The prospect of owning your very first property is indeed exciting. But if everything about the property market is new to you, it’s prudent to get your basics down first. The first thing to know is the available types of property.
There are three main options – primary market, secondary market, and auction market. For this round, let’s look at the first two markets first. Why? Well, the auction market comes with its share of complications, hidden costs and risks, and thus, it’s advisable to look at either the primary market or secondary market for your first property purchase. Once you’re more familiar with the ins and outs of property markets and the purchase process, then go ahead and explore auction markets!
The primary market (also known as under-construction properties) refers to brand-new properties that you buy directly from developers, while the secondary market (also known as the subsale market) is where you purchase from existing homeowners. Whether you are buying a property on the primary or secondary market, each has its advantages and disadvantages.
Pros and Cons of the Primary Market
Pros
| Brand new properties | You’ll be the first owner, which means everything from the paint to the plumbing is new. So, you’ll need to spend less on renovations. |
| Lower cost of entry | Developers often offer discounts and absorb certain costs such as legal, loan agreement and stamp duty fees, and even furnishing packages. These make it more affordable, especially for first-time purchasers.
There are also government initiatives such as stamp duty exemption until the end of 2025 for first-time homebuyers who purchase a home valued at RM500,000 and below. You might also want to check out affordable home schemes. With the primary market, buyers could potentially enjoy capital appreciation upon completion or even before the property is completed. |
| Modern amenities | Newer properties incorporate modern facilities, which could require less maintenance and attract more potential tenants if renting out. |
| Defect liability period | Newly built properties typically come with a defect liability period (DLP), during which the developer is responsible for rectifying any construction defects upon vacant possession. |
| Unit selection | Purchasers get to choose preferred levels and/or units (if available). If you’re an investor, lower to mid-level floors in high-rises could make more sense as prices increase with every higher floor. |
Cons
| Waiting period | Purchasing a property from the primary market often means waiting for the construction to complete. This could take three to four years, and delays are not uncommon. |
| Uncertainty in quality | While the property is new, there’s no track record of performance, especially if it’s a new developer. Generally, issues may arise post-handover that weren’t apparent during the purchase. |
| Abandoned projects | Projects are sometimes abandoned when developers run into financial troubles. |
| Undisclosed information | There could be information undisclosed by the developer or marketing staff on approved future products or infrastructure that will bring adverse impact to a project, such as a cemetery or sewerage treatment pond next to the property. |
| Future prices | Some property prices may be inflated or sold at future value. Additionally, rental yields and capital appreciation are more speculative in newer areas, in comparison to the sub-sale market where statistical data might be available. |
| Competition | Upon vacant possession, a huge influx of units could flood the market, making it competitive to find a potential tenant or buyer. |
Pros and Cons of the Secondary Market
If a property is newly completed and not lived-in yet, it still falls under the subsale category, as it’s purchased from an owner instead of directly from a developer.
Pros
| Immediate availability | Properties in the secondary market are ready for occupancy. This is ideal for first-time homebuyers who want to move in quickly. This also means that buyers don’t have to face issues of vacant possession delays or abandonment of projects. |
| Room for negotiation | There’s room for price negotiation, especially if the seller is motivated to sell quickly, or it’s a buyer’s market. |
| Seeing is believing | You can inspect the unit’s condition and development’s facilities firsthand, including the exact location, surrounding neighbourhoods and amenities. |
| Potential gems | At times, buyers can get value-for-money deals if agents show them properties that are going at below market value. The subsale market could have better bargains as asking prices are set by market forces. |
| Available data | Historical rental yields and capital appreciation are available on portals such as PropertyGuru, especially for properties that have been on the market for a while. This makes it easier to compare and decide, based on data. |
Cons
| Older properties | The age of the property could mean higher maintenance costs and outdated designs that may require renovations. Information on much older properties might also be more difficult to obtain and purchasers would need to conduct their own research and also rely on real estate agents. |
| Higher entry cost | Besides the 10% downpayment, investors can expect to pay legal fees, transfer costs and more. Combined with the effort and refurbishment costs, subsale purchasers need to have enough cash-at-hand. |
| Unknown issues | Older properties might come with problems such as structural wear and tear, which could lead to repair costs for its facade, electrical and plumbing works, and extensive renovations if the property is badly maintained.
