Real Estate Comparative Guide

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1 Legal framework

1.1 What legislation governs real estate in your jurisdiction?

There are a number of key pieces of legislation:

• The National Land Code 2020 governs:
• • land and land tenure;
  • the registration of title to land and of dealings therewith; and
  • the collection of revenue therefrom.
• The Strata Titles Act 1985 governs:
• • the subdivision of building or land into parcels;
  • the disposition of titles; and
  • the collection of rent and for purposes connected therewith.
• The Malay Reservation Enactment (FMS Cap 142) governs Malay reservations.
• The Strata Management Act 2013 governs the maintenance and management of buildings and common property within peninsular Malaysia and the Federal Territory of Labuan.
• The Environmental Quality Act 1974 governs:
• • the prevention, abatement and control of pollution; and
  • enhancement of the environment.
• The Town and Country Planning Act 1976 governs the control and regulation of town and country planning in peninsular Malaysia.
• The Federal Territory (Planning) Act 1982 governs the control and regulation of proper planning in the Federal Territory, for the levying of development charges and for purposes connected therewith or ancillary thereto.

For the purposes of this Q&A, unless otherwise specified, all responses are based legislation applicable to:

• peninsular Malaysia; and
• the federal territories of:
• • Kuala Lumpur;
  • Putrajaya; and
  • Labuan.

1.2 What special regimes apply to different types of real estate?

Land categorised with leasehold status comes with restrictions pertaining to transferability.

Land categorised as 'building' is subject to implied conditions prescribed in Section 116 of the National Land Code. In particular:

• such land may not be used for agriculture or industrial purposes;
• any building erected thereon must be maintained in repair; and
• no such building may be demolished, altered or extended without the prior written consent of the appropriate authority.

Land categorised as 'industry' is subject to implied conditions prescribed in Section 117 of the National Land Code. In particular:

• such land must only be used for industrial purposes in accordance with the relevant provisions of the National Land Code; and
• any building erected thereon may not be demolished, altered or extended without the prior written consent of the appropriate authority.

Land categorised as 'agriculture' is subject to implied conditions prescribed in Section 115 of the National Land Code. In particular, such land must only be used for purposes of agriculture in accordance with the relevant provisions of the National Land Code.

Land declared as a Malay reservation pursuant to the Malay Reservations Enactment (FMS Cap 142), may only be transferred, charged, leased or otherwise disposed of to any person not being a Malay. In the enactment, 'Malay' is defined as a person belonging to "any Malayan race who habitually speaks the Malay language or any Malayan language and professes the Moslem religion".

2 Ownership

2.1 What types of ownership rights exist in your jurisdiction?

There are two types of ownership, categorised by tenure of ownership. In the case of land with freehold status, there are no restrictions on the duration of its ownership. Land with leasehold status comes with:

• a fixed period of ownership, usually 99 years; and
• restrictions pertaining to transferability.

There are other types of rights referred to as interests in land. These rights are not ownership rights but must be registered for purposes of recognition (ie, leases, charges, liens and easements).

The rights granted under the National Land Code 2020 do not extend to matters pertaining to:

• land development;
• town planning; and
• the environment.

There are laws that govern land development, town planning and the environment that are applicable to landowners.

2.2 What ownership structures are commonly used in your jurisdiction?

Land may be owned by individuals or corporations. Land may also be held by two or more persons or bodies.

2.3 Are there any restrictions on real estate ownership in your jurisdiction?

Yes, restrictions are applicable in the circumstances described below. These circumstances should be identified at the earliest opportunity when a transaction is contemplated for project planning purposes or when structuring a transaction so that there is sufficient time allocated to attend to the relevant preparations, to obtain internal approvals, to facilitate processing time for relevant regulatory approvals to be obtained and to satisfy any conditions imposed by the relevant authorities:

• ownership by non-citizens – the purchase of land must adhere to the criteria prescribed by the relevant state in terms of the value of the property, location and category of land use. Prior approval is required;
• ownership of land categorised as Malay reserve land;
• the direct acquisition of land resulting in a reduction of ownership of Bumiputera interest and/or government agencies, where the value is MYR 20 million and above; and
• the indirect acquisition of land by non-Bumiputera by way of share sale, resulting in change in control in a Bumiputera company, where:
• • more than 50% of its assets are comprised in real estate ownership; and
  • the value of the real estate assets is more than MYR 20 million.

The term Bumiputera generally refers to citizens identified in the Federal Constitution as being of the Malay race or natives of the states of Sabah or Sarawak and which are subject to the criteria prescribed in the relevant provisions of the Federal Constitution.

