Suggestion: Watch the 5 minutes video tutorial before reading this article
Most property buyers prefer to own a house or an apartment, my personal guess is that it’s due to tradition and that people think that the risks are lower when buying an apartment or a house.
Also: people want to own a house or an apartment to reside in, or buy-to-let.
But the potentials are great when buying land, in fact, profits can increase exponentially over the years. You also have the opportunity to rent out land.
In this article, I explain the essentials you need to know when buying land in Malaysia.
Can foreigners buy land in Malaysia?
Yes, Malaysia is the only Southeast Asian country where foreigners can directly buy and own land.
This is not the case in other countries in the region, for example, when buying in Thailand, Vietnam, Cambodia or the Philippines.
Even if foreigners can seek approval to buy and own land Singapore, for example, it’s not as straight forward as in Malaysia.
In fact, foreigners need to be permanent residents for a minimum period of 5 years, or make a significant financial contribution, in order to buy land in Singapore.
So: it might not come as a surprise that many foreigners turn to Malaysia when looking to invest in land.
What land categories exist in Malaysia?
It’s important that you plan thoroughly and decide what type of land you want to buy.
Prices vary between different land types, the maintenance and time you need to input will also differ, depending on the land you choose.
In total, there are 4 different land types that are of interest to many foreigners when buying overseas: Residential land, commercial land, agricultural land, and vacant land.
Let’s have a look at each one of them.
Buying residential land
The sole purpose of residential land is to build housing, such as single-family houses, multi-family houses, condominiums or apartment buildings.
In comparison to vacant or agricultural land, residential land is more sought after and more expensive.
Agricultural and vacant land can be converted or amalgamated into residential land, giving you huge yields.
(amalgamation means that two or more pieces of land are merged and included in the same land title. The original title will, therefore, cease to exist)
To convert or amalgamate land into residential land usually requires more work and time, as you won’t buy the “end result”.
Buying commercial land
If you buy commercial land, it will be dedicated to parks, businesses or parking lots for example. You’ll also be able to open a gym or a restaurant if that’s your goal.
But, you don’t necessarily need to build anything on that commercial land yourself.
You can also lease the land to a company, bringing you good rental yields.
If you plan to buy commercial land that will be used for a project developer, it’s important that you confirm their credibility and history.
Preferably, only deal with bigger firms that have proven track records.
You should also do a background check beforehand, to confirm if the company has succeeded to finish any development on time in the past, or recently.
As explained in many previous articles: I highly recommend that you contact a local Solicitor as soon as possible, before you start engaging in the Malaysian property market.
Buying agricultural land
Foreigners need to meet certain conditions when buying agricultural land, in fact, most agricultural land can’t be purchased by foreigners. Therefore, I won’t cover this land type.
As you might know, many Southeast Asian countries rely heavily on agriculture and exports of palm oil, rice and sugar, just to mention a few.
So: it’s protectionist but understandable why foreigners can’t own agricultural land in some countries.
Buying vacant land
Vacant land is cheaper compared to residential and commercial land, but it brings both benefits and drawbacks.
For example, vacant land is easier to maintain and you’ll be able to buy a significantly larger area, compared to residential land (thanks to a lower price).
However, it’s very important that you choose a location that is still fairly central or where there are planned developments nearby.
Preferably, you should also have access to water and electricity, you don’t want to buy a piece of land in the middle of nowhere.
Keep in mind that you won’t have the opportunity to earn money on rental incomes. That’s not the case if you buy residential land or commercial.
Process when buying land
Many buyers wonder how the process differs when buying land, in comparison to buying a property.
Below I’ve included the steps are required when you buy a plot of land in Malaysia.
Figure out where and what type of land you want to buy
As explained above, you need to plan carefully before you decide to buy land.
Even if it seems easier, it’s important that you choose your location wisely, making sure that there will be an appreciation and demand of that land in the future.
Issue a document of title
The same as it goes when buying an apartment or a house, you need to check the title, before engaging in any property transactions.
Therefore, you need to find a reputable Solicitor to help you checking the title and to register the property in your name at the Land Registry.
Make a survey of the land
Don’t skip to make a survey of the land to confirm its quality.
If the land is contaminated for some reason, you can get rejected to build residential or commercial buildings on that land, leaving you in a somewhat troublesome situation…
The Malaysian government can offer help if you want to make a survey of the land.
Get a survey plan of the land
It’s important that you get a survey plan of the land, from the survey and mapping department.
The survey plan will show the exact boundaries of your property and where buildings and other physical features are located on the land.
It’s of importance as it shows the borders of your property and will act as legal proof with relation to the title.
Sign the contract
When you’ve confirmed that the land is okay and managed the above-mentioned steps, it’s time to sign the contract with the seller.
Consult with your Solicitor to make sure that nothing is missing, before signing the contract.
Include a private caveat
Don’t forget to include a caveat to protect your interest in the property, before it’s registered at the land registry.
Simply put, a caveat is used to prevent another person from registering the property in his or her’s name, before you’ve managed to go to the land registry to register the property in your name.
Can I get a loan to buy land?
It’s not easy to get a local loan as a non-resident foreigner if you intend to buy land.
The same it goes in the US, where the down payment is significantly higher when buying land, even for locals.
Simply, the banks think that land purchases are more risky.
Land titles in Malaysia
In addition to the different land types, you also need to understand the different land titles that exist in Malaysia.
There are 3 different land titles in total: leasehold, freehold, and Bumiputera reserved.
Let’s have a look at each one of them.
If you won’t be able to get a freehold ownership, leasehold will be your only option as a foreigner.
The leasehold period will be 60 to 99 years when getting close to the expiry time, the person who owns the property at that moment will need to renew the leasehold period.
This can be done at the land office and will cost you some money. For information regarding the costs to renew a leasehold contract, I suggest that you turn directly to the land office for up to date information.
The property value will increase in value once you’ve managed to renew the leasehold period, on the contrary, the value will appreciate less the closer you get to the expiry date (similar as when a bond gets closer to its expiry date).
Freehold is by far the best title you’ll get.
Even if you need approval and make an application to transfer the property in another person’s name, freehold means that you’re the full owner in perpetuity.
However, developments in infrastructure (such as new railways or roads) will, maybe not surprisingly, be prioritized over your freehold ownership, meaning you might need to sell the property.
Properties that have this type of title will be more expensive and bring higher rental incomes compared to a leasehold title.
Malaysia has a system that favors local Bumiputera (Indian Malays and Chinese Malays are generally excluded to buy Bumiputera reserved property).
This is the least preferable option to you, as a foreigner, as the approval time is longer and more complicated compared to the two other titles explained.
Buying land is overlooked by many investors. My personal guess is that there’s a general misconception that land is difficult to buy and mainly bought by corporations, or wealthy investors, that are keen to take on some risks to earn higher yields.
In addition, people usually tend to buy a house or an apartment, to own a structure that can be used by themselves, or rented out easily.
However, land can bring you great yields, if you do your research thoroughly and study the buying process well in advance.
It’s also important that you choose a trusted solicitor, real estate agent, the right land type, and figuring out beforehand what your main goal is to buy a plot of land.
I hope that this article has been helpful to you and wish you all success when buying land in the future.
You can also read my separate article that explains in which countries where foreigners can buy land.