Foreigner Consent in Malaysia: What Foreign Property Purchasers Need to Know

Foreign nationals (Non-Malaysians) are permitted to acquire certain properties in Malaysia, but purchasing property as a foreigner is not necessarily the same as purchasing property as a Malaysian citizen.

One important requirement that may arise is commonly referred to as “foreigner consent” or State Authority consent for acquisition by a foreign purchaser.

For a foreign purchaser, this is an important issue to consider before paying an earnest deposit or signing a Sale and Purchase Agreement (“SPA”).

Whether a particular property may be acquired by a foreign purchaser can depend on several factors, including:

  • the State in which the property is situated;
  • the purchase price;
  • the type of property;
  • whether the property is residential, commercial, industrial or agricultural;
  • whether the property is a Bumiputera unit or subject to other restrictions;
  • the conditions and restrictions appearing on the title; and
  • the policies and requirements imposed by the relevant State Authority.

The requirements are therefore not necessarily identical throughout Malaysia.

In Peninsular Malaysia, the acquisition of land or an interest in land by a non-citizen is generally subject to the prior approval of the State Authority under the National Land Code.

Section 433B of the National Land Code provides, among other things, that dealings involving land or an interest in land in favour of a non-citizen or foreign company may generally only be effected after prior approval of the State Authority has been obtained.

In simple terms, a foreign purchaser cannot assume that he or she is entitled to acquire a particular property simply because:

  • the owner is willing to sell;
  • a purchase price has been agreed;
  • the purchaser is financially capable of completing the purchase; or
  • the purchaser has obtained a housing loan.

The proposed acquisition must also comply with the applicable rules governing foreign ownership.

Who Is Considered a “Non-Citizen”?

For the purposes of the National Land Code, a non-citizen generally means a natural person who is not a citizen of Malaysia.

Different considerations also apply to foreign companies and certain Malaysian-incorporated companies having substantial foreign ownership.

Accordingly, nationality and ownership structure should be identified at the beginning of the transaction.

Does Every State Have the Same Rules?

No.

This is one of the most important things for foreign purchasers to understand.

Although the National Land Code provides the general legal framework in Peninsular Malaysia, the individual State Authorities may impose their own policies and conditions relating to foreign ownership.

These may include:

  • a minimum purchase price;
  • restrictions on particular categories of property;
  • restrictions on landed residential properties;
  • restrictions on agricultural land;
  • restrictions involving Bumiputera units;
  • restrictions involving Malay Reserve Land;
  • limits on particular types of development; and
  • additional approval conditions or levies.

The minimum purchase price applicable in one State may therefore be different from another State.

Even within a particular State, different requirements may apply depending on the type, location or category of the property.

Foreign purchasers should therefore avoid relying solely on general statements such as:

“Foreigners can buy property in Malaysia as long as it is above RM1 million.”

That may be an incomplete answer.

The particular property and the applicable State requirements should first be checked.

Is the Minimum Property Price the Only Requirement?

No.

Meeting the applicable minimum purchase price does not necessarily mean that State Authority approval will automatically be granted.

The minimum price threshold is only one part of the assessment.

For example, a property may satisfy the applicable price threshold but nevertheless fall within a category that foreigners are restricted from acquiring.

Before committing to a purchase, the purchaser should therefore check both:

  1. whether the purchase price satisfies the applicable threshold; and
  2. whether the particular property itself is eligible for acquisition by a foreign purchaser.

Not necessarily.

This is another area which can cause confusion.

A property title may contain a restriction in interest, for example, a restriction stating that the property cannot be transferred, charged or leased without the consent of the relevant State Authority.

Separately, a foreign purchaser may require approval for the acquisition by reason of the purchaser’s status as a non-citizen.

Accordingly, depending on the property and transaction, there may be different consent or approval requirements which must be considered.

The title and applicable State requirements should therefore be checked carefully rather than assuming that there is only one type of “consent”.

When Should the Foreign Purchaser Check This?

Ideally, before paying the earnest deposit and before signing the SPA.

This is particularly important in a subsale transaction.

Before making an unconditional commitment to purchase, a foreign purchaser should consider having the following checked:

  • whether foreigners are permitted to acquire that category of property;
  • the applicable minimum purchase price;
  • whether the property is a Bumiputera unit;
  • whether the property is situated on Malay Reserve Land;
  • whether there is any restriction in interest on the title;
  • whether any State Authority consent is required;
  • whether there are additional conditions imposed on foreign ownership; and
  • how the SPA will deal with the possibility that consent is not obtained.

This can help avoid a situation where the purchaser pays a substantial deposit only to discover subsequently that the proposed acquisition cannot proceed.

Where the intended purchaser is a foreign national and State Authority approval will be required, the Offer to Purchase should be considered carefully before it is signed.

The parties may wish to address matters such as:

  • whether the offer is conditional upon the foreign purchaser obtaining the necessary approval;
  • who will be responsible for making the application;
  • the period allowed for obtaining approval;
  • whether an extension may be granted if the application remains pending;
  • what happens if the application is rejected; and
  • whether the earnest deposit will be refunded if approval cannot be obtained.

These matters should not simply be left until the SPA stage if the purchaser is already being asked to pay an earnest deposit.

