Malaysian properties are divided into two main types in terms of leases, namely freehold and leasehold. Freehold property is pretty straight forward, basically once you buy the property, both the land and building are yours till the end of time. Leasehold properties usually have a time period when the property belongs to your but after which you have to return the property to the developer. This period of time is usually 99 years in Malaysia.
Although many leasehold properties are yet to reach their expiration date, it is important to know the laws involved and the ways you can extend the lease before it expires. Basically as the lease on a property approaches its expiry date by less than 50 years, the value of the land may depreciate until and unless the lease is renewed
How do I renew or extend the leasehold?
According to Malaysian law, all land belongs to the state and developers basically ‘rent’ or ‘lease’ the land for 99 years to build property on it. Therefore any leasehold land that has exceeded its lease period will automatically revert back to the state government, basically making your house or apartment (that sits on that land) illegal. There are currently two methods to renew your leasehold.
This method is really simple as it involves the owner paying RM1000 to the state government for a direct extension of the lease. The only downside is that the owner is not allowed to sell the property and can only transfer it to another family member, usually the next generation. The state government usually approves these leasehold extensions without much problems. However, they do have the right to deny a leasehold application if they want the land back for other developments (for example to build a highway)
Method two is slightly more complicated as it involves the owner paying a premium to the state government. This premium is calculated based on the market price and size of the property. In Selangor for example, the state government uses the following formula to calculate the full premium:
Premium = ¼ x 1/100 x Market Value of land (in sq ft) x number of years to renew x land area (in sq ft)
The good aspect of this second method is that you are free to sell the property after obtaining the new title.
In both methods, you will have to take into consideration the legal fees involved and some miscellaneous fees the state government requires, including a contribution to the community cemetery fund.