Leasehold Renewal in PJ

You may have heard that the Selangor Government has allowed the lease for leasehold premiums to be renewed for only RM1,000.

I came across these articles the papers that describe the situation

The Edge: Leasehold Renewals for RM1000

The Star: How to Extend the Lease for Properties in Petaling Jaya

The condition for the RM1,000 renewal is that the property cannot be transferred to a 3rd party (i.e. not the children of the owner) until full premium has been paid (based on market value of the land during the transfer).

Otherwise, based on Guideline 6/2011 issued by the Selangor Department of Land and Mines (PTG Selangor), the current rate of leasehold renewal in Selangor is based on the following formula:

0.25 x 0.01 x value of the land (in square feet) x (lease period – years remaining on the lease) x land area (in square feet)

The guidelines also states that if you renew the lease right now, you can obtain a 30% discount off the premium. This discount is not applicable if you are renewing the lease after taking up the RM1,000 option.

To Renew or Not To Renew?

Having recently dealt with a case involving leasehold bungalow land in Section 4 Petaling Jaya, my advice is for owners who intend to sell the property with a diminishing lease to NOT renew the lease unless it is too difficult for them to find a cash buyer.

When a property with diminishing lease is sold without renewal to a cash buyer, the new purchaser has a chance to take up the RM1,000 renewal offered by the government. The downside of this is if the lease remaining is less than 35 years, most banks in Malaysia will not approve your loan to buy the property unless the lease is first renewed.

For most large-sized properties, renewing the lease at full premium would cost in excess of RM100,000. As an example, renewal of a 4,500sf bungalow in Section 4 back to 99 years is approximately RM153,200.

Further complications arise when: (i) the existing owner does not have enough funds to renew the lease back to 99 years; or (ii) the owner previously renewed the lease to 99 years using the RM1,000 offer and finds that he has insufficient funds to pay full premium to allow the transfer of property.

In this scenario, your best bet is to find a cash buyer to fund the renewal of the lease as part of the purchase price. If you have questions about how timing and technicalities of how the sale and purchase agreement work for these kind of transactions, feel free to get in touch with me. I’ll help where I can.