2.4 Is ownership of land and buildings constructed thereon legally separable?

In the National Land Code 2020, 'land' is defined to include:

• the surface of the earth and all substances forming that surface;
• the earth below the surface and all substances therein;
• all vegetation and other natural products:
• • whether or not requiring periodical application of labour to their productions; and
  • whether on or below the surface; and
• all things attached to the earth or permanently fastened to anything attached to the earth, whether on or below the surface and land covered by water.

Separate ownership of land and building in the form of strata ownership is addressed in the Strata Title Act 1985, which addresses the process and criteria for subdivision of building or land into individual parcels.

2.5 What security interests can attach to real estate? How are they prioritised?

A charge can be registered against land as security for financing. This is the most common form of security interest that can be created over land. Upon registration, the charge will be reflected in the land registry records and on the land title. The existence of the land charge will also be disclosed in a land search. If there is more than one land charge registered, the land charge that was registered first in time is recognised as having priority over the subsequent land charges. In the National Land Code 2020, a land charge is described as a 'dealing' and a land charge is referred to as a registrable interest in land.

When conducting legal due diligence on real estate for a financing transaction or otherwise, it is usual to conduct a land search to ascertain:

• conditions attached to the land title itself;
• restrictions in interest; and
• whether there are any other dealings registered against the property.

Other than a land charge, examples of dealings that will be recognised are dealings that are registered against the land, such as:

• the transfer of ownership of land;
• the creation of a lease;
• lodgement of a private caveat;
• lodgement of a lien holder's caveat;
• the creation of a power of attorney;
• the creation of a trust; and
• the creation of an easement.

3 Registration

3.1 What body administers the land register in your jurisdiction?

The register is administered at a state level by the individual states. Transactions affecting land registration will be administered by the land registrar or the land administrator, depending on the locality and administrative jurisdiction of the relevant land.

As each state maintains its own land register, land searches must be conducted in the state where the land is situated. Land transfers or any other dealings affecting the land register must be registered with the relevant land office that has jurisdiction over the relevant land (eg, lodgement and withdrawal of caveats, registration of land charge, submission of an application for consent).

3.2 Is registration of real estate rights, transactions and encumbrances mandatory? What are the consequences of failure to register?

The National Land Code 2020 prescribes real estate rights, transactions and encumbrances that are recognised. Section 340(1) of the said code specifies that the title or interest of any person or body for the time being registered as a proprietor of any land, or in whose name any lease, charge or easement is for the time being is registered, will be indefeasible (in the absence of any fraud, misrepresentation, forgery, void instrument or unlawful exercise of power). Upon completion of the registration process, the particulars of the relevant real estate right, transaction or encumbrance will be reflected on the land title and in the land registry. Information on transactions registered against the land is publicly accessible by conducting a land search.

3.3 What are the formal and documentary requirements for registration?

In general, these are as follows:

• the original land title, a certified true copy of the quit rent receipt and the assessment receipt;
• the relevant form prescribed under the National Land Code 2020, duly executed and with the relevant stamp certificate evidencing payment of stamp duty (where applicable);
• the original consent/approval letter issued by the state authority (where applicable);
• certified true copies of identification documents (ie, identity card or passport); and
• relevant transaction documents.

In the case of a company, additional documents required will include:

• certified true copies of resolutions;
• the constitution of the company; and
• relevant statutory forms.

As many types of registration dealings are administered at the land registry (eg, trust deed, power of attorney, easement), other types of supporting documents may be required. It is prudent to specifically inquire with the relevant land office for their usual requirements so that all relevant documents can be compiled for submission.

3.4 What is the process for registration?

The submission documents described in question 3.3 are presented at the land office for registration. Submission documents must be accompanied by payment of the relevant registration fees. A presentation receipt will be issued.

In certain circumstances, signatories must attend to an in-person identity verification process at the land office prior to submission of documents for registration.

After submission, the documents will be processed by the land office for registration purposes. The registration process may take several weeks or months. Upon completion of the registration process, the original land title will be updated to reflect the particulars of the registration transaction (eg, name of the new landowner, name of chargee). Thereafter, the updated land title will be ready for collection from the land office.

3.5 Is registered information publicly accessible?

Yes. Information on transactions registered against the land can be obtained by conducting a land search.

Section 385 of the National Land Code 2020 provides that any person may apply to the registrar for an official land search in respect of any land, accompanied by the prescribed fee.

Land searches can be conducted online or at the relevant land office.

Information on the registered proprietor, encumbrances, conditions of title, restrictions and other dealings affecting the land will be reflected on the results of the land search.

4 Commercial leases

4.1 What types of commercial leases exist in your jurisdiction?

Commercial leases can take the form of a tenancy or a lease. Conceptually, tenancies and leases are similar. The key distinction between these two concepts is the duration of the agreement. Under the National Land Code 2020, in order to be recognised as a tenancy, the duration of the agreement must be for three years or shorter. In general, the duration of a lease is for more than three years and up to a maximum of 99 years, subject to additional criteria prescribed in the National Land Code 2020. Leases can also be registered against the land.

