Are you planning to sell your house in Malaysia within five years of purchase? If so, there are several important factors you need to consider before proceeding. Selling property within this timeframe comes with various considerations and implications, such as the Real Property Gains Tax (RPGT), which is higher if you sell within those initial years. You’ll also need to handle the usual legal and administrative tasks, including clearing property titles, settling any outstanding loans, and preparing the necessary documentation with a lawyer.

For foreign property owners, there may be further requirements, such as meeting minimum property value thresholds or obtaining relevant approvals. Moreover, market factors like location, demand, and timing will significantly influence the financial outcome of your sale. Here are 8 key facts to help you make informed decisions when selling your house within five years in Malaysia.

8 Impacts You Must Know Before Selling Your House within 5 Years in Malaysia

1. Real Property Gains Tax (RPGT)

Selling your house within five years of purchase will subject you to Real Property Gains Tax (RPGT). The rates for Malaysians are as follows:

• 30% on the profit if the property is sold within the first three years.
• 20% if sold in the fourth year.
• 15% if sold in the fifth year.
• 0% from the sixth year onwards.

These rates have been in effect since January 1, 2022. RPGT is calculated on the profit made from the sale, which is the selling price minus the purchase price, incidental costs, and any applicable exemptions. After the fifth year, Malaysian citizens are exempt from RPGT.

Example

Suppose you bought a property for RM500,000 and sold it three years later for RM700,000.

The profit is:

Selling price (RM700,000) – Purchase price (RM500,000) = RM200,000 (profit).

Assuming you spent RM10,000 on incidental costs (legal fees, agent fees, etc.),

your taxable profit is:

RM200,000 – RM10,000 = RM190,000.

The RPGT rate for sales within three years is 30%, so the tax payable is:

RM190,000 × 30% = RM57,000.

This calculation highlights the significant impact RPGT can have on your overall profit when selling a property within five years of purchase.

2. Loan Lock-In Period and Penalties

When taking out a housing loan in Malaysia, most agreements include a lock-in period that typically ranges from 3 to 5 years. This period is designed to discourage borrowers from settling their loans too early. If you sell your house or refinance the loan during the lock-in period, you may incur an early settlement penalty, which is usually between 2% to 3% of the outstanding loan amount.

The lock-in period starts from the date your loan is disbursed, not the date of signing the agreement. The penalty applies whether you fully repay the loan or switch to a new financing package.

How the Penalty is Calculated

The penalty is calculated based on the outstanding loan balance at the time of settlement. Here’s an example:

• Loan Amount: RM500,000
• Outstanding Balance: RM450,000 (after a few years of repayments)
• Penalty Rate: 3%

Penalty Amount = Outstanding Loan x Penalty Rate
Penalty Amount = RM450,000 x 3% = RM13,500

In this example, selling the house within the lock-in period would cost you RM13,500 in penalties.

How to Check Your Loan Agreement

The penalty rate, duration of the lock-in period, and any exceptions are stated in your loan agreement. Some banks may waive the penalty under certain conditions, such as refinancing with the same bank or if the loan has been partially repaid to a specific level.

3. Not Much Reduction in Your Bank Loan

If you’re planning to sell your house within five years of purchase, you should not expect a significant reduction in your loan balance. This is because, in the early years of a housing loan, the majority of your monthly payments go towards paying off the interest rather than reducing the principal amount.

How Loan Amortization Works

Housing loans in Malaysia typically follow an amortization schedule, where interest payments are front-loaded in the early years. This means that only a small portion of your monthly installments reduces the actual loan amount (principal), while most payments go to the bank as interest.

Example:

• Loan Amount: RM500,000
• Tenure: 30 years
• Interest Rate: 4%

Using a standard amortization schedule:

• Monthly Installment: RM2,387
• After 5 years (60 months), you would have paid RM143,220 in total installments.
• Out of this, only about RM37,000 would have gone towards reducing the principal, leaving the outstanding balance at RM463,000.

If you sell your house, the remaining balance of RM463,000 must be repaid to the bank. Coupled with penalties for early settlement, RPGT, and other selling costs, your actual profit may be minimal or even negative.

