Foreign Investment in Real Property
Background to Malaysian Land Law
Torrens System in Malaysia
The ‘Torrens system’ was named after Sir Robert Torrens and introduced in South Australia in 1858. The Torrens system is a system of registration of titles to land (as distinct from registration of deeds) to improve efficiency and effectiveness of land administration. The Torrens system is basically a system of recognition of titles to and dealings in land through a system of registration. The courts have taken cognisance of this as in this passage from the case of Poh Yang Hong v Ng Lai Yin & Ors [2013] 8 CLJ 964:
“The system of land registration adopted by Parliament and codified in the NLC 1965 is based on the Torrens system of registration. The core principle of this system of registration is that the register is everything. The Torrens system strives for simplicity and certitude in transfers of Torrens system land or registered land“.
The main characteristics of the Torrens system are:
- It confers indefeasible title upon registration. However, section 340(2) of the National Land Code (Revised 2020) (“NLC“) stipulates that indefeasibility can be defeated where the transferee himself is guilty of fraud or misrepresentation, or where the registration was obtained by forgery or by means of an insufficient or void instrument or where the title was unlawfully acquired by the transferee.
- Any dealing in respect of an alienated land or interest in land must be registered with the relevant land registry in order to confer title or interest on the new proprietor or interest holder.
Two principles flow from the Torrens system as follows:
- Mirror Principle – the register reflects accurately and completely the current facts about a registered owner and all details of a piece of land. This means if a person were to sell a piece of land, the new title has to be identical to the old one in terms of description of land, except for the owner’s name; and
- Curtain Principle – one does not need to go behind the Certificate of Title as it contains all the information about the title. This means that all the necessary information regarding the ownership of the land is on the Certificate of Title and if a person were to sell a piece of land, the purchaser could depend on the information provided on the Certificate of Title.
Indefeasibility of title
One of the most important advantages of the Torrens system is the indefeasibility of title as provided under section 340(1) of the NLC. According to section 340(1) of the NLC, upon registration, the party in whose favour the registration has been effected will obtain an indefeasible title to or interest in the land. Abdul Malik Ishak J in the case of Muthammah A/P Govindan v Masri bin Mohamed & Anor [2000] 5 MLJ 518 defined the phrase ‘indefeasible title’ as a “title or an interest which is free of all adverse claims or encumbrances not noted in the register.” It is quite obvious that the effect of registration is to defeat all prior unregistered claims.
However, being a general principle, the concept of indefeasibility is not absolute because under certain circumstances a registered title or interest may be set aside or defeated by a person who has a better claim. In law, these circumstances are spelt out under section 340(2) of the NLC and been the subject of judicial elaboration in recent case laws. In the Federal Court decision of He-Con Sdn Bhd v Bulyah bt Ishak & Anor [2020] 4 MLJ 662, the court held that the interests in a property acquired by a chargee bank were vitiated by section 340(2) of the NLC as they were based on an insufficient or otherwise, void instrument. Similarly, in Setiakon Engineering Sdn Bhd v Mak Yan Tai & Anor [2024] 5 MLJ 460, the Federal Court held that the title acquired by a subsequent purchaser was defeasible under section 340(2) of the NLC because it was tainted by a fraudulent scheme aimed at depriving the original proprietor of their land.
Foreign Investment in Real Property
Malaysia continues to attract interest from foreign investors and one of the most popular investments is in the real estate sector. As part of the effort to facilitate greater foreign investments in property transactions, the Malaysian government and the various state governments have put in place various measures and guidelines. As such, our focus in this write-up will be on the guidelines introduced by the Malaysian government and the various state governments as well as restrictions imposed on foreign interests while investing in the Malaysian real property sector.
Who is considered a "foreigner" or "foreign interest" in Malaysia?
Under the Guideline on the Acquisition of Properties issued by the Ministry of Economy (“MOE Guideline“), foreign interest means any interest, associated group of interest, or parties acting in concert that comprises of: (a) individual who is not a Malaysian citizen; and/or (b) individual who is a Permanent Resident; and/or (c) a foreign company or institution; and/or (d) local company or local institution whereby the parties as stated in item (a) and/or (b) and/or (c) hold more than 50% of the voting rights in that local company or local institution.