A lease or a tenancy can be created over an entire piece of land or for part of the land (with or without buildings thereon).

A lease or tenancy can also be created over an entire building or part of a building (eg, commercial office unit, retail unit, multiple floors within a building); although in this case, the rights would be specific to the building or part thereof and not the entire piece of land.

4.2 Are the terms of a commercial lease regulated or freely negotiable? What do they typically cover (eg, duration; security deposit; rent; sub-letting; termination)?

The National Land Code 2020 specifies certain minimum terms which are implied in lease agreements and tenancy agreements; however, for the most part, the terms are freely negotiable.

Examples of terms commonly addressed in tenancy and lease agreements are terms relating to:

• duration;
• security deposit;
• rental rates;
• subletting;
• termination; and
• indemnities.

4.3 What are the formal and documentary requirements for conclusion of a commercial lease?

In terms of formality, after the terms of a lease are mutually agreed upon, the lease agreement will be executed by the lessor and lessee and then stamped.

If the lessee is a foreign company, after the lease agreement is executed and stamped, it will be necessary to submit an application to the state authority for consent to register the lease.

Upon approval being granted by the state authority, the parties may proceed to execute the prescribed lease registration form and stamp it. If the property is charged to a financial institution, it will be necessary to obtain the prior written consent of the financial institution. The chargee will also have to sign the lease registration form.

The duly executed and stamped prescribed lease registration form executed by the relevant parties (ie, the lessor, the lessee and, if applicable, the chargee) will then be presented for registration at the relevant land office for registration together with the relevant supporting documents.

In addition to the stamped lease registration form, other documents that must be presented for registration include:

• the original title;
• identification documents; and
• receipts evidencing payment of quit rent and assessment charges.

If any party is a company, it will be necessary to provide:

• certified true copies of corporate secretarial forms; and
• the company constitution (which contains reference to land transactions and resolutions).

If the property is charged, it will also be necessary to provide a separate written consent from the chargee.

4.4 What is the process for concluding a commercial lease?

When the lessee has identified the potential lease property and, upon viewing or inspecting the premises, is satisfied with the general condition of the property, the process of concluding a commercial lease is usually initiated when a letter of offer is signed by the lessee and the lessor.

The letter of offer will contain key commercial terms, such as:

• rental rates;
• variations;
• deposit amounts;
• commencement dates; and
• the grace period for the parties to finalise the terms for execution of the lease agreement.

Once the key terms in the letter of offer are mutually agreed upon, it will be signed by the parties. It is common for the lessee to pay an earnest deposit at the time the letter of offer is signed.

After the letter of offer is signed, the parties will proceed to review and negotiate the definitive terms of the lease agreement. This process usually concludes within the grace period specified in the letter of offer. Once the terms of the lease agreement are mutually agreed, the lease will be signed by the parties. At the same time, the lessee will pay the lessor the advance rental and the remaining deposits (eg, security deposit, utilities deposit).

4.5 What are the respective obligations and liabilities of landlord and tenant under a commercial lease, and what are the consequences of any breach?

The key obligations of a landlord are as follows:

• to maintain major infrastructure (eg, piping, electrical wiring, structural repairs) and ensure that the premises are safe for occupation;
• to allow the tenant to occupy the premises without interference; and
• to return the security and utility deposits at the end of the lease.

The key obligations of a tenant are as follows:

• to observe the full duration of the tenancy;
• to pay rent and all utility charges on time, as well as any service charges stipulated in the agreement;
• to keep the interior of the premises in good and reasonable condition and return it in the same state at the end of the lease;
• to use the premises only for the agreed purposes and comply with all relevant laws and bylaws;
• to maintain insurance on the tenant's property;
• to obtain prior approval before undertaking any renovations;
• not to cause any nuisance to other tenants or the landlord; and
• to redeliver vacant possession of the premises at the expiry of the duration of the tenancy.

Depending on the nature of the lease transaction and the outcome of negotiations, in the event of a breach, the consequences are usually more unfavourable for a tenant. If the breach is not remedied:

• the landlord is entitled to terminate the tenancy; and
• the tenant must:
• • forfeit all deposits; and
  • pay the landlord rental for the unexpired term of the tenancy as compensation for early termination of the tenancy.

4.6 How are rent variations typically effected throughout the term of the lease?

Rent variations are contractually incorporated into the lease agreement.

Examples of rent variations include:

• variation of rent on an annual basis;
• variation of rent upon renewal of the term of the lease; or
• variation on rent computed based on an agreed percentage of the monthly gross revenue of the tenant (in the case of a retail unit)

4.7 What taxes are levied on rental income?

Rental income is taxable (from the perspective of the lessor).

