2010 JOHOR PTG Guidelines for acquisition of real property by foreign interests

2010 JOHOR PTG Guidelines for acquisition of real property by foreign interests (Dasar baru garis panduan perolehan hartanh oleh kepentingan asing dalam Negeri Johor. – Pekiling PTG Johor Bil.01/2010. ) Yang Pei Keng 23 April 2010 1. Repeal of FIC Guidelines On 1 July last year (2009), the Prime Minister Najib announced to the press about the deregulation of investments guidelines administered by the FIC: “… I am pleased to announce a comprehehsive deregulation of investment guidelines administered by the FIC. He said earlier in his statement: “… an objective assessment would conclude that the FIC in its current form does not facilitate growth …” “.. the FIC’s scope now involves far fewer transactions, far fewer rules and far fewer conditions.” “With immediate effect, the FIC guideline covering the acquisition of equity stakes, mergers and takeovers is repealed, without any new guideline in its place. FIC will no longer process any share transactions, or impose equity conditions on such transactions.” On property transactions, he said: “… with immediate effect … FIC approval for property transactions will now only be required where it involves a dilution of Bumiputera or government interests for properties valued at RM20 million and above. All other property transactions, including those between foreigners and non-bumiputeras, will no longer require FIC approval. ” “For example, a dilution of Bumiputera interests refers specifically to the instance where a property is currently majority-held by Bumiputera, and as a result of a transaction, ceases to be owned by a majority Bumiputera entity.” Transactions no longer requiring FIC approval fall into two categories: first, any transactions involving sale by non-Bumiputera or foreign majority interests (non-Bumiputeras selling to foreigners); and second, any transactions involving purchase by a Bumiputera-controlled entity, and this would include a Bumiputera-owned company acquiring property from another Bumiputera-owned company.) “This deregulation is expected to facilitate greater property transactions and investments, including acquisitions of commercial properties by foreign interests.” [See NST 1-7-2010] 2010 Johor PTG Guidelines - effective from 1 July 2010 Against this backdrop, the Johore Government held a meeting on 17.2.2010 and decided to adopt the 2010 JOHOR PTG Guidelines for acquisition of real property by foreign interests [Dasar Baru Garis Panduan Perolehan Hartanah oleh Foreign interests dalam Negeri Johor] ( PTG Guidelines 2010) These Guidelines are not in force yet, and shall only come into force on 1 July 2010. With effect from 1 July 2010, only two types of transactions involving at least RM20 million, or more than RM20 million, require EPU approval. It is to be noted that the title of the 2010 PTG Guidelines refers to “foreign interests” only. But, in actual fact, all acquisitions involving RM20 million or more, resulting in a dilution of bumiputera interests, need EPU approval. This is regardless of whether the acquirer is a citizen or non-citizen, foreign interests or local interests. It reminds us of the “FIC approval” which applies to both foreign interests as well as local interests. In this sense, the title of the Guidelines and the rhetoric about foreign interests is inaccurate and a misnomer of the transactions involved. The term “FIC” is no longer in use. Instead, the term “EPU” is used in place of “FIC”. Therefore, we now talk of “EPU approval” instead of “FIC approval”. (a) Certain direct acquisition of real property of RM20 million and above EPU approval will only be required where there is a direct acquisition of real property valued at RM20 million and above, and the transaction involves a dilution of the bumi interests (or the interests of the government agencies). But acquisition of residential units [unit kediaman] is an exception. It does not require EPU approval [para 2.1.a]: (b) Indirect acquisition - purchase of shares in company having real property exceeding RM20million Any purchase of shares in a company, resulting in a change in the control of bumi shareholding (or the shareholding of government agencies) of 50% or more in the company, and the total asset of the company consists of real property exceeding RM20 million in value (para 2.1.b). This is described as “indirect acquisition”. [Note: The expression “exceeding RM 20million” (‘melebihi RM20 juta’) is used in the case of “indirect acquisition”. It would mean that if the real property involved is only RM20million exactly, no EPU approval is required, and the acquirer need not apply for EPU approval.”] Conditions for acquisition: Bumi equity and paid up capital Apart from requiring EPU approval, the abovementioned RM20 million transactions must comply with 2 other conditions, namely bumi equity and the company’s paid up capital. Bumi equity: (Bumi “equity” refers to the bumi “shareholding” or participation in the company) The company concerned must have at least 30% bumi shareholding : para 3.1. If the company concerned is a local company solely owned by local interests, the company must have at least RM100,000 paid up