Conditions and restrictions on acquisition of properties by a foreign interest
Before a foreign interest is allowed to acquire any property, the MOE Guideline must be taken into consideration. Apart from that, the acquisition of the property by the foreign interest must get the approval from the relevant State Authority of the state in which the property is situated.
1. MOE Guideline
Previously, the Malaysian government had introduced a Guideline on the Acquisition of Properties by Local and Foreign Interests issued by the Foreign Investment Committee (“FIC Guideline“) to regulate and administer foreign investment in Malaysia. Under the FIC Guideline, any acquisition of property by a foreign interest, including permanent resident, required the approval of the FIC. However, many felt that the FIC Guideline was no longer relevant because of its restrictive nature. Therefore, in an effort to attract foreign investors, the Malaysian government decided to repeal the FIC Guideline and to replace it with the Guideline on the Acquisition of Properties issued by the Economic Planning Unit of the Prime Minister’s Department (“EPU Guideline”) effective on 30 June 2009 and which was amended on 1 March 2014. The EPU Guideline was subsequently replaced by the MOE Guideline which came into effect on 13 July 2022.
Under the MOE Guideline, there are only two situations that would require MOE’s approval for the acquisition of property. First, when there is a direct acquisition of property valued at RM20 million and above which results in the dilution in the ownership of the property held by Bumiputera interest and/or a government agency. Second, when there is an indirect acquisition of property by interests other than Bumiputera interest through an acquisition of shares that cause a change of control of a company owned by Bumiputera interest and/or a government agency, and the company in question has property as more than 50% of its total assets, and the said property is valued at more than RM20 million.
In order to acquire a property as mentioned in the two situations above, a company needs to satisfy the equity and paid-up capital conditions as listed in the MOE Guideline. For direct acquisition of property, the equity and paid-up capital conditions imposed by the MOE must be complied with before the transfer of the property’s ownership, whereas for indirect acquisition of property, the equity and paid-up capital conditions must be complied with within one (1) year after the issuance of written approval.
Other than the above, a foreign interest is only allowed to acquire a residential unit valued at RM 1 million and above. This acquisition however does not require the approval of the MOE but falls under the purview of the relevant State Authority.
Apart from that, there are also a number of transactions that do not require the approval from the MOE such as the acquisition of a residential unit under the “Malaysia My Second Home” Programme, acquisition of industrial land by a manufacturing company and acquisition of properties by a company that has obtained the endorsement from the Secretariat of the Malaysian International Islamic Centre, among others.
A foreign interest is also allowed to purchase all types of properties in Malaysia except for properties valued less than RM1 million per unit, residential units under the category of low and low-medium cost, properties built on Malay reserved land and properties allocated to Bumiputera interest in any property development project (“Bumiputera Lot“) as determined by the State Authority.
2. State Authority approval under Section 433B of the NLC and relevant guidelines
Foreign interests seeking to acquire property in Malaysia are required to obtain State Authority approval pursuant to Section 433B of the NLC. The application process could take about three to six months to complete. This is a separate approval from the MOE approval elaborated above, which is only required in the two circumstances as stipulated in the MOE Guidelines.
Following that, each State Authority has the discretion to formulate their own guidelines on the acquisition of property by a foreign interest based on the location and type of property:
a) Johor
- Johor has its own policy on the acquisition of property by foreign interest which has been effective since 1 May 2014.
- Under this policy, foreign interests are allowed to acquire property in Johor with a minimum price of RM1 million, either directly from the developer subject to the quota allocated for foreign interest ownership in a development project or in secondary market (sub-sales). In the secondary market (sub-sales), a foreign interest is allowed to acquire property owned by another foreign interest. If the foreign interest would like to acquire property owned by Malaysians, it will be considered on a case-by-case basis.
- Other than that, unlike the restriction on the acquisition of Bumiputera Lot imposed under the MOE Guideline, a foreign interest in Johor may be allowed to own Bumiputera Lot in a housing project after the said units have obtained approval from Johor State Secretary Office (Housing Division) subject to the existing balance of the foreign interest quota. Foreign interest may also own Bumiputera Lot duly registered in the name of Bumiputera in secondary market (sub-sales) after obtaining the approval from the State Authority.
