You may have thought that property investment is a lucrative and ideal investment to venture today. Not only it can secure your financial freedom in the future, it also provides you passive income.

For example, by purchasing a property now at a price of RM450,000-00, you may be able to sell it in the near future at a price of RM550,000-00. This is an outright RM100,000-00 profit from your RM450,000-00 investment. Now, think again! You’re not actually making a RM100,000-00 profit at all.

When you purchase a property, you have to pay the costs of acquiring a property. The same applies when you sell your property. As a prudent investor, you have to calculate the legal costs on top of costs of hiring property agents and so in your acquisition or disposition of property.

Let us briefly explain the costs that may involved in the property transaction from a lawyer’s point of view.

Legal Fees

Legal fees are fees payable to lawyer for taking instruction, drafting of agreements and documents and attendances thereof. These fees may include preparation of Sale and Purchase Agreement, Memorandum of Transfer, filing CHKT forms and various other documents and handling correspondences.

These fees  are governed by the legal profession rules. In West Malaysia, these fees are governed under Solicitors’ Remuneration Rules 1986, while in Sarawak, these fees are governed under Advocates’ Remuneration Rules 1988.

While lawyers cannot charge lower than the scales provided in the rules, this does not mean lawyers cannot charge more than the scales provided because work done on a particular transaction may not be the same to the other.

Stamps Duty

Stamp Duty is a tax levied on legal documents. Thus, legal documents in property transaction like Sale and Purchase Agreement and Memorandum of Transfer need to be stamped before they become valid and binding.

Nominal fee for stamping of Sale and Purchase is usually RM10 per copy. However, for stamping of Memorandum of Transfer, it depends on the value of the property on valuation or the purchase price whichever is higher. The estimate stamp duty can be calculated here.

Real Property Gains Tax (RPGT)

Real Property Gains Tax (RPGT) is another form of tax levied on gains/profits from the disposal of a property. Usually the tax is imposed on property disposed within five (5) years of acquisition. The rates of Tax change from one year to another according to the government budget. More information can be found on Hasil.

On top of the tax rates, legal firm normally charge a nominal fee for preparation and submission of clients’ CKHT forms. The fee charged is justified on the reasons that there may be several attendances by lawyers or their representatives to the Inland Revenue Board office for the submission and lawyers are also accountable to answer questions asked by the Inland Revenue Board.

Disbursements

There are other costs that are payable to lawyers which are called ‘Disbursements’. Disbursement is described as expenses which lawyers or the firm has to pay on behalf of clients and are payable by clients to lawyers. There are numerous expenses in a property transaction. A brief account on the popular expenses are:

(i) Searches

Before a lawyer prepares the necessary documents or transaction, it is prudent for the lawyer to conduct various searches in the registries. These searches may include title search to determine the rightful owners and any other encumbrances, bankruptcy search to ensure that the parties are not bankrupt or company search to ensure that the company has not been wound up. These are costs payable to the respective registries and the runners for conducting the searches.

(ii) Caveat Fees

Caveat is a process of lodging a notice in the land registry that someone has an interest on the land and it forbids further transaction done on the property. In lay man terms, the land owner can’t further sell or transfer the property other buyers and only the parties concerned are allowed to have dealings with the property. Caveat fees  may include fees payable to lands office for lodging of caveats and withdrawal of caveats. Other expenses like transportation charges or runner charges have to be paid to the agents of the lawyers of the law firm who submitted the caveat docuements.

(iii) Discharge of Charge

If the property owner takes a bank loan to end finance the said property, the property is normally charged to a bank. This is because the bank has an interest in the property. If the owner subsequently decides to sell the property, the owner needs to discharge the charge from the bank on the said property before the property can be released and transferred to purchaser. Fees on Discharge of Charge may include drafting of documents of discharge, attendances and correspondences inconnection thereof.

 (iv) Miscellaneous Charges

Miscellaneous charges are charges charged by the legal firm to conduct the property transaction. These charges include but not exclusive to photocopy/stationery, printing, telephone calls, transportation and other incidental expenses in connection with the transaction.

Over and above the costs described above, there may be other charges that are not foreseeable but certainly chargeable in a property transaction. For example, preparation of Statutory Declaration and Loan Documents/Agreements are other incidental documents that may be required depending on circumstances.

If you have decided to venture into property investment, perhaps you should re-calculate the costs of acquisition or disposal of the property if you have omitted them. These costs may sometime play a significant role in determining the Return of Investment (ROI).