capital : para 3.2. If it is owned by foreign interests, the company must have at least RM250,000 paid up capital: para 3.3, compared to RM100,000 paid up capital in a local company wholly owned by Malaysians. When to comply with conditions For any direct acquisition of real property by foreigners, the conditions about bumi equity and paid up capital must be complied with before the property is transferred: para 5.1. For any indirect acquisition (i.e. purchase of shares in a company), the conditions for bumi equity and paid up capital must be complied with within 1 year after the issue of the approval letter: para 5.2. Comment: One will note that not all transactions involving RM20 million or more require EPU approval. A transaction involving even much more than RM20 million may not require EPU approval so long as there is no dilution of bumi interests. The main criterion is that the transaction must cause a dilution of the bumiputera substantial interests. The same principle applies whether it is direct acquisition of real property or indirect acquisition (through purchase of shares in a company). With a threshold as high as RM20 million, most of our conveyancing practitioners need not worry about the application for EPU approval in their day-to-day practice. It may, however, affect those who have a roaring practice. One of the differences between the direct acquisition and indirect acquisition is that in any direct acquisition, the real property must be RM20 million and above in value; whereas in any indirect acquisition, the real property must be more than RM20million in value. If the property purchased in a direct acquisition reaches the threshold of RM20 million, you need to apply for EPU approval, but in the purchase of shares in a company (indirect acquisition), the real property involved must be above RM20 million in value. You need not apply for EPU approval if it is worth exactly RM20 million, because the expression used is “melebihi 20 juta”. 2. Transactions that do not require EPU approval [para 2.2] Some acquisitions do not require EPU approval, but they are within the jurisdiction of the Ministry/Department concerned. They include: a. Any commercial unit valued at RM500,000 and above; b. Lease of agricultural land valued at RM500,000 and above, or having an area of at least 15 acres, whichever is higher in value, for the purpose of engaging in - i. commercial-agricultural activities involving high tech and modern technology; or ii. agro-tourism project; or iii. agricultural or agro-based industrial activities for producing products for export. . c. industrial land valued at 500,000 and above. There is one condition: foreigners who buy any of the above-mentioned property valued at 500,000 and above [see para 2.2.(a), (b) dan (c)], have to register the property in the name of a local company : para 4. The EPU must be informed of the compliance with the condition before the transfer is effected: para 5.3. Residential buildings – RM500,000 and above Foreigners may buy new residential buildings (but see exceptions below) valued at 500,000 and above. They may now also buy residential buildings from individual sellers (commonly described as sub-sales). They no longer have to buy from developers: para 2.2.d. This is something new, because under the previous 2009 Guidelines, a foreigner could not buy a residential building from an individual or company. He must buy it from the developer. A sale and purchase between individuals (or between an individual and a company) has been described by some as a “sub-sale”. This is merely to distinguish it from the developer’s sale and purchase. Transfer to foreign next of kin for love and affection – allowed Now, any transfer of any real property to foreign citizens (for love and affection) is allowed, but this only applies to any transfer among next of kin only. [‘Next of kin’ (keluarga terdekat) refers to “ individuals having marital ties (e.g. husband and wife) or blood relatives (grandparents, parents,siblings and children; and the term “children” includes adopted children under the Adoption Act 1952, as well as adopted children certified by the National Registration Department i.e. under the Registration of Adoptions Act 1952.)] The definition of the “next of kin” under the 2010 PTG Guidelines is limited to grandparents, parents, brothers and sisters and children, and also adopted children whether by way of the Adoption Act or the Registration of Adoption Act. This is something new. There was no such provision under the previous Guidelines, though in practice, it seems that the land registry and the land office have allowed such transfer to be done. No mention is made of the approval fee. Transfer to next of kin – approval fee RM10,000: Annexure 2, para 2.E Foreigners may apply for consent to transfer for love and affection among their next of kin (keluarga terdekat). They may transfer any type of real property and of any value, but they have to pay consent fee and approval fee of RM10,000 for each title. Types of property - foreign interests not allowed to acquire: para 6 Foreigners are not allowed to buy: - Low-cost and medium-cost residential houses/ shops, - Single storey / 1 ½ storey residential