Why It Matters

This slow reduction in the principal amount means your equity in the property remains low during the first few years. If property appreciation hasn’t significantly boosted your property value, your sale proceeds might barely cover the outstanding loan and associated selling costs.

4. Stamp Duty and Miscellaneous Costs

When selling a property in Malaysia, it’s important to account for stamp duty and other miscellaneous costs, which can significantly impact your net proceeds. These costs are often overlooked but can add up quickly, reducing the financial benefits of your sale.

Stamp Duty

Stamp duty applies to both the purchase and sale of a property, but as a seller, you may still encounter associated costs, especially if you’re handling transfers or legal formalities. While the primary stamp duty for property purchases is paid by the buyer, you, as the seller, might incur duties for certain related transactions, such as:

• Loan agreement termination
• Transfer of ownership (if applicable)

Miscellaneous Costs

Aside from stamp duty, selling a property also involves a range of other expenses, including:

1. Legal Fees:

You’ll need a lawyer to handle the sales agreement and other legal formalities. Legal fees typically range from 0.5% to 1% of the property value.

2. Real Estate Agent Fees:

If you use a real estate agent, their commission is usually 2-3% of the selling price, which can be substantial depending on the value of your property.

3. Outstanding Utility Bills and Assessments:

Before transferring ownership, you’ll need to settle any unpaid utility bills, quit rent, or assessment taxes.

4. Property Valuation Fees:

If required by the buyer or lender, you might need to pay for a professional property valuation, costing around RM500 to RM1,500, depending on the property type and location.

Example

• Selling Price: RM600,000
• Real Estate Agent Fee (2%): RM12,000
• Legal Fees (0.7%): RM4,200
• Miscellaneous Costs: RM1,000 (utilities, valuation, etc.)

Total Costs: RM17,200

If you don’t account for these costs in your financial planning, they could significantly reduce your profits.

When selling a property within five years of purchase, ensure you budget for stamp duty, legal fees, agent commissions, and other miscellaneous costs. These expenses, combined with other factors like loan penalties and RPGT, could result in a much lower net gain than anticipated.

5. Property Market Trends

The success of selling your property in Malaysia within five years largely depends on prevailing property market trends. Factors such as economic conditions, demand, and location-specific growth can significantly impact your property’s value and the ease of selling. If the market is sluggish during the time of your sale, there’s a higher risk of financial loss, especially if property prices haven’t appreciated much since your purchase.

Factors Affecting Property Market Trends

Economic Conditions:

Economic stability, interest rates, and government policies (such as incentives for first-time buyers or tightening of loan approvals) directly influence buyer confidence and demand.

Location-Specific Growth:

Properties in high-demand areas like major cities (e.g., Kuala Lumpur, Penang, Johor Bahru) are more likely to appreciate faster. However, less-developed or oversupplied areas might experience slower growth or even depreciation.

Supply vs. Demand:

If the market is oversupplied with similar properties, selling within five years can be challenging, as buyers may negotiate for lower prices.

Global and Regional Factors:

External factors, such as global economic downturns or regional crises, can also impact the Malaysian property market, affecting your property’s value.

Example

• Purchase Price: RM500,000
• Expected Market Appreciation: 5% annually
• Market Trend Reality: Sluggish growth at 1% annually

After five years:

• Expected Value (5% annual growth): RM638,141
• Actual Value (1% annual growth): RM525,000

In this case, while you expected significant appreciation, sluggish growth results in a far smaller increase, which may not cover other selling costs like RPGT, agent fees, and loan penalties.

6. Developer-Imposed Restrictions

If you purchased your property directly from a developer, there may be certain restrictions or conditions imposed on selling the property. These restrictions are typically outlined in the Sales and Purchase Agreement (SPA) and can affect your ability to sell the house within the first few years of ownership.

Common Developer-Imposed Restrictions

1. Minimum Holding Period:

Some developers require a minimum holding period (e.g., 2 to 5 years) before the property can be sold. Selling within this period may result in penalties or require prior approval from the developer.

2. Consent Fees:

Developers may charge a consent fee to grant approval for transferring ownership of the property to a new buyer. This fee can range from a few hundred to several thousand ringgit, depending on the developer's policies.