Conducting thorough inspections is essential, although some issues aren’t always immediately known. Some properties could have an unfavourable history as well. |
| Fickle seller | Sometimes, a buyer might come across an irresponsible seller who backs out at the final stage of the deal process when they receive a better offer from another buyer. |
| Scarcity of good units | Since availability is dependent on individual owners, purchasers could face limitations for preferred unit types. |
Financial Considerations
When comparing the primary and secondary markets, it’s essential to consider the financial aspects. For new launches, the upfront costs might be lower due to developer incentives, but you’ll still need to plan for progressive payments during the construction period, unless stipulated otherwise in the Sale and Purchase Agreement (SPA).
In contrast, the secondary market may require a larger initial outlay, including down payment, legal fees, and stamp duty. The down payment is usually, but not always, 10% of the property price, and it will be paid to the seller. The down payment amount will be less the booking fee paid.
If the buyer’s loan is not approved, forfeiture of the booking fee will depend on the reason for the loan rejection and terms of the SPA. Thus, it’s advisable to check on your loan eligibility before signing the SPA. Better yet, check on how much you can borrow prior to searching for a property.
The charges for primary and secondary properties include legal fees, stamping fees, land office instrument registration fees, bankruptcy and insolvency searches, land search charges, transportation charges, printing charges, loan documentation fees, statutory declaration affirmation fees, telephone and facsimile charges and miscellaneous charges.
| What To Budget For | Primary Market | Secondary Market |
| Earnest deposit / Booking fee | Varies, depending on developer | 2% to 3% |
| Down payment | Varies, depending on developer | 10% of the agreed purchase price (total including earnest deposit) |
| Sale and Purchase Agreement (SPA) | Legal fees, stamp duty, and legal disbursement fees
Depending on the property’s price (which tier it falls in) |
Legal fees, stamp duty, and legal disbursement fees
Depending on the property’s price (which tier it falls in) |
| Loan Agreement | Legal fees, stamp duty, and legal disbursement fees
Depending on the property’s price (which tier it falls in) |
Legal fees, stamp duty, and legal disbursement fees
Depending on the property’s price (which tier it falls in) |
| Real estate agent’s commission | – | Maximum of 3% of the property’s sale price |
| Valuation fees (if applying for a mortgage loan) | – | From 0.25% to 0.04% of the subsale property’s value |
| Stamp duty for Memorandum of Transfer (MOT) or Deed of Assignment | 1% to 4% (comes later) Depending on the property’s price (which tier it falls in) |
1% to 4% (comes sooner) Depending on the property’s price (which tier it falls in) |
| Bank processing fee | RM50 to RM200 | RM50 to RM200 |
| Perfection of Transfer (POT) / Perfection of Charge (POC) | POT: The cost includes an MOT’s professional lawyer’s fees, stamp duty, and disbursement fees.
POC: Similar to the POT, except for the stamp duty that costs only RM40. There are potentially also cases where a Perfection of Transfer might be required when buying a property directly from another individual. This could be because the seller originally purchased the property from a developer who had been slow in issuing the Master Title. |
POT: The cost includes an MOT’s professional lawyer’s fees, stamp duty, and disbursement fees.
