Know Your Stuff: How to buy properties on the primary and secondary markets

This article first appeared in City & Country, The Edge Malaysia Weekly, on October 11, 2021 - October 17, 2021.
How to buy properties on the primary and secondary markets

How to buy properties on the primary and secondary markets

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Purchasing a property on the primary market is slightly different from buying one on the secondary market. According to Henry Butcher (M) Sdn Bhd chief operating officer Tang Chee Meng, a buyer who intends to purchase a property on the primary market will first identify a preferred property, then visit the developer’s sales gallery to view the show units and sales displays of the particular project to assess whether it meets his or her requirements.

Usually, the buyer will ask questions to find out whether the property meets his or her purchase criteria, and if does,  go ahead and select a unit.

“After booking the desired unit, the buyer needs to pay the stipulated booking fee and check with the end financier on his or her loan eligibility. Once eligible, the buyer would make the requisite loan application,” says Tang.

He adds that for a property on the primary market, the buyer would need to sign the sale and purchase agreement (SPA) and memorandum of transfer within a specified period. The legal fees are usually borne by the developer.

Thereafter, the buyer would normally pay a down payment of 10%. Other legal documents that are needed are the developer’s registration form, letter of acceptance by the developer and, if applicable, a deed of mutual covenant.

“Once the loan application is approved, the required documentation will need to be executed. And when it is done, the buyer should settle the loan differential sum at the appropriate stage of progress billing, while the balance of the progress payments will be settled by the end financier,” says Tang.

“Other expenses would include disbursements and stamping fee on the SPA, stamp duty on transfer, legal fees for preparation of the loan and security documents and stamp duty on the charge document.”

Secondary market

However, there is a slightly different process when it comes to buying a property on the secondary market.

“After the buyer has selected his or her desired unit, an appointment can be made to view and assess the physical condition of the property, as well as to find out more about the property in terms of its history, the general neighbourhood and amenities in the vicinity,” says Tang.

“The buyer has to check with the banker to determine his or her loan eligibility and pay an earnest deposit — typically between 2% and 3% of the agreed price —  and sign the required booking form. Unlike primary market properties, where the lawyer is arranged by the developer, those buying properties on the secondary market have to appoint their own lawyer to prepare the necessary SPA documentation,” he adds.

Then, the buyer needs to fill up the requisite loan application forms and submit the forms together with personal identification and financial documents to the bank. The loan security documents are to be signed when the loan is approved.

Tang highlights that since banks require a valuation to support the loan application, the buyer may sometimes face difficulty in getting a valuation report to support the price that he or she is paying for the property. In the case of properties on the primary market, the developer would have sorted out the pricing of the properties with the bankers.

After the loan is approved, the buyer has to settle the balance of the purchase price, usually within three months of the date of the SPA or after obtaining the state authority’s approval, if required. “This is where there will be a provision for an extension of the payment period by a month, subject to payment of interest. This applies to a completed property purchased from the owner,” says Tang.

He adds that buyers should also bear in mind that there are other expenses when buying a property on the secondary market. These include the legal fees for the preparation of the SPA and transfer, disbursement and stamping fee on the SPA, stamp duty on the transfer, legal fees for the preparation of the loan and security documents and stamp duty on the charge document, as well as repair and renovation costs.

Advice to buyers

It is important for buyers to determine the location and type of property that is most suited to their needs and to come up with a budget for their purchase, says Tang. Then, they can check with experts, such as property valuers, real estate agents and mortgage brokers, to help them decide on their ideal property.

The type of property and the buyer’s specific requirements will determine whether the property can be found on the primary or secondary market. “For instance, in the current soft market, where not many developers are launching new residential developments, it would be more fruitful for a buyer to search for property on the secondary market,” he says.

“If the buyer does not want to wait too long to move into a property, the secondary market would be more ideal. Nonetheless, a lot of developers would still have unsold stock, which may not be in the buyer’s preferred locations.”

For those buying a completed property on the secondary market, Tang says the buyer must carry out a thorough inspection of the property, if possible, together with someone who has some technical knowledge about buildings so he or she can help determine whether the property that the buyer is interested in is structurally sound and in good condition.

“You should also check the remaining tenure on the title if you are buying a completed property with a leasehold title. And bear in mind that if the remaining lease is less than 30 years, it will be difficult to secure a loan to finance your purchase,” he says.

“If you are buying a property from a developer that is still under construction, make sure to check the background of the developer to determine if it is able to complete the project on time and with the promised quality.”