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Buying a property in Malaysia: How to avoid scams?

Buying a property in Malaysia: How to avoid scams?

Old Jun 5th 2021, 10:16 am
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Default Buying a property in Malaysia: How to avoid scams?

My question is how to avoid losing your Earnest money when buying a property in Malaysia.
The Purchaser pays Earnest money, 1-5% of purchase price, after signing an Offer to Purchase, which states that if an agreement will not be reached this earnest money are returned to the Purchaser.
The earnest money goes to the Seller here in Malaysia.

After paying the Earnest Deposit, the Purchaser and the Seller need to agree on Sales and Purchase Agreement (SPA). The Seller doesn't agree with SPA or simply doesn't confirm at the deadline for signing SPA. The Seller doesn't want to return the Earnest money back to the Purchaser despite the agreement.

Your money is gone. Suing the Seller will result in almost the same amount as your earnest money and your legal expenses will not be reimbursed by the Seller. Also, good luck to collect your money if your get a successful judgement.


Last edited by StillSearching; Jun 5th 2021 at 10:30 am.
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Old Jun 6th 2021, 2:15 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Interesting question,
I would think one should raise this issue with the lawyer involved in the purchase and if applicable the property agent.
Do you know of any cases where this has happened?
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Old Jun 6th 2021, 4:18 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Originally Posted by Gunnar45 View Post
Interesting question,
I would think one should raise this issue with the lawyer involved in the purchase and if applicable the property agent.
Do you know of any cases where this has happened?
Place: Borneo (or Sabah) Beach Villas, Karambunai, Sabah
It is interesting, but it may easily happen that the Purchaser's solicitor gets corrupted to participate in such scam for the right amount of money. With enough evidence, corruption of your own solicitor can be obvious. But what do you do about this? It is impossible to sue a lawyer.
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Old Jun 6th 2021, 4:55 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Yes,
To sue a lawyer is probably quite difficult. :-)
A way to prevent it from happening could be to simply not accept the 'earnest money' condition and instead opt for the 10% downpayment only, which at least in my case was held by the lawyer until state consent for the purchase was obtained.This may work in these days of buyer's market...
Or aim at changing the conditions of this 'earnest money' deposit.
Important is to be aware of this scam possibility.

What to do in case it has happened? I do not know, I never heard of this before.
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Old Jun 6th 2021, 7:54 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Originally Posted by Gunnar45 View Post
Yes,
A way to prevent it from happening could be to simply not accept the 'earnest money' condition and instead opt for the 10% downpayment only, which at least in my case was held by the lawyer until state consent for the purchase was obtained.
That's a good strategy. Thank you. Was 10% held by your solicitor? I am assuming, yes.
The Seller may not agree with this because if an agreement is not reached the Seller is not being compensated for his solicitor, right?

You would put a lot of trust in the hands of your solicitor. Still it is a much better approach than the Earnest money.

Originally Posted by Gunnar45 View Post
Yes,
What to do in case it has happened? I do not know, I never heard of this before.
There are many cases like this in other countries as I started researching.

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Old Jun 6th 2021, 10:49 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Sorry for a misunderstanding in the previous:
I checked my purchase docs (from 2009)
Here the relevant quote from my solicitor:
The 10% will be held by the Vendor's lawyers as stakeholder until State Consent is obtained.
In my case nothing happened, I got the state consent and the deal was concluded very smoothly..

As the 10% would be a more substantial sum to lose and therewith bound to cause a more determined reaction, I think that even dodgy solicitors would stay away from this practise.
So bottom line would be: Be aware of this scam and do not accept to pay 'earnest money' without a satisfactory guarantee.
And try to get a well reputed solicitor!
Mine was recommended by the property agent who in turn was recommended to me by the agent I used for the MM2H visa!
Yes, all goes hand-in-hand here and it was probably a bit naive by me as a newcomer to MY, but the agent is one of the most reputable here and his advice for other things, like handling the shiping of moving goods has been very good.
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Old Jun 7th 2021, 1:46 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Originally Posted by Gunnar45 View Post
The 10% will be held by the Vendor's lawyers as stakeholder until State Consent is obtained.
Yes, this language is much more protective to the Purchaser. Thank you so much for sharing.
At what point did you pay 10%, upon signing your SPA or before you even saw the 1st draft of SPA? I am assuming after, because this 10% should be written in some sort of agreement and since you didn't have Letter Of Offer, your SPA was the first agreement.