houses, - single-storey or double-storey shop units, - office lots, - property within the bumi quota in any housing development project, [unless approval has been obtained from SUK Johore Housing Division], - sale of land pursuant to a Court Order for Sale or by public auction (ss.256-260 NLC), - Malay Reservation Land, - service workshops or stalls, - agricultural land converted to homestead, and - land under National Heritage Act 2005 [see para 6.1 – 6.9] Approval/application fees: para 7 (S.433B NLC): The application fee is RM500.00 for each title. (See Schedule V – JPU.94 Item 42 Johore Land Regulations) The approval fee is RM10,000.00 for each title (RM.Bil. 1703/97 bertarikh 29/10/97) (See Schedule V – JPU.94 Item 34 Johore Land Regulations) Annexure I. Exemptions (Acquisitions by foreigners that need no EPU approval) There are 10 categories of acquisition by foreigners that do not require the EPU approval. Among them, only 3 are more relevant to our day to day conveyancing practice. They are: 1. Transfer of real property to non-citizens pursuant to a will or court order: item 6 A transfer of real property to foreign citizens pursuant to a will or court order is now allowed without having to apply for EPU approval. Before the 2010 Guidelines, there was no such express provision, though it has been the practice for the land registry or land office to accept registration of such transfer. There was no problem registering such transfer in the land registry or any land office. For example, a citizen dies testate, leaving behind some real property. He has children who are non-citizens (say, Singapore citizens). So long as a grant of probate of his will has been obtained from the High Court, the property can be transferred to his beneficiaries pursuant to the will, even though the beneficiaries are non-citizens. The land registry or land office will accept such transfers. No EPU approval is necessary The same principle applies to the case of a citizen who dies intestate, leaving some real property for his wife and children, who are non-citizens, but a grant of letters of administration, and the relevant Court Order for distribution of property must have been obtained from the High Court. 2. Manufacturing companies (syarikat perkilangan) acquiring industrial land: item 7 Any non-citizen may buy industrial land freely. An Act of Parliament, namely the National Land Code confers such right to buy industrial land on any non-citizen. Under the NLC, there is no restriction whatsoever on any foreign interests in the purchase of industrial land. The question of requiring a manufacturing company to obtain FIC or EPU approval does not arise. The NLC entitles any non-citizen to buy industrial land without any condition attached. PTG Guidelines are not legally entitled to restrict or curtail or fetter the right of any non-citizen (to buy industrial land) conferred by an Act of Parliament. Para 7 can only be interpreted to mean that it is a mere repetition of the existing right of foreign interests (including the manufacturing company) to buy indudtrial land. 3. Acquisition of residential units under the “ MMSH” (Malaysia My Second Home) Scheme: item 1 To qualify for buying a residential unit under the “ MMSH” Scheme, the non-citizen must have a fixed deposit of RM150,000. His income must be RM7000 for an individual, but RM10,000 for a couple. (Presumably, ‘income’ refers to “monthly income”). He must be aged 50 and above. He has to obtain the approval of the Immigration Office, and he has to produce his visa/passport chopped with “MMSH” for inspection before he can buy a house under this Scheme. Every non-citizen is entitled to buy 2 MMSH double-storey (or more than 2-storey) terraced houses priced at RM500,000 and above. [In the 2009 PTG Guidelines, the words “RM50,000” appears. Could it be a typo error? No clarification in writing so far.] The approval fee is RM10,000 to be paid within 30 days from the date of approval. Under this Scheme, according to the previous 2009 PTG Guidelines, one of the conditions is that the non-citizen must buy the houses from a developer, and not from an individual, and the construction of the house must be at least 50% completed. (That is, no “subsale” is allowed) The new 2010 PTG Guidelines now allow non-citizens to buy houses from an individual or a company (that is, “sub-sale”). It is uncertain whether the requirement of buying from the developers only still applies. No specific mention has been made of any change in such condition under the new 2010 PTPG Guidelines. The remaining 7 categories of acquisition by foreign interests The remaining 7 categories of acquisition by foreigners do not require EPU approval. These acquisitions are not so common in our day-to-day conveyancing practice. They are acquisitions by: - any company with MSC status: item 2 These are acquisitions within the Multimedia Super Corridor (MSC) ; and any company with MSC status, purely for the use of the company’s operation only, Workers’ quarters are included. - Acquisitiion of property in the area approved as development corridor: item 3 Acquisition by a company conferred with a special status by the corridor authorities of any real property