the lofty selling price of your property. They may even not lend you based on your SPA price but on the market value of the property.
The cost of valuation for my property was RM750 which was approximately 0.3% of the house price. So you may use that assumption for your property as well.
Summary of Upfront Costs
As a quick summary, below is an estimation of how much money you will need to buy a sub-sale house in Malaysia (TLDR):
As per calculated above, you would require at least 15% of the property price in cash for these upfront costs. Some would even suggest to have up to 18% just in case if some costs are higher than expected.
And yes, that is definitely a lot of money to buy a house, especially if it’s your first! I hate to break it to you but there is another portion of costs that we will have to look into as well; that is the subsequent costs.
Subsequent Costs
The upfront costs mentioned earlier are essentially unavoidable and required to be paid at the beginning process of purchasing your house. Now comes the subsequent costs of owning a house which will be paid gradually after legally owning your house.
1) Renovation, Furniture and Moving Costs
It is pretty hard to put a figure here because this cost obviously varies based on your house size, condition and your personal preference. Based on my personal experience, I have spent approximately RM40k to fully furnish a 1,000 sq ft apartment with minor renovations. Hence, you can use that as a reference and work around your budget.
The good thing about this subsequent cost is that you do not need to come up with the cash upfront. If your budget is tight, upgrade your furniture gradually every month once your pay comes in. Pace it out according to your budget guys, it’s possible!
2) Maintenance Fee
If you are buying an apartment, condominium or any form of strata title properties, there is maintenance fee to pay. If you are buying a landed house, you may have monthly fees for the gated and guarded services.
3) Utilities
These includes your electricity, sewerage, water, and home wi-fi. This is quite self-explanatory so I will move on.
4) Taxes
There are 2 forms of taxes for properties in Malaysia:
- Assessment Tax (Cukai Pintu) which is payable 2 times a year to your local municipal.
- Quit Rent (Cukai Tanah) which is payable once a year to the land office.
Both these taxes are charged depending on your property type and size. For instance, my assessment tax for a 1,000 sq ft apartment is charged RM330 per annum.
Summary of Upfront Costs and Subsequent Costs
That summarizes both the upfront costs and subsequent costs you would require to buy a sub-sale house in Malaysia. At this point you must be thinking,
“Mun Hong, how can I ever afford a sub-sale house? The amount of money I need to save is so much! And the property price is not going any lower!”
I definitely agree! It is insane to buy a sub-sale these days with our current salary level (employers, please pay your employees better). However, one way to fund your upfront costs is to withdraw from your EPF Account 2.
If you did not know, EPF allows their members to withdraw from the Account 2 for purchase of new projects, sub-sale and even auction properties. Here is the link to EPF’s website for further information.
You would notice that your EPF Account 2 would have saved up a substantial amount if you have not withdrawn before. So perhaps you can consider withdrawing it out for your first house purchase.
However, you may still feel like the upfront cost is too much money to fork out at one go. Do not lose hope my friend! Another way to buy your first house is through new projects.
Difference in cost of buying new projects vs sub-sale
New projects are essentially properties that are in the midst of constructing and are not completed yet. As every project would have their own sales packages and rebates, I will just provide a general comparison to the cost of buying a new project and a sub-sale.
The above table is a general comparison between a new project and a sub-sale property.
Conclusion
If you are looking to buy your first sub-sale house, do make sure you have at least 15% – 18% of cash ready for the upfront costs. I certainly hope this post has given you clarity on how much money you will need to buy your first house in Malaysia.
If you are looking to invest in properties, perhaps you may even consider investing in REITs. They are a form of investing in properties but the cost of investing is much more affordable than buying an actual property. Click on this link to read more about REITs and on this link to find the right REITs investment for you.
If you have any questions, feel free to drop a comment in the section below. I wish you the very best as you prepare to buy your first house. Cheers!