The precise wording will depend on the transaction.

Where State Authority approval is required, the SPA should ordinarily deal clearly with the consent process.

Depending on the agreed terms of the transaction, the SPA may address:

The obligation to apply

The agreement should identify the party responsible for preparing and submitting the application and the obligations of both parties to provide the necessary documents.

State Authority approval may take time.

The SPA should therefore provide an appropriate period for the consent to be obtained.

The completion period

Parties should be particularly careful about when the contractual completion period begins to run.

For example, depending on the negotiated SPA, the completion period may be linked to the date on which the relevant consent is obtained or communicated to the parties.

The drafting should be clear so that there is no uncertainty about when the purchaser is required to pay the balance purchase price.

The SPA should address the consequences if the State Authority refuses the application.

Depending on the terms agreed between the parties, this may include termination of the SPA and refund of monies paid by the purchaser.

The purchaser should not assume that a refund automatically follows in every situation without first considering the contractual terms.

Appeal or reapplication

The SPA may also need to address whether a party is required to appeal against a rejection, submit further documents or make a fresh application before the agreement may be terminated.

These provisions can be important because they affect how long the parties remain contractually committed to the transaction.

In practice, an SPA may be entered into before the required State Authority approval has been obtained, with the transaction being made subject to the relevant consent requirements.

However, the structure and wording of the SPA are important.

The purchaser should understand that signing the SPA does not mean that the State Authority has approved the acquisition.

Where approval is required, the transaction cannot simply proceed to registration as though the purchaser were a Malaysian citizen.

The consent process must be properly dealt with.

What Documents May Be Required?

The documents required will depend on the relevant State Authority and the nature of the transaction.

They may include documents relating to:

  • the purchaser’s passport and personal particulars;
  • the purchaser’s nationality;
  • the property title;
  • the SPA;
  • the purchase price;
  • the vendor;
  • the type and use of the property;
  • the purchaser’s source or purpose of acquisition; and
  • other supporting information required by the relevant land authority.

The relevant checklist should be checked at the time the application is made because requirements and procedures may be updated.

There is no single processing period that applies to every foreign purchaser consent application throughout Malaysia.

The time required may depend on:

  • the relevant State Authority;
  • the property involved;
  • whether the application is complete;
  • whether additional supporting documents are requested;
  • whether other governmental or security clearances are required; and
  • whether any issue arises during consideration of the application.

For this reason, foreign purchasers should avoid planning their purchase on the assumption that approval will necessarily be obtained within a particular number of weeks.

The SPA should contain sufficient provisions to deal with the consent period and any reasonable delay in the approval process.

The first document to check is the SPA.

The contractual consequences will depend on what the parties agreed.

A properly drafted SPA should address what happens if the required consent cannot be obtained despite the relevant application having been properly made.

Depending on the terms of the agreement, the transaction may be terminated and the deposit or other purchase monies may be required to be refunded.

However, other considerations may arise if, for example:

  • the purchaser failed to submit the necessary documents;
  • the purchaser failed to cooperate with the application;
  • the application was rejected because information supplied was inaccurate;
  • an appeal remains available; or
  • the parties agreed that an appeal must first be made.

Accordingly, the consent clause should not be treated as a minor standard provision.

Can a Foreign Purchaser Proceed Without Obtaining the Required Approval?

Where approval under section 433B of the National Land Code is required, it should not simply be ignored.

The State Authority approval requirement is not merely an administrative formality.

It goes to the foreign purchaser’s legal ability to acquire the relevant land or interest.

For a Malaysian purchaser, questions surrounding State Authority consent may sometimes only arise because of a restriction appearing on the title.

For a foreign purchaser, however, foreign ownership rules should be considered at the very beginning of the transaction.

It is preferable to identify a problem before:

  • paying the earnest deposit;
  • signing an unconditional Offer to Purchase;
  • arranging financing;
  • signing the SPA; or
  • making plans based on an assumed completion date.

A conveyancing lawyer can review the property information, title and proposed transaction and advise on the applicable consent requirements before the purchaser becomes contractually committed.

Conclusion

Foreign nationals may acquire property in Malaysia, but foreign ownership is subject to legal and State-specific requirements.

A foreign purchaser should not assume that a property is eligible for acquisition merely because the agreed purchase price exceeds a commonly quoted minimum threshold.

Before committing to a purchase, the purchaser should consider:

  • whether the property is eligible for foreign ownership;
  • the applicable State minimum purchase price;
  • whether State Authority approval is required;
  • any restrictions appearing on the title;
  • the terms of the Offer to Purchase;
  • how the SPA deals with the consent application;
  • when the completion period will commence; and
  • what happens if the application is refused.

Where a foreign purchaser is involved, addressing these matters before the earnest deposit is paid and before the SPA is signed can prevent significant difficulties later in the transaction.

This article provides general information on property transactions in Malaysia and does not constitute legal advice. Foreign ownership requirements, minimum purchase prices, procedures and State Authority policies may differ between States and may change from time to time. Specific advice should be obtained based on the property and transaction concerned.

Read more:

Should a Vendor Appoint Their Own Lawyer When Selling a Property in Malaysia?

Offer to Purchase in Malaysia: What You Should Know Before Signing

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