Rental income is also subject to service tax if the annual rental income meets or exceeds the prescribed annual threshold (currently MYR 1 million and above).

Lessors and lessees should obtain advisory support from tax consultants prior to engaging in lease activities, to ensure that all accounting and tax compliance considerations are addressed and supporting business and accounting records are properly updated.

4.8 Can a commercial lease be triple net?

Yes. There are instances of commercial leases that are granted on a triple net basis.

In general, the terms of a lease are freely negotiable. The National Land Code 2020 specifies that certain terms are implied unless expressly agreed otherwise by the parties to the lease agreement.

4.9 How are landlord and tenant disputes typically resolved?

Lease agreements usually contain contractual provisions to regulate how disputes are to be resolved.

Depending on the nature of the lease transaction and the outcome of negotiations, the dispute resolution process may:

• be designed to have a tiered process comprised of an informal resolution process and formal legal process; or
• refer only to the initiation of legal process (in the form of court proceedings or arbitration).

Legal proceedings are usually considered as a measure of last resort.

4.10 What types of guarantees are market practice and required by landlords to secure the tenant's obligations

Apart from the usual requirements for rental deposits and security deposits, tenants are sometimes required to provide:

• personal guarantees;
• corporate guarantees; or
• bank guarantees.

These are quite common in the case of tenancies for retail units.

5 Real estate transactions

5.1 What form do real estate transactions typically take in your jurisdiction?

The sale and purchase of property, tenancies and leases are examples of common real estate transactions in Malaysia.

Non-citizens and foreign companies (within the meaning of the National Land Code 2020) that wish to engage in real estate transactions such as acquisitions and leases must adhere to prescribed guidelines (eg, relating to location, transaction value). Before initiating a real estate transaction, these prescribed guidelines should be identified in advance to facilitate the process of identifying property that meets the prescribed criteria. Under the National Land Code 2020, non-citizens and foreign companies must obtain prior approval for transactions or dealings such as:

• land transfers;
• leases;
• charges;
• liens;
• easements; and
• caveats.

Residential property can be purchased directly from developers so that purchasers are the first owners of the property. It is also very common to engage in what is called a 'sub-sale', where property is not purchased directly from a developer, but from another property owner.

In Malaysia, the typical duration of a tenancy is a maximum of three years. A tenancy that has a longer period of three years is commonly referred to as a 'lease'. Leases can be registered against the title of the property.

Tenancies for residential property and commercial properties are very common (eg, office units, retail units).

Real estate transactions involving industrial property are also common (eg, acquisition of vacant land to facilitate construction of a factory with supporting facilities).

5.2 Which players are typically involved in a real estate transaction in your jurisdiction?

In most real estate transactions, the key players will include:

• property agents;
• solicitors; and
• financial institutions.

5.3 Is the seller bound by a duty to disclose? What representations and warranties will it typically make?

Sellers are expected to represent and warrant that:

• they are the registered proprietor;
• there are no encumbrances;
• there are no claims against the property;
• they own all items comprised in the property; and
• they have full authority to deal with the property and all items comprised therein.

5.4 What due diligence is typically conducted in a real estate transaction?

Public searches are conducted on the owner of the property and on the contracting parties (eg, bankruptcy searches, winding-up searches, company searches).

Land searches are conducted on the property to obtain information on the land title and dealings registered against the property (especially for transactions involving the acquisition of land and lease registration transactions).

In the case of the purchase of vacant land intended for construction, soil investigations, land surveys and other forms of diagnostic exercises are common; however:

• these types of exercises require the prior consent of the landowner; and
• consent is given at the discretion of the landowner.

5.5 What are the formal and documentary requirements for conclusion of a real estate transaction?

In the case of a sale and purchase transaction for real estate, the transaction process is initiated by a signed letter of offer, followed by a signed sale and purchase agreement (SPA) (after the conclusion of negotiations).

At the relevant time during the sale and purchase transaction, the original land title, the prescribed land transfer form and relevant supporting documents required by the land registry (eg, receipts, identification documents) must be presented at the land registry to facilitate the registration process for the transfer of the property. If any party is a corporation, additional supporting documents – such as corporate secretarial forms, resolutions and the constitution – must also be presented to facilitate the property transfer process.

Presentation of the land transfer form together with the relevant supporting documents, following payment of the balance purchase price and physical delivery of the property, usually represents the conclusion of a real estate transaction. The transfer application will be processed by the land office and formal registration will occur subsequently. Upon conclusion of the real estate transaction, the respective parties will also attend to relevant change of ownership notifications for any outgoings pertaining to the property (eg, utilities, services, local council taxes, etc.).

