Before selling or buying a property, one should be diligent about what is going to happen in the transaction. This would enable both the purchaser and vendor to understand the risk and commercial impact of the transaction. Hence, getting the right information is vital for both parties.
I recently had the chance of getting a first-hand experience of a property transaction involving a bumi quota lot which I will share here. Please note that this might be different from what you will encounter as it depends on the state authority. State authorities from different jurisdiction may have different legislation or requirement.
Bumi quota is imposed by the authority to the developer in the Development Order and in line with the noble requirement in the NEP which is intended to balance the economic disparities involving the bumiputras and non-bumiputras. Usually, in property ownership, the authority will require 30% of the total units to be sold to bumiputra. These units are to be sold to the bumiputras at a discounted price which is 93% of the original price (7% discount).
The property that I am referring here is a freehold property where the the strata title has yet to be issued (or still under Master Title). The bumiputra vendor is selling the property to a non-bumi purchaser. Please note that I am not discussing the technicality of the transaction as it is best discussed with a solicitor.
The confirmation of sale is prepared by the Real Estate Agent and is signed by both vendor and purchaser upon agreeing the price and other terms involved in the transaction. The purchaser will pay 3% of the purchase price upon signing the Confirmation of Sale and will be held by he RE agent which will act as a stakeholder prior to the signing of S&P. The confirmation of sale normally indicates the agreed price, period of time to prepare and sign the Sale and Purchase Agreement (S&P) and to execute it. Under normal circumstances, the purchaser will prepare the S&P and get his loan approved within 14 working days (if he applies for loan). This period can be extended to 30 days if both parties are in mutual agreement. This will give ample time not just for the purchaser to obtain loan approval, but also to both vendor and purchaser to agree in principle the terms of conditions which will be included in the S&P.
Period of time to execute the S&P will also be stated here which is 3+1 month upon signing the S&P or upon obtaining consent for transfer from the authority, whichever is later.
At this stage, both vendor and purchaser will appoint their solicitors to act on behalf of them in this transaction. However, it is best for the vendor to appoint the solicitor earlier in order to reduce the time of appointing one only after signing the confirmation of sale.
The purchaser’s solicitor will prepare the S&P and send it to vendor’s solicitor for review. When all is agreed, both vendor and purchaser will sign the S&P and the purchaser will pay further 7% of the purchase price at this stage. This deposit will be held by the vendor’s solicitor who will act as the stakeholder. The deposit will be kept in the solicitor’s client’s account. The vendor can request the RE agent to handover the 3% deposit (paid at signing the confirmation of sales) to his/her solicitor. So, in total, the solicitor will hold a total of 10% of the purchase price. The money will not be released to the agent or the vendor until the Consent for Transfer is obtained from the relevant authority.
Upon signing of S&P, the vendor’s solicitor will write to the developer (who still hold the Master Title) asking for confirmation of the property and the vendor details. This can also be done after signing the confirmation of sale to save some time and therefore it is important for the vendor to appoint a solicitor earlier. What will the developer state in this letter is, among others, that the property is being considered in the calculation of bumi-quota. It is the responsibility of the vendor/purchaser’s solicitor to obtain consent for transfer from the state authority. If the state authority requires certain penalty/levy to be paid in order for consent for transfer to be obtained, it is the responsibility of vendor/purchaser to pay such penalty/levy.
What is normally discussed between the purchaser and vendor here is that who will pay such penalty, if imposed. The non-bumi purchaser will normally imagine that such penalty is to be paid by the vendor because the vendor enjoyed the bumiputra discount and the authority is asking “the vendor to refund bumi discount”. The bumi vendor will imagine that the purchaser will have to pay the penalty since “he/she is buying the property”. Failing to compromise in this matter will result in the transaction being cancelled and all deposits to be refunded to the purchaser as the consent for transfer cannot be obtained from the authority. It is best for both vendor and purchaser to compromise in this matter in order to successfully complete the transaction.
The vendor’s solicitor will write to the authority asking for consent for transfer and this will take approximately 2 months (maybe more depending on the efficiency of the solicitor and the authority). If such penalty is imposed, the vendor’s solicitor (who holds the deposit) will assist in making such payment in order to obtain the consent. Upon obtaining consent, the remaining balance of the deposit can be released to the vendor who can use the money as he/she sees fit. The agent’s fee can also be paid at this stage.
It is after obtaining consent for transfer that all other matters will be dealt with i.e. documentations, contacting the bank to obtain redemption statement (if the property is under assignment), vendor asks for discount from the bank (penalty is imposed by the bank for early termination of the facility) which the property is assigned to, vendor to furnish documentation (assessment receipt, water deposit payment receipt etc.), to name a few. The whole process will take approximately 6-8 months as the case may be.