It might be better to go with a larger law firm, that just a one-two lawyers firm. A bigger firm cares about their reputation.

I am trying to understand the mechanics of the process for a cash sale of a property with a Title, not from a developer with your scenario without the Earnest money.
1) The Purchaser retains a solicitor to write the 1st draft of SPA. There is a clause in the SPA that 10% is payable upon signing the SPA and this downpayment to be held by the Purchaser's (or the Vendor's) solicitor.
If the Vendor has mortgage, request "the redemption statement cum letter of undertaking" from the Vendor's bank.
2) Sign the SPA, Purchaser's solicitor files it for stamping.
3) With the certified true copy of the SPA, apply for state authority consent.
4) After the consent is granted, 10% are transferred to the Vendor.
5) The Purchaser immediately lodge a caveat on this property.
6) The Purchaser pays the rest of the money to his solicitor and his Solicitor pays the redemption sum directly to the Vendor’s bank and subsequently request the bank to acknowledge receipt of the payment via a letter of disclaimer. This may take 1 month.
7) Then the rest of the money is transferred to the Vendor.
8) The Memorandum of Transfer (MOT) is filed. This may take 3 months.

Questions:
- When does the Purchaser get the keys to the property? Immediately after full payment is complete or after MOT is granted? I couldn't find an answer to it on-line.
- It looks that it is safer for the Purchaser that the full amount is held by his solicitor until the MOT is granted. How did this work in your case?


Many thanks for your answers.

Last edited by StillSearching; Jun 7th 2021 at 1:48 am. Reason: grammar
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Old Jun 7th 2021, 3:20 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Hi again,
Here a chronological list of events related to my purchase of my ‘second hand’ condo in 2009:
(Hope it helps to clarify the issues)

1. January. Agreement with broker.
Basically naming the property in question and that the agent fee would be 1% of purchase price and also that a 1% ‘disbursement’ was to be paid to the broker to be forfeited if I fail to go through with the sale after the S&P agreement was signed. I paid this shortly after signing the broker agreement and before the SAP agreement was signed.
(I guess this was the earnest money, only named differently due to reasons unknown)
There was also a clause stating that I would have to pay the broker 1% penalty if I would fail to go through with the sale after the SAP agreement was signed.

2. End February, signing of Purchase Agreement.
I attach it in a ‘depersonalized form.
At this time (March 02) I had to make a transfer of:
- 10% advance payment for the property (Less the 1% earnest payment made earlier)
- An advance payment for the solicitors charges.
- The 1% for the broker

3. State consent received end of April, final payment to be made within 3 months thereafter.

4. Fina payments made mid June

5. Title deed received end of June

Finally, Pls remember that this was back in 2009!
Attached Files
File Type: pdf
SAP agreement.pdf (545.9 KB, 13 views)

Last edited by Gunnar45; Jun 7th 2021 at 3:25 am.
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Old Jun 7th 2021, 8:42 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Thank you so much for your SAP! Very helpful.
Yes, 1% is basically the earnest money, but in your case it is paid to your agent and not to the Vendor.
Let's assume that you and your Vendor couldn't reach the agreement with you and the SPA is nulled. By your agreement, you lose this money. Vendor or your agent in your case gets this 1%. 1% is not a small sum to lose on a property 1mil. Ideally, you need to see SPA before you even pay 1%.

Question:
Does the Purchaser's solicitor apply for MOT before or after the full payment is done?
You can probably see it from the Schedule.

If the full payment is done before filing for MOT, then your SPA didn't give you a good protection:
The Purchaser paid 10% deposit to the Vendor upon SPA was stamped, then paid to the Vendor's Financier (if any), then deducted for all encumbrances (if any). Then, let’s assume that the MOT (see section 15) is rejected from registration and the Vendor fails to rectify it. How all the Purchaser's money can be refunded?

- It looks that it is safer for the Purchaser that the full amount, including 10%, is held by the Purchaser's solicitor until the MOT is granted. But can the Vendor agree with this?!


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Old Jun 7th 2021, 10:55 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Sorry, what is the MOT? 'Filing for MOT'
State consent? If that is what you mean, I understand from my records that state consent was applied for when the SAP agreement was signed.
Yes, 1% can be aconsiderable amount, not nice to lose.
It should suffice with the 10% advance paid at SAP agreement. Why the need for the 1%??
But with a reputable lawyer firm this shouldn't be an issue and one can maybe refrain from paying it.
Anyway, ones reputable lawyer should be able to provide good advice, as mentioned, I had no problems whatsoever.

