Compulsory Property Costs in Malaysia: The Unspoken Cost

1. Upfront Charges

Selecting the perfect home is often compared to picking a favorite dish on a vast menu (In our view, they're equally challenging!). However, purchasing a home (especially your first home) is not a spur-of-the-moment choice - it requires careful financial planning for unexpected expenses. Here are the top often overlooked costs when purchasing a home also known as the “Hidden Cost”

1. Property Agent Fee - 3 - 4% (Upon Signing Offer To Purchase)

2. Sales and Purchase Agreement - 10% (Upon Signing of SPA, inclusive of the property Agent Fee, so 10% - Property Agent Fee here)

3. Legal Fee - 1.2 - 1.5% (inclusive of Disbursement Charges)

4. Stamp Duty - 1-4% depending on property valuation

2. House Insurance

You think only human needs insurance ? Think again !

1. Basic Fire Policy:

This policy is the most fundamental form of property insurance, providing coverage for your home's structure against damage from fire or lightning. However, it does not cover the contents within the home. Optional extensions are available for additional risks like storm damage, flood damage, and land subsidence.

2. Houseowner Policy:

Offering a higher level of protection than the basic fire policy, the houseowner policy covers the physical structure of your property, including walls, roof, fixtures, fittings, and outbuildings. It safeguards against various risks like severe weather, floods, fire, and burst pipes.

3. Householder Policy:

Tailored for covering the contents of your home, the householder policy provides compensation in case of damage or loss due to events like fire, lightning, floods, and burst pipes. This policy may also offer protection for the registered individual homeowners in case of fatal injuries.

3. Utility Fees

Everyone has bills to take care of, such as Electricity, Water, Sewerage Maintenance (IWK), and Internet - unless, of course, you're residing deep in the jungle where Wi-Fi trees are a rarity! Also, for properties bought past their Defects Liability Period (DLP), be prepared for unforeseen costs like water leakage, piping issues, and other minor surprises.

4. Property Tax

Why don't scientists trust atoms? Because they make up everything, just like taxes – they're everywhere, unavoidable. These are the taxes you have to bare in mind, although it might not be alot as it it only incurred once or twice a year, but every dollar count. For more details on Quit Rent, Assessment, and Parcel Rent, check out this linked article that covers it all.

1. Quit Rent - Land Tax charged by the Land Office

2. Assessment - Maintenance Tax charged by the local council for infrastructure and service maintenance (Really ?)

3. Parcel Rent - Strata Title’s kind of Quit Rent

4. Real Property Gain Tax - Taxed by LHDN when you flipped your property during the first 5 years. 6th years onward is tax free.

5. Maintenance Fee & Sinking Fund (Strata Title)

Wanted to buy a individual title landed property around Kuala Lumpur or Petaling Jaya ? But your wallet say otherwise, welcome to the world of strata title property where you have to pay maintenance fee and sinking fund every month !

The concept of a sinking fund is akin to a collective savings pool set aside for future expenses, such as significant repairs or major renovations in a building. Imagine it as a financial safeguard for unforeseen circumstances, like saving for an unexpected rainy day. In a strata building, all residents contribute to this fund, ensuring monetary support when extensive repairs are required. It's crucial for everyone to contribute in, else imagine facing a hefty repair bill and finding out that your neighbor can’t contribute financially!

Maintenance fee, on the other hand, addresses daily repairs and maintenance of the property. It funds the routine aspects of property management, including gardening, fixing communal areas, ensuring security, and maintaining cleanliness. Unlike the sinking fund, which is reserved for large-scale expenses, the maintenance fee covers the regular costs of running a property. Operating a substantial property involves various expenses that may initially be underestimated. Security may be the most noticeable, but there are also the staff who maintain the property’s appearance, and the management and administrative team overseeing operations, all of whom require compensation. This is precisely what the maintenance fee caters to!

6. Bank Interest

What's the likelihood of someone purchasing a property outright without some form of financial assistance? It's pretty slim, even if you don't count the FAMA (Father and Mother Association) Loan. In today's world, it's common for individuals, including those who are financially well-off, to opt for bank loans when buying a house. This approach isn't just about the lack of funds. In fact, even the wealthy often use bank loans strategically. Borrowing from a bank to finance property purchases frees up personal resources for other investments or business growth. It's a little secret among the affluent: leveraging other people's money – in this case, the bank's – can be a smart way to amplify wealth. So, unless your FAMA is unusually generous, bank loans are a standard step in the journey towards property ownership.

For a property worth RM500,000 with an interest rate of 3.3% (which includes the Base Lending Rate plus Profit Margin), the annual interest comes to RM16,500. This amount, when divided by 12 months, translates to RM1,375 per month. It's important to note that this monthly figure represents only the interest portion of the loan repayment and does not include the principal amount. Therefore, the actual monthly payment would be higher, as it would also involve gradually paying down the principal amount of RM500,000 over the loan tenure. This basic calculation highlights the significance of understanding both the interest and principal components in property loan repayments.

Think twice before actually buying your dream home. The cost to own your own dream home goes way beyond the SPA price.

Summary

The cost to consider when considering to buy a property

1. Legal Fee

2. Stamp Duty

3. House Insurance

4. Utility Bills

5. Maintenance Fee & Sinking Fund (Strata Title)

6. House Loan Repayment