Where the purchaser is a foreign individual or a foreign company, after the SPA is executed and stamped, it will be necessary to submit an application to the state authority for consent to purchase the property. This consent must be obtained prior to submission of the land transfer form for registration of the transfer.

If the purchaser obtains a loan to finance the purchase of the property, it must execute additional agreements to formalise the financing arrangement and creation of security interest in favour of the financial institution.

5.6 What is the process for concluding a real estate transaction? How long does this take? What costs are incurred?

Once the SPA is signed, the process for completion may take three to six months, depending on whether additional consents must be obtained by the relevant parties prior to completion of the purchase.

Other than its own legal fees, a purchaser must bear the costs of stamp duty payable on the transfer of the property and land office fees. The rate of stamp duty payable differs and depends on whether the purchaser is a citizen or a non-citizen or a foreign company.

Other than its own legal fees, the seller must bear real property gains tax and the commission payable to its real estate agent. The seller must also ensure that all outgoings pertaining to the property are fully settled up to the point of the transfer of the property (eg, utilities, services, local council taxes, etc.). The sale and purchase agreement will have provisions to address the settlement of outgoings incurred on the property and any reimbursements.

If the property is charged, the existing loan must be settled. The settlement process can be included in the sale and purchase transaction or attended to separately by the seller. The seller must bear the legal costs associated with the settlement of the existing loan and land office fees.

If the purchaser is a non-citizen or foreign company within the meaning of the National Land Code 2020, the purchaser must bear the consent fee prescribed by the relevant state authority for approval to acquire property.

In terms of transaction planning, parties preparing to initiate a real estate transaction should consider obtaining preliminary advice on the proposed transaction as well as the anticipated costs, especially if the transaction involves a non-citizen or a foreign company within the meaning of the National Land Code 2020.

5.7 What are the respective obligations and liabilities of buyer and seller, and what are the consequences of any breach?

The key obligations of the seller are as follows:

• to deliver the title;
• to ensure that the property is free from encumbrances;
• to deliver vacant possession of the property (unless agreed otherwise between the parties); and
• to file statutory returns pursuant to the Real Property Gains Tax Act 1976.

The key obligations of the purchaser are as follows:

• to pay the purchase consideration;
• to pay stamp duty on the transfer of the property; and
• to file statutory returns pursuant to the Real Property Gains Tax Act 1976 and pay the prescribed portion of the purchase consideration to the Inland Revenue Board pursuant to the Real Property Gains Tax Act 1976.

In a sale and purchase transaction, if there is any breach of the terms of the sale, the agreement may be terminated. If the party in breach is the purchaser, the seller is entitled to forfeit the deposit paid by the purchaser. If the party in breach is the vendor, the vendor must return to the purchaser:

• all moneys paid by the purchaser towards the purchase consideration; and
• an additional sum equivalent to the deposit paid by the purchaser as agreed liquidated damages.

5.8 What taxes are payable on a real estate transaction?

In a real estate transaction:

• sellers are responsible for paying real property gains tax; and
• purchasers are responsible for paying ad valorem stamp duty on the transfer of the property.

Real property gains tax is a tax imposed on chargeable gains resulting from the disposal of real property. The highest rate of tax is 30%. The applicable tax rate will depend on:

• the duration of ownership of the property; and
• whether the seller is an individual or a company.

Stamp duty is computed based on the amount of purchase price or consideration. The highest rate of rate of stamp duty is 4%. There are exemptions or reductions for transactions attracting stamp duty. These are announced from time to time.

If the purchaser obtains a loan to finance the purchase of the property, the purchaser will also be required to pay ad valorem stamp duty for the loan transaction.

In terms of transaction planning, parties preparing to initiate a real estate transaction should consider obtaining preliminary advice on the applicable rate of real property gains tax or stamp duty, as the case may be.

6 Real estate finance

6.1 Who are the most common providers of real estate finance in your jurisdiction? Do any restrictions apply in this regard?

Licensed financial institutions (banks) are the most common providers of real estate finance.

In the case of sophisticated financing structures sourced from outside Malaysia, it will be necessary to consider whether the nature of the financing or the amount of financing sought to be obtained will trigger prior approval requirements from the Central Bank of Malaysia.

6.2 What forms of real estate finance are available in your jurisdiction?

Bank loans to finance the purchase of real estate or to refinance existing property loans are quite common forms of real estate finance.

6.3 What formal, documentary and other requirements do lenders typically require of borrowers?

Individuals who apply for financing will usually be required to provide:

• proof of income;
• bank statements;
• identification documents; and
• evidence of the intended purchase (eg, letter of offer or a booking form)

If a company applies for financing, similar documents are required (eg, financial statements, corporate information).

