Hidden cost of home ownership
So what is it now that I have paid the deposit for a home? Am I already in the home run and starting to pay for my installment to the bank? Is it that simple?
Not just yet, owning a house has many other hidden budgets that require you to allocate on top of your deposits and reserve for your first few monthly installments.
When purchasing a property in Malaysia, you need to consider various other costs in owning your own home.
Firstly, it is the Stamp Duties. What are stamp duties ? It is a tax that the government imposes on the instruments of transfer. This is what makes the document, agreement, licenses, deeds all legally binding.
Let's look at the few stamp duty charges when you are owning a property.
Property Stamp Duty
Property Stamp Duty refers to the tax applied to the transfer of ownership from the seller to you, the buyer. The legal document that officially transfers the ownership of the property from the seller to the buyer is called the Memorandum of Transfer (MOT). MOT is the legal document and needs to be stamped and submitted to the Land Office so the new owner's name can be registered.
The stamp duty for the MOT is also based on the purchase price or market value of the property (whichever is higher), and it is paid separately from the SPA stamp duty.
Property Value Bracket Stamp Duty Rate
First RM100,000 1%
Next RM400,000 2%
Next RM500,000 3%
Above RM1,000,000 4%
Property Stamp Duty calculation:
For properties valued at RM600,000, the SPA Stamp Duty is 1% on the first RM100,000 + 2% on the next RM400,000 + 3% on the remaining RM100,000.
Calculation:
1% of RM100,000 = RM1,000
2% of RM400,000 = RM8,000
3% of RM100,000 = RM3,000
Total Stamp Duty = RM1,000 + RM8,000 + RM3,000 = RM12,000
SPA Stamp Duty
The SPA is the first document you or the seller will sign to agree on the purchase terms. A small duty is paid to recognize the sale contract and it is usually RM10/copy and it is to confirm the agreement is legally recognized.
Loan Agreement Stamp Duty
If you are taking financing from a bank, the loan agreement (is an instrument) and has to be charged a Loan Agreement Stamp Duty and it is based on a flat rate of 0.5% The stamp duty for the loan agreement is fixed at 0.5% of the loan amount.
For a RM1 million loan, stamp duty = RM1,000,000 × 0.5% = RM5,000.
In addition, buyers should also set aside a sum from the loan agreement legal for for legal professional fees, which cover the preparation of contracts and all necessary documentation and a charge of sales & service tax of 6%.
Insurance Costs
As a homeowner, you should definitely budget for insurance costs as part of your property expenses. Having a home insurance is highly recommended to protect your property and its contents, such as a fire insurance which covers damage to your property caused by fire, flood, earthquake, theft, or other disasters.
Another type of insurance is the life insurance policies designed to protect homeowners with a mortgage loan. If you have taken a mortgage from a bank, they will sometimes offer you life insurance to cover your loan mortgage in the event something uneventful happens to you.
For first-time home buyers, there will be exemptions on the stamp duty for the MOT and loan agreements. This is applicable for all residential property purchases up to RM 500,000 from 1 January 2021 to 31 December 2025 based on the recent Budget 2024.
Owning a home is more than just the purchase price and mortgage payments. It’s crucial to plan for hidden costs to avoid surprises. Our PropNex consultants are able to guide you through the process and connect you with trusted mortgage experts.
By budgeting wisely, you can ensure a smooth and financially stable homeownership experience.
END