POC: Similar to the POT, except for the stamp duty that costs only RM40. There are potentially also cases where a Perfection of Transfer might be required when buying a property directly from another individual. This could be because the seller originally purchased the property from a developer who had been slow in issuing the Master Title. |
| Quit Rent & Assessment Fees | Quit rent: Calculated based on per square foot (psf) of property
Assessment fees: Calculated based on the estimated annual rental value of your property |
Quit rent: Calculated based on per square foot (psf) of property
Assessment fees: Calculated based on the estimated annual rental value of your property |
| Maintenance fee & sinking fund (for strata-titled property) | Maintenance fee: Based on a shared percentage, which depends on a number of factors relevant to your development
Sinking fund: 10% of the total cost of the service fees |
Maintenance fee: Based on a shared percentage, which depends on a number of factors relevant to your development
Sinking fund: 10% of the total cost of the service fees |
| Mortgage insurance | Depends on the type you choose | Depends on the type you choose |
| Utility | Water, electricity/power supply, sewerage, Internet | Water, electricity/power supply, sewerage, Internet |
| Renovations | As a rule of thumb, your renovation cost should not exceed more than 6 times your monthly household income | As a rule of thumb, your renovation cost should not exceed more than 6 times your monthly household income |
Legal And Administrative Processes
The entire purchase process for the sub-sale properties usually takes around 3 to 6 months to complete, depending on whether the property’s tenure is freehold or leasehold, and whether the property is still tied to a bank loan. Here are the common steps in the transfer of property ownership in Malaysia.
1. Sign the Booking Form/Letter of Offer
Once the buyer has decided to purchase a sub-sale property, the property agent will ask the buyer to sign a letter of offer, where he/she has to pay an earnest deposit of 2% to 3% of the purchase price. For a primary market property, the buyer needs to sign the booking form and pay a fee determined by the developer.
2. Apply for a Loan
The buyer needs to send all required documents to facilitate the housing loan application.
3. Caveat (Only for Sub-Sale Properties)
The buyer’s lawyer will run a land search on the property to check for any encumbrances. If the property is free of encumbrances, the lawyer will lodge a caveat against the property in question.
4. Sign the Sales and Purchase Agreement (SPA)
If both the seller and buyer agree to the terms, they will sign the finalised SPA, which will be sent for stamping. The stamp duty is borne by the buyer.
5. Pay Down Payment
Be sure to ask the lawyer for the right amount.
6. Apply for State Consent (Only for Leasehold Sub-Sale Properties)
If the property is a leasehold property, the seller’s lawyer will apply for state consent to sell the property. This process can take from 1 month to 3 months.
7. Redemption Statement From the Seller’s Bank
The seller’s lawyer will request a redemption statement. A redemption statement is a document detailing the amount that needs to be paid to the bank to fully repay a housing loan before the property can be sold.
8. State Government Grants Consent (Only for Leasehold Sub-Sale Properties)
Once the state government grants consent, the lawyers will proceed with the transfer process.
9. Buyer’s Bank Releases Partial Loan Sum To Redeem Property
Based on the redemption statement from the seller’s bank, the lawyer will advise the buyer’s bank to release a portion of the loan to pay off the redemption sum (the outstanding sum that the seller owes the bank).
10. Sign and Stamp the Memorandum of Transfer (Form 14A)
The seller and buyer sign a Memorandum of Transfer (a document that transfers the ownership of a property from one person to another). For properties without a title, a Deed of Assignment is signed instead.
Upon signing, the buyer’s lawyer will submit the document for stamping. The stamp duty is borne by the buyer.
11. Register Transfer of Ownership at Land Office
Once the title is successfully registered in the name of the buyer, the lawyer will advise the buyer’s bank to release the balance loan sum.
12. Delivery of Vacant Possession
Once the balance sum is released, the seller’s lawyer will settle the apportionment (splitting of property expenses such as quit rent and assessment tax between the seller and buyer). The sub-sale property’s keys will be delivered to the buyer’s lawyer, and then handed over to the buyer. For the primary market, the keys will be given by the developer.
Investment Potential
Both primary and secondary markets offer potential for investment growth. Primary market properties may appreciate more over time, especially if located in an up-and-coming or hot area.
On the other hand, secondary market properties can offer immediate rental income, especially if the property is well-maintained and in an in-demand location.
Ultimately, the decision to purchase a property on the primary or secondary market would depend on your stage of life, needs, financial readiness, and risk appetite.
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