These documents are usually intended to facilitate a due diligence process conducted by lenders when reviewing the loan application. Additional documents may be required based on the circumstances of the loan applicant or the nature of the financing.

6.4 What type of security interests are typically required by lenders?

A land charge will be created over the property in question as security for the financing. If the land title has not been issued, a deed of assignment will be executed first. When the land title is eventually issued, the process for registering the land title in the name of the borrower will also include the creation of a land charge (in substitution of the deed of assignment).

If the borrower is a company, it must also usually provide corporate guarantees or personal guarantees of the individual directors and shareholders.

Additional security may be required based on:

• the circumstances of the loan applicant; or
• the nature of the financing.

In more sophisticated transactions, the financial institution may require additional security (eg, debenture, assignment of proceeds of a contract).

6.5 What is the process for obtaining real estate finance? What costs are payable?

There is an application process for obtaining real estate finance. The bank will conduct a review of the supporting documents submitted (see question 6.3) and carry out credit checks.

Usually, during the application stage, there are no costs payable.

Once the application is approved, the applicant must execute the financing and security agreements (eg, loan agreement and land charge agreement). The applicant must bear:

• the legal fees and stamp duty for the loan;
• registration fees or filing fees for the registration of the land charge at the land office and filing of the relevant statutory forms prescribed in the Companies Act 2016; and
• depending on the nature of the loan financing approved, potentially other transaction-related or administrative expenses.

The process of disbursement of the loan proceeds will be synchronised with the sale and purchase transaction.

6.6 How is security enforced in case of any breach?

In the event of a breach, the chargee may:

• obtain possession of the property; and
• seek a court order for the sale of the property.

The chargee must demonstrate to the court that that it has adhered to the relevant procedure as part of the process of obtaining the court order. An order for sale can only be obtained against a registry title and not a land office title.

7 Real estate investment

7.1 Who are the most common investors in real estate in your jurisdiction? Do any restrictions apply in this regard?

The most common investors are:

• private individuals;
• property developers; and
• foreign investors.

Please refer to question 5.1 regarding restrictions on non-citizens and foreign investors acquiring real estate in Malaysia.

In general, the National Land Code 2020 prescribes certain conditions and restrictions-in-interest that will apply to a property. These conditions and restrictions can be identified by conducting a land search.

7.2 What investment vehicles are typically used in your jurisdiction? What are the benefits and drawbacks of each?

The most common investment vehicle is a private company limited by shares. It is used by foreign investors to acquire land for business operations. Domestic investors also use it to acquire property for investment or for business operations.

Malaysia also has real estate investment trusts (REITs) in a number of industry segments (eg, shopping malls, hospitality, office buildings, industrial buildings and healthcare facilities).

7.3 How are these vehicles established and administered in your jurisdiction?

A private company limited by shares is a separate legal entity. It is the most common type of legal entity in Malaysia. Under the Companies Act 2016, it has full capacity to carry on or undertake any business or activity. This includes:

• entering into transactions;
• initiating legal proceedings;
• being sued; and
• acquiring, owning, holding, developing or disposing of any property.

The governing legislation for a private company limited by shares is the Companies Act 2016. There is an incorporation process for establishing the company. There are also statutory reporting and filing obligations to be adhered to once a company is incorporated.

REITs are governed by the Capital Markets and Services Act 2007. REITs operate in a structured environment comprised of:

• the unit holders;
• the management company; and
• the trustee.

REITs require the prior approval of the Securities Commission to be listed on Bursa Malaysia. They must adhere to a regulatory framework that includes reporting and listing obligations.

8 Planning and zoning

8.1 How is land use regulated in your jurisdiction?

Land use falls within the jurisdiction of local authorities. These are commonly referred to as the 'local council' or 'municipal council' within a particular local area or administrative jurisdiction.

The local authority has the authority to regulate, control and plan the development and use of all lands and buildings within its area.

No one may use or permit to be used any land or building otherwise than in conformity with the local plan. The local plan for a particular local area or administrative jurisdiction contains zoning information. Zoning information can be obtained from the local authority.

Pursuant to the Town and Country Planning Act 1976, planning permission must be obtained from the local authority prior to any development being commenced or undertaken within the jurisdiction of the relevant local authority. The Town and Country Planning Act 1976 applies to all states in peninsular Malaysia except for the federal territories. For land falling within the federal territories (eg, Kuala Lumpur), the applicable legislation is the Federal Territory (Planning) Act 1982.

8.2 What is the process for obtaining planning permission? How long does this take? What costs are incurred?

An application for planning permission involves consideration at a number of levels within the local authority and by various agencies.

There is also a public notification to inform the owners of neighbouring land of:

• the proposed development;
• their right to object to the application; and
• the need to state their grounds of objection within the prescribed period.

