Location is key to negate challenges of reselling
By Vigneswar Rajasurian vignes@thestar.com.my
An aerial view of Putrajaya.
In the 1970s, Malaysia’s New Economic Policy (NEP) introduced the Bumi quota regulations for property development in efforts to increase Bumiputera involvement in the real estate market. These regulations required a mandatory minimum quota of 30% designated Bumi Lots within a development and a minimum 7% discount (Bumi discount) on the property purchase. The Bumi Lots therein are units of land or property which can only be purchased and owned by Bumiputeras. This includes Malays, Sabahans, Sarawakians, the indigenous peoples of Malaysia as well as non-Malay Muslims.
Bumi Lots are present in every new development since a certain percentage of the properties have to be allocated to Bumiputera purchasers as per the aforementioned quota. These lots are not to be confused with Malay Reserved Lands (MRLs) which can only be purchased and owned by Malays. The distinction matters significantly because unlike MRLs, Bumi Lots may be released to non-Bumiputera individuals, although the process can be challenging.
The benefits
The most apparent benefit to Bumiputera purchasers of a Bumi lot is the substantial savings when purchasing a new property. Since land is under the purview of State Authorities, the quota allocation and discount amount vary from state to state. For example, Federal Territory of Kuala Lumpur has the Bumi quota set at 30% and the Bumi discount at 7%.
To illustrate, a non-Bumiputera home buyer who purchases a property for RM500,000 would typically need to pay a 10% deposit on the home which equates to RM50,000. With a loan amount of RM450,000 for 30 years and an average interest rate of 4.5%, the buyer pays a monthly instalment of RM2,280.
“Whether the Bumi discount is used as a downpayment for a Bumiputera buyer depends on the discretion of property developers,” said Yap Jyy Huey, a lawyer and partner in Messrs Kee Sern, Siu & Huey. Assuming a Bumiputera buyer receives the ceiling discount of 15%, the discount amounts to RM75,000, and the price drops to RM425,000. With a 10% down payment of RM42,500 and the same loan tenure and interest rate as above, the monthly mortgage repayments are also more affordable at RM1,936.
A lower purchase price then consequently leads to additional savings in the stamp duty fee and on the sale and purchase agreement (SPA) since these charges are based on a percentage of the purchase price and vary based on tiered price brackets.
Given the designation of a Bumi lot has no effect on rental rates, the lower purchase price also translates to a better rental yield. Rental yield is the percentage of rental income return from the property against the total purchase price but excluding any costs related to the property’s maintenance.
Find out what these experts have to say about Bumi units:
Messrs Kee Sern, Siu & Huey lawyer Yap Jyy Huey
Murali B Pillai & Associates conveyancing lawyer Mohd Taufek Bin Mohd Sani
IQI realty Sdn Bhd real estate negotiator Mohd Rozairi Bin Ros Kamal
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