Full payment was done as per the SAP agreement, latest 3 months after state consent, I do not understand the question here.
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Old Jun 7th 2021, 12:00 pm
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Default Re: Buying a property in Malaysia: How to avoid scams?

MOT- Memorandum of Transfer for transfer, and the Title. Section 15 in your SAP.
You paid 10% to your solicitor upon signing SPA and your solicitor was holding it until the consent was granted. Then 10% went in the hands of the Vendor.
Why do they do this in Malaysia? It is too risky for the Purchaser when there is an uncertainty that the transfer may not go through because of the failure on the side on the Vendor.
After the Consent from the State Authority is granted, you paid the rest of the money to the Vendor's solicitor. You also paid stamp duties.
Then, the official forms and documents can finally be submitted to the land office to process the change of ownership when all the payments are done and the purchase price is paid.
However, the transfer (see section 15) may be rejected from registration at the land office and the Vendor may fail to rectify it. How all the Purchaser's money can be refunded then? This is a risk.

Last edited by StillSearching; Jun 7th 2021 at 12:05 pm.
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Old Jun 7th 2021, 3:12 pm
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Default Re: Buying a property in Malaysia: How to avoid scams?

OK, but on this i cannot comment, the agreement is a standard format but maybe changeable from case to case (like the earnest money thing)
Anyway, I am not competent to comment on this, suggest to raise this when needed whith the lawyer of your choice. I don't know.
As said, in my case all went fine, I even got the title deed in record time.

In practice, I think one must at least put faith in the solicitor one choses, otherwise nothing would work here.
And as this lawyer is hired to represent you, I think he would sort out the legals, and be warning you against dealing with dodgy set-ups and in case problems arise, also act on your behalf where expenses then would be to the account of the faulting party.
Another wise move could be to not be the first to jump on board :-)
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Old Jun 8th 2021, 1:54 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

I understand. You've been just lucky. But I wouldn't advise anyone to pout trust in your solicitor's hands. In the case I was referring to, even the Purchaser's solicitor continuously was betraying the Purchaser's trust:
- pushing to sign under SPA which states that the Purchaser to agree with the original 1st SPA (from the developer) without even seeing this document,
- not warning about risks this 1st SPA contains,
- not telling that the developer is sued by the landowner for not paying the lease of the land;
- drafting clauses in the SPA which are harmful to the Purchasers.

I wouldn't trust any agent either. Basically, as I understand now the safest deal is when-
- you look for a property with a title, not from a developer;
- you personally research the title and encumbrances by requesting all necessary information from the Vendor BEFORE proceeding to SPA with the solicitors;
- the property is not financed;
- you and the Vendor must agree on SPA before you hand it over to your respective solicitors (it will save time);
- all the money is held by your solicitor and nothing goes to the Vendor until the Transfer of the property is granted by the land office and the property is handed over by the Vendor.

Never sign the contract, which is favorable for the other party to break it.

If the property is financed, ask how much equity is in the house. If too much debt, e.g. 5%, it is a risky deal for the Purchaser.

Last edited by StillSearching; Jun 8th 2021 at 2:29 am.
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Old Jun 8th 2021, 3:09 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

https://www.propertyhunter.com.my/ne...-project-rsquo

But I think that in general, the property market here is quite well regulated.
I have friends and acguantances who bought from developers w/o problems
I have firends and acquantances who bought second hand w/o problems
I bought second hand w/o problems

So with proper prudence in selecting developer, property, solicitor and agent I do not believe this to be a big issue.
But of course painful for those who do get subjected to a scam, regardless of how the amount of cases.
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Old Jun 8th 2021, 3:58 am
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Default Re: Buying a property in Malaysia: How to avoid scams?

Yes, not all are scammers. But you need to protect yourself from scammers by a very good SPA and a very good research. It is like a mine field- you can get through with proper equipment and knowledge. But I would NOT trust a stranger to lead me through a mine field. Do your own research, get educated on this process, learn scam practices.

I do not understand the role of an agent if the owner is able to show the property. An agent gets 1-5% for doing what? Just to stand near the owner and smile?
The owner can list the property on mudah or/and youtube. The owner can show the property. The owner can communicate directly to the Purchasers and answer all their questions. Why would you pay to an agent? The purchaser can find his own attorney through the legal board association.
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