Friday, January 8, 2010

Extension and renewal of Malaysia leasehold land tenure

If you are planning to buy, or are already the owner of, a property built on leasehold land, you might be wondering (or worrying) about what will happen and what should you do when the tenure of your leasehold land going to expire in the future.

In fact, the tenure can be renewed and extended to another 30, 60 or 99 years.

The following info are obtained from the National House Buyers Association.

Section 197 of the National Land Code 1965 (Act 56 of 1965) governs the extension of land leases.

Before applying for an extension, the lease must be firstly surrendered back to the state government. Then, both the property developer and leasehold land owner(s) have to submit the Permohonan Serahbalik dan Mohon Semula Tanah Untuk Tujuan Melanjutkan Tempoh Pajakan form, together will all the required photocopied documents such as land title, site plan, quit rent receipt, assessment receipt, etc. to the state's land office.

If the lease already expired, the form need to submit will be Permohonan Pemberimilikan Tanah (Application for Land Re-alienation) instead.

The land will then be checked by a settlement officer, who will then submit a report to exco for approval.

After approval, the land will need to go through re-alienation process by the land administrator.

If the re-alienation is approved, the land office will issue a Notice that Land Revenue is Due (Form 5A) to the property owner to pay a premium.

The premium charged is based on a formula factoring the following into calculation:
  • Premium rate (in percentage)
  • Land size
  • Market value per square feet
  • Lease tenure period
For example, the renewal premium for a residential land at rate of 0.5% of size 25 x 80 with market value of RM20 psf for 99 years is:

0.5% x 25 x 80 x RM20 x 99 = RM19,800 (RM200 per year).

The land valuation is done by the Valuation and Property Services Department of Finance Ministry, and is based on the latest transaction values in the area.

If the owner feel that the premium is too high, he has the option to appeal to the state government for a reduction.

Upon payment of the premium, the land office will get the land title ready and inform the property owner when it is ready for collection.

If the owner does not renew the land tenure and let it expire, the land will revert back to the state government, and be available to anyone to apply for its new ownership.


Anonymous said... Reply To This Comment

how about condo's project? can owners extend the lease individually?

Anonymous said... Reply To This Comment

yes, i have the same question, for Condo/service apartment. how does it work?

Anonymous said... Reply To This Comment

We seriously lack examples. So here's a scenario:

1) 22x85 leasehold property (link house)
2) Price is say RM500k and this may perhaps imply an underlying land value of RM300k, i.e., RM160/sq ft
3) Let say there is another 60 years before the lease expires and land price would grow at inflation rate of 2.5% p.a. Thus the implied land price would be RM703/sq ft by then
4) For a 99 year extension, using the proposed equation, the cost could be in the region north of RM650k
5) Now if the entire property (land + house, ie RM500k) were to inflate at 2.5%, the property would fetch approx RM2.2m in 60 years. That means extension cost would be approx 30% of the value of the property

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