Have you heard someone say that it is FREE stamp duty, legal fees, and disbursement fees when purchasing this property? What does it mean?
This week, I will discuss what FREE stamp duty, legal fees, and disbursement fees context mean.
Personally, I feel these few words can seem to be misled if without further explanation.
Let me explain why.
Before we can go into explaining FREE stamp duty, legal fees, and disbursement fees, we need to understand a few basics of buying a house.
Typically you will hear about FREE stamp duty, legal fees, and disbursement fees when buying from a developer—almost 99.90% of the time.
And this is also a method developers use to attract a new buyer. It seems like when you put FREE in front of anything; it’s will attract people.
DEVELOPER MARKETING GIMMICK
In this case, it is attractive because as a new buyer, the stamp duty, legal fees and disbursement fees are FREE.
Indeed it will cost a lot if you have to pay yourself.
However, You might not know this; the house price might have added the stamp duty, legal fees, and disbursement fees.
For example, if the cost of stamp duty, legal fees and disbursement fees are RM20,000, there is always a possibility the RM20,000 had incorporated in the house price.
And this is one of the marketing techniques that developers or any businessman use.
For example, if the house price is RM450,000. The developer might sell to a buyer for RM550,000.
The RM100,000 difference is used to cover the so-called “FREE stamp duty, legal fees and disbursement fees” campaign, cash rebate campaign, commission to property/sale agent and other fees.
So, when the sale agent is selling the RM550,000 property, all these costs are already included.
Does it fair to say FREE stamp duty, legal fees and disbursement fees?
I’ll let you decide on that.
A cash rebate campaign also has the exact mechanism like FREE stamp duty, legal fees, and disbursement fees campaign.
The cash rebate maybe is part of the money incorporated into the house price.
At a glance, it feels like buying a house from this project is excellent!
They give you FREE stamp duty, legal fees and disbursement fees and in addition, cash rebates! Wow, that’s fantastic.
But, once you know the “magician tricks”, you don’t feel remarkable anymore. You can see as clear as a hawk.
SALE AND PURCHASE AGREEMENT
Okay, as everyone knows when you are buying a house. You will enter an agreement called the Sale and Purchase Agreement (SPA).
To prepare this SPA, you need to appoint a SPA lawyer to do that.
The lawyer will charge lawyer fees and disbursement fees to prepare the documents.
In addition, the government will collect tax named stamp duty and service tax.
Once the buyer and developer sign the SPA agreement, the SPA lawyer will get the SPA stamped.
The original copy will cost about RM40-50 per copy, and the SPA copy may be RM10 each.
Usually, when the developer says, “FREE stamp duty, legal fees and disbursement fees”, it means they will be paying the lawyer fees, disbursement fees, and stamp duty for the preparation of the current Sale and Purchase Agreement.
Sometimes the client will need to pay for the 6% service tax, but the developer will pay most times.
The developer even covers the loan agreement stamp duty, legal fees, and disbursement cost on many occasions.
Nevertheless, the developer or the salesperson rarely want to explain further. That’s when the confusion arises.
Typically, when a buyer purchases a property from a developer, the property is under construction, and the land title is a master title.
So, the signed SPA will be based on master title details.
If you don’t know, what is master title property?
I have a great article here to explain it.
The Difference Between Master title, Individual Title, and Strata Title
A master title property will one day change to an individual or strata title.
Once that happens, a house owner is obligated to change the title from master title to individual or strata title.
Again, you will be paying Lawyer Fees, property stamp duty, disbursement fees and service tax.
This time is all on you.
This process is called Perfection of Transfer (POT).
You have to pay all the costs like lawyer fees, stamp duty, disbursement fees and service tax unless there is a stamp duty waiver for the project under the Home Ownership Campaign (HOC).
You can use the existing SPA Lawyer Firm to help with the Perfection of Transfer (POT) for the lawyer fees.
It is cheaper this way.
The existing lawyer firm can only charge a maximum of 25% from the full-scale fees, subject to a minimum of RM200.
In comparison to appointing a new lawyer, they usually charge a full fee or 50% of the full-scale costs.
Let see how much is 25% of the full-scale fee.
If the Lawyer fee is RM5000, 25% will be RM1250. That’s the maximum amount they allow to charge you.
Don’t let them charge you more than this.
Additionally, the lawyer will charge disbursement fees and service tax 6% ranging from RM1000-2000 per file.
Regardless, the heavy part is the Property Stamp duty.
The property stamp duty is no longer about a few hundred. It can reach a couple thousand.
PROPERTY STAMP DUTY
Every house owner must pay the property stamp duty unless they sell the property before the state government issues the individual or strata title.
The property stamp duty calculation looks like this.
For the first RM100,000 is 1%
RM100,0001 to RM500,000 is 2%
RM500,001 to RM1,000,000 is 3%
RM1,000,001 onwards is 4%
For example, if the Purchase Price is RM1.10mio.
This is the stamp duty.
For the first RM100,000 is 1% = RM1,000
RM100,0001 to RM500,000 is 2% = RM8,000
RM500,001 to RM1,000,000 is 3% = RM15,000
RM1,000,001 onwards is 4% = RM4,000
Total = RM28,000
I know heavy stuff. Is a lot!!
Now you know why the developer rarely want to mention the cost of owning a house?
Because if they do, you might not consider buying the house or project. So, they keep their mouth shut until you ask about it.
Can you blame them?
I don’t know. Maybe.
As investors or house owners, we have the responsibility to equip ourselves with this knowledge to know what we are buying and the actual cost of buying a house.
Do not follow people blindly even though the person is a “Property sifu”.
If you do, disaster is in the making.
I hope you found this article helpful.
If you want to know more about Perfection of transfer (POT). I do have a great article here.
If you guys have any further questions, feel free to WhatsApp or call us at +6012-6946746.
I’ll see you in my next article!