3. Restrictions on Subsales:

For certain types of properties, especially those under affordable housing schemes, developers may impose subsale restrictions to prevent speculative investments. These restrictions are often aligned with state government policies.

Why These Restrictions Exist

These conditions are intended to curb property flipping and ensure that buyers purchase homes for genuine purposes rather than quick profits. However, they can pose challenges for owners who need to sell their property earlier than planned.

Example 

• Purchase Price: RM500,000
• Developer-Imposed Consent Fee: 2% of the purchase price = RM10,000
• Holding Period Restriction: 3 years

If you decide to sell the property after 2 years, you might need to:

• Pay the RM10,000 consent fee.
• Obtain written approval from the developer, which may delay the sale process.

What You Should Do

• Review Your SPA: Carefully read your Sales and Purchase Agreement to understand any restrictions or conditions.
• Consult the Developer: Contact the developer to clarify the requirements for selling the property and calculate any potential costs involved.
• Seek Legal Advice: If the restrictions are unclear, consult a property lawyer to avoid any legal complications during the sale.

7. Potential Financial Loss

Within five years of owning a property, maintaining a house often involves ongoing upkeep and, occasionally, significant repairs. These costs can include:

• Routine Maintenance: Regular tasks like cleaning, servicing HVAC systems, and maintaining household appliances.
• Major Repairs: Bigger expenses such as replacing a roof, repairing main plumbing lines, or addressing structural issues.

If you decide to sell your house within five years, you’ll also need to find a new place to live, whether by renting or purchasing another property. This process comes with additional expenses, such as:

• Rental Deposit: If you choose to rent, you’ll likely need to pay a security deposit and the first month’s rent upfront.
• Moving Costs: Expenses for professional movers, packing materials, and transportation logistics.
• Other Costs: This may include minor renovations, new furniture, or fees for setting up utility accounts in your new home.

All these expenses should be factored into your cost calculation to provide a clear picture of the actual profit (or loss) from selling your house within five years. Understanding these potential costs can help you make a more informed decision about whether selling is the right move.

8. Renovation and Maintenance Costs

If you’ve renovated or maintained the property to improve its value, these costs may not be fully recouped when selling within five years. Buyers may not value your renovations the same way you do, especially if they prefer their own designs. Additionally, wear and tear or lack of maintenance could lower the property’s appeal, forcing you to spend on touch-ups before listing it for sale. Factor these costs into your decision to sell early.

Why Renovation Costs May Not Be Fully Recouped

Subjective Buyer Preferences:

• Buyers may not share the same appreciation for your renovations, especially if they have different tastes or plan to redesign the property to suit their needs.

Market Value Limitations:

• Property prices in certain areas have a ceiling, and extensive renovations may not push your home’s value beyond what the market dictates.

Impact of Wear and Tear

• Reduced Appeal:If the property has not been well-maintained, visible wear and tear can deter potential buyers. This may lead to lower offers or force you to invest in repairs and touch-ups before listing the property.
• Costs of Pre-Sale Repairs:Minor touch-ups, painting, and fixing worn-out fixtures might be necessary to make the property market-ready, adding to your overall selling expenses.

Example

• Renovation Costs: RM50,000 (kitchen, bathrooms, and flooring upgrades)
• Expected Increase in Value: RM40,000 (due to market limitations or buyer preferences)
• Touch-Up Costs: RM5,000 (painting and minor repairs before sale)

In this case, your total renovation and maintenance expenses are RM55,000, but the property’s value only increases by RM40,000, leaving a shortfall of RM15,000.

Selling your house within five years in Malaysia involves numerous factors that require careful consideration, from tax implications like RPGT to market trends and associated costs such as legal fees, renovation expenses, and penalties. Each element can significantly impact your net returns and overall experience.

To make the process smoother and more profitable:

• Consult a real estate agent for insights into current market conditions.
• Seek advice from a financial advisor to understand your financial standing and potential gains or losses.
• Work with a lawyer to handle legal requirements and avoid complications.

Find your prefer property agent

Patience and thorough research are essential in navigating this process. By fully understanding the factors at play and planning strategically, you can ensure a smooth and financially sound transaction. Remember, selling at the right time and with the right preparation can make all the difference.

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• 5 Steps on How to Apply for a Housing Loan in Malaysia