The processing time for an application for planning permission may take between six and 12 months. A longer timeframe may be expected:

• for applications involving more complex elements; or
• where public objections are anticipated.

The process for preparing and submitting an application for planning permission involves engaging relevant consultants (eg, architect, town planner, engineer, surveyor, other specialist consultants).

Application and plan submission fees are also payable to the local authority; the actual amount depends on the nature of the development. There are a number of factors to be incorporated when computing the application fees. In addition to the application fees, the applicant must pay development charges.

After considering all relevant factors pertaining to the application, the local authority is authorised to:

• grant planning permission either:
• • absolutely; or
  • subject to such conditions as it thinks fit to impose; or
• refuse to grant planning permission.

8.3 Can a planning decision be appealed?

Yes. An appeal must be filed with the Appeal Board within the prescribed grace period by an applicant or any person that has lodged an objection during the public notification period.

8.4 What are the consequences of failure to obtain planning permission or to comply with a planning condition?

Under Section 26 of the Town and Country Planning Act 1976, it is an offence to:

• undertake development without obtaining planning permission; or
• undertake development contrary to planning permission.

A person who, on their own instance or at the instance of another person, commits such an offence:

• is liable upon conviction to:
• • a fine not exceeding MYR 500,000;
  • imprisonment for a term not exceeding two years; or
  • both; and
• in the case of a continuing offence, will incur a further fine which may extend to MYR 5000 for each day during which the offence continues.

In addition to the consequences described in Section 26, the local authority is empowered to take prescribed enforcement action for such circumstances – for example, to:

• issue a notice to require submission of an application for planning permission;
• issue a notice to require restoration; or
• issue a notice for discontinuation.

8.5 Is expropriation of land possible in your jurisdiction?

Yes. The Land Acquisition Act 1960 empowers the State Authority to acquire any land which is needed:

• for any public purpose;
• by any person or corporation for any purpose which, in the opinion of the State Authority, is beneficial to:
• • the economic development of Malaysia or any part thereof; or
  • the public generally or any class of the public; or
• for the purpose of mining or for residential, agricultural, commercial, industrial or recreational purposes, or any combination of such purposes.

The legislation addresses:

• the procedure for the acquisition of land;
• the assessment of compensation to be made on account of such acquisition; and
• other matters incidental thereto.

8.6 Is confiscation of land possible in your jurisdiction?

Yes. Land is liable to be forfeited to the State Authority in the event of:

• arrears in quit rent; or
• breach of any conditions of title.

9 Environmental

9.1 What main environmental legal provisions apply to the development, use and occupation of real estate?

The Environmental Quality Act 1974 contains provisions that are relevant to the development, use and occupation of real estate. The purpose of the legislation is to address the prevention, abatement, control of pollution and enhancement of the environment.

9.2 Who can be held liable for environmental contamination and how are clean-ups effected?

Under the Environmental Quality Act 1974, the owner or occupier of a vehicle, ship or premises where environmentally hazardous substances are being emitted, discharged or deposited can be held liable.

The legislation empowers the director general of the Department of Environment to give instructions to and require the owner or occupier to take measures to reduce, mitigate, disperse, remove, eliminate, destroy or dispose of pollution.

9.3 What environmental provisions and considerations should be factored into real estate transactions?

Prospective purchasers should conduct preliminary due diligence to ascertain that the intended activity for the property is consistent with the approved use of the land, zoning conditions and local council requirements for such activities. This is particularly pertinent for large-scale development projects.

Prospective purchasers should also obtain preliminary advice from relevant professional consultants as part of the initial due diligence exercise.

If the activity to be undertaken on the property is designated as an activity which may have a significant environmental impact pursuant to the Environmental Quality Act 1974, an assessment report must be prepared in accordance with prescribed guidelines and submitted to the relevant Department of Environment for prior approval. This is an additional approval process to be coordinated with other approval processes involving other relevant authorities.

If there are key elements that need to be ascertained before committing to a purchase (eg, diagnostic procedures such as soil test, assessment reports), a prospective purchaser may request permission from the landowner to carry out such procedures before committing to the purchase. There are commercial points for the landowner to consider.

Terms to address environmental concerns or intended use of the land can be incorporated in the sale and purchase agreement. The nature and extent of such terms will depend on the outcome of the negotiation process.

9.4 What initiatives are in place to promote green buildings and energy efficiency in your jurisdiction?

Malaysia has introduced tax incentives to promote green buildings and energy efficiency.