- However, the Johor government restricts the type of properties that can be acquired by a foreign interest. For example, a foreign interest cannot acquire a single storey terrace unit or 1½ storey terrace unit, single or two storeys of shop or office lot, stall or service workshop, among others.
b) Selangor
- Selangor has issued its own guideline on acquisition of properties by foreign interests or permanent residents in Selangor which came into effect on 1 September 2014.
- The areas in Selangor have been divided into three Zones under this guideline as follows:
| Zone 1 | Zone 2 | Zone 3 |
| Daerah Petaling | Daerah Kuala Selangor | Daerah Hulu Selangor |
| Daerah Gombak | Daerah Kuala Langat | Daerah Sabak Bernam |
| Daerah Sepang | ||
| Daerah Hulu Langat | ||
| Daerah Klang |
- Under the guideline, foreign interests and permanent residents are only allowed to acquire residential properties valued more than RM 2 million in areas categorised as Zone 1 and Zone 2 whereas residential properties in the area classified in Zone 3 can be acquired if the residential properties are valued at RM 1 million or above. Besides that, foreign interests can only acquire commercial and industrial properties in Selangor in all three zones if the values of the properties start from RM 3 million. Furthermore, there are also restrictions against foreign interests from acquiring “Landed” residential properties, agricultural lands, Malay reserved lands and properties sold through public auction in Selangor.
c) Malacca
- Malacca has also introduced its own guideline on acquisition of properties by foreign interests where foreign interests are allowed to acquire residential, commercial and industrial properties subject to the restrictions and conditions imposed under the guideline.
- For instance, the purchase price for each property to be acquired by foreign companies must be more than RM1 million per unit for landed properties with individual titles and RM500,000 per unit for properties with strata titles and RM1,500,001 per unit for industrial property.
d) Negeri Sembilan
- Negeri Sembilan has issued its own guideline on the acquisition of property by foreign interests which came into effect on 19 June 2024.
- Under the guideline, the purchase price for a residential unit to be acquired by foreign interests must be more than RM600,000 per unit for properties with strata titles and RM 1 million per unit for landed properties. For commercial and industrial properties, the purchase price must be more than RM2 million, except for service apartments which have a minimum price threshold of RM650,000.
- There are also restrictions against foreign interests acquiring Bumiputera Lot, Malay reserved lands, residential and commercial properties under the category of low and low-medium cost and properties sold through auction, among others.
e) Putrajaya
- In Putrajaya, foreign interests are only permitted to own one type of property at any given time.
- Foreign interests can only acquire multi-storey residential units with strata title valued more than RM1 million, multi-storey commercial properties with strata title valued more than RM1,500,000, landed commercial property with minimum threshold of RM3 million and landed industrial property if the value of the property is more than RM5 million.
f) Kedah
- In Kedah, a foreign interest is allowed to acquire certain type of residential properties, for instance, luxury flats (including condominiums, apartments, and holiday homes) with the condition that at least 30% of the total units in each block are reserved for Malaysian citizens. Foreign interest is not allowed to acquire residential properties categorised as single storey terrace house, low cost house, Bumiputera Lot and Malay Reserved lands unless the foreign interest has been recognised as “Malay” under Section 21 of the Malay Reservation Enactment 1930, among others.
- For commercial properties, foreign interests are allowed to acquire, inter alia, shops with at least three storeys provided that the number of shops the foreign interest intends to acquire does not exceed 10% of the total number of shops with at least three storeys in the particular development. The minimum threshold for the commercial properties is RM1 million. Foreigners are not allowed to acquire single or two storey shops, low-cost shops, stalls, service workshops and Malay Reserved land unless the foreign interest has been recognised as “Malay” under Section 21 of the Malay Reservation Enactment 1930, among others.
g) Penang
- Under the guideline issued by Penang, the minimum price of a strata property to be acquired by a foreign interest on the island is RM1 million and in Seberang Perai is RM500,000, except when the property is being acquired by a foreign company, in which case the minimum price is RM1 million. If a foreign interest intends to acquire a landed property (including strata landed) on the island or in Seberang Perai, the price of that landed property must be a minimum of RM3 million and RM1 million respectively. However, a permanent resident in Penang is allowed to acquire properties in Penang subject to a minimum price of RM250,000.
