Property investment in Malaysia – Lexology | Tech Reddy

1. Introduction

Cited by the statement of the Malaysian Investment Development Authority (MIDA), Malaysia is recognized as one of the most sought-after investment destinations by foreign entities due to its favorable investment environment. Due to its strong position at the global level, many investors have considered Malaysia as their manufacturing and global supply chain and services center and regional operation center. In addition, the Malaysian data center market is growing rapidly and the market has seen significant investments in recent times.

Many investors have taken advantage of the above factor in expanding their business and operations by purchasing properties in Malaysia. Investors outside Malaysia are allowed to acquire property in Malaysia, but are limited by certain regulations applicable to property dealings in Malaysia and this article will explain the current legal framework for the acquisition of property by foreign interest.

2．What is “foreign” interest?

“Foreign Interest” as defined in the guidelines issued by the Economic Planning Unit, under the Department of the Prime Minister (“EPU”) means any interest, associated interest group or parties acting in concert that includes : :

(a) individual who is not a Malaysian citizen; and/or (b) individual who is a Permanent Resident; and/or (c) foreign company or institution; and/or (d) local company or local institution that the parties as stated in article (a) and/or (b) and/or (c) hold more than 50% of the voting rights in that company or local local institution.

3．The regulatory requirements

3.1 State Authority Approval – The National Land Code 1965 (“NLC”)

The NLC is the primary legislation enacted to govern laws relating to lands, among others, land title registration, tracts, transfer of lands and others. The NLC also stipulates the requirement for a non-citizen or a foreign company in the acquisition of a property, specifically in Section 433B which states that a non-citizen or a foreign company can acquire land only with the approval of the ‘State Authority.

The NLC was amended in 2017, which before such amendment, a foreign company acquiring industrial land is exempt from obtaining the approval of the State Authority. However, the amendment in 2017 made all foreign acquisitions to be submitted to the State Authority, regardless of the categories of the land.

Who is the State Authority?

Malaysia is divided into 13 states and 3 federal governments and each state is governed under the “State Authority” consisting of an assembly and a government led by the prime minister.

The State Authority is the planning authority in the State, responsible for the general policies of the development and use of all land and buildings in the state. Due to this power, any acquisition of land or buildings in which they are located, is subject to the approval of the respective State Authority.

State Authority Restrictions Relating to Foreign Acquisition

Foreign interests are allowed to acquire properties in Malaysia, whether residential, industrial, commercial, agricultural or otherwise, subject to the restrictions enacted in each respective state. Restrictions include the following:

(1) Types/Categories of property – Foreign interests are not allowed to purchase properties built on Malaysian reserved land, properties defined as unit price or average cost as determined by the respective State or properties allocated only for Bumiputera Some states may also prohibit certain categories from being acquired by foreign interests. For example, foreign buyers in Selangor are only allowed to buy commercial, industrial and residential properties, but for residential, they are only allowed landed properties with landed strata titles. Foreigners are not allowed to buy agricultural land in Selangor.

(2) Minimum property price – each State in Malaysia sets the minimum price threshold of properties eligible for foreign acquisition. For example, the State of Johor and Selangor, the limit is RM2 million. While most states in Malaysia, such as the Federal Territories of Kuala Lumpur, Putrajaya and Labuan, Terengganu, Pahang, Perak and Negeri Sembilan, the limit is RM1 million and above. Meanwhile, for some other States such as Kedah, Perlis and Sarawak, the limit is RM500,000.00. Foreigners are not allowed to acquire property regardless of the type or categories assessed below the limit determined by each State. Foreigners holding the Malaysia My Second Home (MM2H) Visa can also purchase properties in Malaysia at different thresholds, generally around RM1 million and above, depending on the State where it is located.

Will the State Authority approve the foreign takeover?

The State Authority will decide on the foreign acquisition of property at its absolute discretion. However, it has long been proven that State Approval will most likely be granted when the required documentation is in order. As such, it is established that the procedures are considered administrative and the approval process takes approximately 3 to 6 months for the consent of the State Authority to be issued.

3.2 Approval of the Economic Planning Unit (“EPU”)

Who is the EPU?

The EPU is the main government agency under the Prime Minister’s department that is responsible for preparing development plans for the nation of Malaysia. Established in 1961, the objective of the EPU is to “focus on development planning, on the major problems in the execution of the plan and on all forms of foreign aid”.

UPU guidelines on foreign acquisition

When purchasing a property where the purchase value is more than RM20 Million, and the purchase itself will result in a dilution of Bumiputera ownership over the property, then an EPU approval first, such as an additional requirement is required before the State. The consent of the authorities could be applied.

An indirect purchase is not exempt from this requirement. When a property is acquired by another Bumiputera interest through other means, such as through the purchase of shares, resulting in a change of control of the company owned by the Bumiputera interest and/or the agency of the government, ownership more than 50% of its total assets. , and the said property is valued at more than RM20 million, such exercise will require prior approval from the EPU.

What is Bumiputera interest?

Bumiputera means persons of Malay race or from indigenous or indigenous tribes in Malaysia as defined in the Constitution of Malaysia. “Bumiputera interest” is defined as interest, associated interest groups or parties acting in concert that compromise, of the Bumiputera individual and/or Bumiputera trust institution and agency and / or, local company or local institution for which the Bumiputera entities own more than 50% of the voting rights in that company or local institution.

Situation where EPU approval is not required

a) acquisition of business units valued at RM1,000,000 and above;

b) the purchase of agricultural land valued at RM1,000,000 and above or at least five (5) hectares in area for the following purposes:

(i) undertake agricultural activities on a commercial scale with modern or high technology; or (ii) to carry out agritourism projects; or (iii) undertake agricultural or agro-based industrial activities for the production of goods for export,

c) acquisition of industrial land valued at RM1,000,000 and above;

d) the transfer of property to a foreigner based on family ties is allowed only between immediate family members; and

e) acquisition of a residential unit by foreign interest with a value of RM1,000,000 and above. This acquisition, however, does not require the approval of the EPU, but falls only under the state authority.

How does the UPU consider approval?

The EPU considers many factors, including the location of the properties, the status of the land (such as freehold or a leasehold), the capital situation of the foreign entity, the purpose of the investment and many others. However, one of the mandatory conditions under the EPU guidelines is that the foreign company must acquire 30% Bumiputera equity partners in the company. This must be done before the transfer of the title of the property deed.

4. Conclusion

Despite the complex and strict approach of local laws in Malaysia in relation to foreign property acquisition, many investors have been able to acquire property in Malaysia, as Malaysia is considerably open to accepting foreign investment, as part of the development plans of the nation.

Malaysia will continue to offer a favorable investment environment to foreign investors due to its availability of excellent infrastructure, telecommunication services, financial and banking services, supporting industries, skills and trainable workforce as well as opportunities to market offered by the 16 Free Trade Agreements that Malaysia has. signed