These incentives apply to:

• the construction of a building or the alternation, renovation, extension or improvement of an existing building or plant or machinery for the purpose of obtaining the relevant green building rating certification recognised by the Malaysian Green Technology and Climate Change Corporation;
• the purchase of green technology assets for the purposes of carrying on a qualifying activity. Qualifying activity includes energy efficiency and 'green technology assets' and refers to green technology products, equipment or systems which are used to:
• • conserve the natural environment and resources; or
  • minimise or reduce the negative impact of human activities; and
• the provision of 'qualifying services', including services relating to:
• • energy efficiency;
  • green building;
  • green certification and verification; and
  • green township.

In order to be eligible for tax incentives, an application must be submitted to the relevant authorities for prior approval. Landowners should consult in advance with tax advisers prior to undertaking any planning for these types of projects:

• so that the relevant information required when submitting an application for approval is taken into consideration during the initial or project planning phase; and
• with a view to being recognised as eligible for these projects when the relevant application for these incentives are submitted for approval.

9.5 What types of environmental certifications apply in your jurisdiction?

In terms of green building certifications, the Green Building Index and GreenRE respectively are available certifications that building owners may apply for. However, green building certifications are not mandatory.

10 Trends and predictions

10.1 How would you describe the current real estate market and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Malaysia comprises 13 states and three federal territories:

• Kuala Lumpur (the capital);
• Putrajaya (the administrative capital); and
• Labuan (the offshore financial centre).

The real estate market in each state is dictated by factors unique to the relevant states.

In general, commercial real estate is observed to be one of the more active sectors in the real estate market. Mixed-use developments continue to be popular. Green buildings are also popular. There is also a continued demand for affordable housing, for which the government has also introduced initiatives to meet demand.

In terms of new developments, the self-assessment system for real property gains tax came into effect on 1 January 2025. This is now followed by the self-assessment system for stamp duty. The self-assessment system, as the name suggests, represents a change in the administration of stamp duty under the Stamp Act 1949. The rollout will be in three phases over three years:

Phase	Commencement date	Applicable instruments/agreements
Phase 1	1 January 2026	Rental agreements, lease agreements, securities and general stamping
Phase 2	1 January 2027	Instruments of transfer (not involving the valuation and property services department)
Phase 3	1 January 2028	All other instruments/documents

With this development, individuals and businesses are responsible for:

• providing relevant information in connection with the relevant instrument or agreement sought to be stamped; and
• declaring the stamp duty amounts payable.

Any errors or underpayment may be subject to penalties in accordance with the Stamp Act 1949. It would be prudent to obtain advisory support ahead of commencing certain transactions so that proper planning and documentation can be incorporated into the transaction process to enable all relevant information to be compiled in advance to facilitate the relevant disclosures during the stamping process.

The proposed Urban Renewal Act was tabled in the Malaysian Parliament in 2025. It had its second reading in August 2025. A third reading is expected to take place in October 2025. The purpose of the proposed legislation is to facilitate the redevelopment or revitalisation of:

• old urban neighbourhoods;
• old buildings;
• unsafe apartments; and
• abandoned developments.

The proposed legislation sets out:

• the criteria for an area to be declared as an urban renewal area;
• the duty of the body responsible for urban renewal to acquire all land situated within the area for urban renewal; and
• the grace period for commencement of the urban renewal project, among other elements relevant to the framework.

During the tabling of Malaysia's Budget 2026 proposal on 10 October 2026, there were several announcements relating to sale and purchase of property and conversion of property for residential use, respectively:

• For first time homebuyers, the existing stamp duty exemption program for residential properties valued up to RM500,000 will be extended from 1 January 2026 to 31 December 2027. This exemption program applies to transfer deeds and loan agreements for the purchase of a first home.
• The rate of stamp duty on instruments of transfer for residential properties purchased by non-citizens (other than permanent resident status) and foreign companies will be increased from a flat rate of 4% to a flat rate of 8%, with effect from 1 January 2026.
• A special tax deduction has been proposed for the conversion of commercial properties into residential use. The proposed rate of tax deduction is 10% on qualifying renovation and conversion expenditure, and the maximum amount permitted for tax deduction is RM10,000,000.00.

11 Tips and traps

11.1 What are your top tips for the smooth conclusion of a real estate transaction and what potential sticking points would you highlight?

In any type of real estate transaction, parties should engage legal representation as early as possible to obtain preliminary advice on the proposed transaction – for example, in relation to issues such as:

• the criteria of properties eligible for purchase in the case of a foreign purchaser;
• prior approvals from the relevant authorities in the case of a foreign purchaser or a foreign lessee; and
• an estimate of relevant transaction costs.

Advisory support obtained ahead of time:

• will guide decision making and facilitate planning and preparations; and
• will also be useful when:
• • assessing property identified for purchase or lease; or
  • engaging in discussions with potential sellers or lessors or real estate agents.

If financing is required, discussions should be initiated in advance with relevant financial institutions to obtain preliminary feedback about financing opportunities and processing times.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.