- All purchases of properties by foreign interests will be subjected to 3% levy on the transacted price. The 3% levy on foreign interests are targeted to significantly deter foreign speculators on bulk buying. This levy is reduced to 1.5% for strata properties valued between RM1 million to RM1.5 million in the island area.
- In addition, a foreign interest is not allowed to acquire certain residential properties such as low cost and medium cost terrace house and flat and houses for Bumiputera.
- A foreign interest is also not allowed to acquire agricultural lands in Penang. However, in the event that the foreign interest intends to acquire at least 5 acres of the agricultural land, the State Authority will consider the application based on the conditions set out in the aforesaid guideline.
h) Kelantan
In Kelantan, a foreign interest is only allowed to purchase a commercial unit, industrial land or agricultural land if the property is valued at RM500,000 or above. Similarly, a foreign interest can only purchase a residential unit in Kelantan if the minimum price of the unit is RM500,000.
i) Perak
- Similar to Selangor, Perak has divided its lands into three zones of the various local authorities:
Zone 1 | Zone 2 | Zone 3 |
Majlis Bandaraya Ipoh | Majlis Perbandaran Manjung | Majlis Daerah Kerian |
Majlis Perbandaran Taiping | Majlis Daerah Perak Tengah | |
Majlis Perbandaran Teluk Intan | Majlis Daerah Tapah | |
Majlis Daerah Tanjong Malim | Majlis Daerah Pengkalan Hulu | |
Majlis Daerah Kampar | Majlis Daerah Gerik | |
Majlis Daerah Batu Gajah | Majlis Daerah Lenggong | |
Majlis Perbandaran Kuala Kangsar | Majlis Daerah Selama |
- For residential properties, the minimum price for acquisition varies according to the zone in which the property is located, the type of property, and whether the acquisition is via lease or full proprietorship.
- For direct purchasing from developers for full proprietorship, the lowest amount is for strata properties located in Zone 3 (RM750,000) and the highest being landed and landed strata properties located in Zone 1 (RM2 million). However, the minimum price for full ownership of commercial and industrial properties is RM3 million across all zones.
The guideline also sets out quotas on the number of units that can be held by foreign interests. For residential properties, a foreign individual can acquire a maximum of two units, whereas foreign companies are prohibited from acquiring such properties, Nevertheless, no such limits have been imposed on foreign interests concerning commercial properties.
3. Taxes
Real Property Gains Tax (“RPGT”)
RPGT is a tax on chargeable gains derived from disposal of property based on the RPGT Act 1976. Effective from 1 January 2019, the RPGT rates imposed on non-citizens and foreign companies are as follows:
Categories of Disposal | RPGT Rates |
Disposal within five years | 30% |
Disposal in the sixth year or thereafter | 10% |
As amended and effective from 1 January 2018, the amount to be retained by a purchaser for the purposes of RPGT has been increased from 3% to 7% of the purchase price where the vendor is a non-citizen or a foreign company.
Stamp Duty
Stamp duty is payable on the instrument to effect a transfer of land.
The stamp duty imposed on foreign companies, non-citizens and non-permanent residents is charged at a flat rate of RM4 per RM100 or part thereof, i.e. 4% of the money value of the consideration or the market value of the property, whichever is the greater, effective from 1 January 2024.
However, effective 1 January 2026, the stamp duty payable on the acquisition of any residential property by foreign companies, non-citizens and non-permanent residents has been increased to RM8 per 100 or part thereof, i.e. 8%.
Conclusion
From the foregoing, one may note that foreign interests (both individual and corporate) may invest in the Malaysian real property sector. However, there is an interplay between Federal and State guidelines in the determination of what properties can be invested in. Also, over the years there has been an increase in the relevant threshold values for foreign investment in real property. It would therefore be pertinent for a foreign investor to consider the various conditions before investing in the Malaysian real property sector.
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