in an area approved in any “koridor pembangunan wilayah”. - any company certified by Sekreteriat Malaysian International Islamic Financial Centre (MIFC): item 4 - residential units for workers’ occupation: item 5 A local company owned by foreign interests can only purchase any residential unit valued at RM100,000 and above, and it is within the jurisdiction of the relevant State authorities. - various government departments: item 8 Acquisitions by Kementerian dan Jabatan Kerajaan (Persekutuan dan Negeri) Menteri Kewangan Diperbadankan, Menteri Besar Diperbadankan atau Ketua Menteri Diperbadankan, Setiausaha Kerajaan Negeri Diperbadankan dan syarikat berkaitan Kerajaan tersenarai; - property under any privatization project: item 9 [Perolehan hartanah di bawah projek penswastaan samada di peringkat Persekutuan atau Negeri dengan syarat ia melibatkan syarikat konsesi asal yang menandatangani kontrak projek penswastaan]; - specific local companies conferred with certain status : item 10 [Perolehan hartanah untuk tujuan operasi oleh syarikat tempatan yang mendapat status Pusat Perolehan Antarabangsa, Ibu Pejabat Operasi, Pejabat Perwakilan, Pejabat Serantau, syarikat luar persisir Labuan dan Bio-Nexus atau status khas lain yang diberikan oleh Kementerian Kewangan, Kementerian Perdagangan Antarabangsa dan Industri dan Kementerian lain. ] ANNEXURE 2 (Purchase by foreigners from developers and non-developers) 1. Direct purchase from developers by non-citizens /PRs/Foreign companies With effect from 1 July 2010, foreigners [non-citizens/ permanent residents/ foreign companies] may buy from either developers or non-developers. Under the new Guidelines, foreigners may buy from individuals or companies, not necessarily from the developers. The following are categories/types of buildings that foreigners may buy direct from housing developers. But there is a quota in respect of various categories of buildings for acquisition. A minumum price is also fixed for each building, that is, RM500,000 and above. Foreigners can only buy houses at and above the minimum price. A. residential buildings 1. terrace houses - double storey and above - 20% 2. cluster houses – 2-storey and above - 20% 3. semidetached houses – 2-storey and above - 30% 4. Bungalows - 2-storey and above - 30% and above 5. Vacant Lots for bungalows - 30% 6. Condominium / Apartment/Services Apartment - 50% 7. Holiday Home - 50% B. Commercial buildings 1. Shops - 3-storey and above - 10% 2. shop office - 3-storey and above - 10% 3. Office space/ business space/ exhibition hall in business complex - 20% C. Industry a. Foreign interests may buy any industrial land. They may buy as many as they like, but every purchase of industrial land must be registered under the name of a local company. b. They may also buy Bumi released lots. The minimum price payable for industrial land is also fixed at RM500,000 and above. (Quaere: Can the PTG Guidelines override the provisions of the parliamentary legislation in respect of industrial land, when an Act of Parliament - the National Land Code provides that any foreigner may buy industrial land freely with no conditions attached.? See s433B(1)(aa) of the NLC: no approval of the State Authority shall be required in respect of the acquisition of industrial land by non-citizens and foreign companies.) 2. Purchase by foreigners from individuals/companies [not developers] This is something new. Under the 2009 PTG Guidelines, foreigners are not allowed to buy real property from individuals. They must buy from developers. Non-citizens, permanent residents and foreign companies may now buy real property from any individual or company. It is no longer necessary for them to buy from developers only. But one of the conditions is that the minimum price of the property must be RM500,000. They cannot buy property worth less than RM500,000. A. residential buildings 1. terraced houses - double storey and above 2. cluster houses – 2-storey and above 3. semidetached houses – 2 storey and above 4. Bungalows - 2-storey and above 5. Vacant Lots for bungalows 6. Condominium / Apartment/Services Apartment 7. Holiday Home B. Commercial buildings 1. Shops - 3 storey and above 2. shop office - 3 storey and above 3. Office space/ business space/ exhibition hall in business complex C. Industry Foreign interests may buy as many pieces of industrial land as they like, but the land must be registered in the name of a local company. They may also buy bumi released lots. D. Agricultural land – Foreigners cannot own but may lease only Foreigners may apply for consent to lease agricultural land for the following purposes: a. for agro-commercial activities using high tech and modern technology; or b. for agro-tourism projects; or c. for agricultural activities or agro-based industrial activities for producing products for export. d. Period of lease: 10 years and above [The lease is to be registered under a local company] The minimum price is RM500,000 and above; or the land area is more than 15 acres, whichever is higher [in value].### Pejabat Pengarah Tanah dan Galian Johor Aras 3, BlokC2S Pusat Pentadbiran Baru Kerajaan Johor 79756 Kota Iskandar, Nusujaya, Johor. Tel. No. 07-2666880 begin_of_the_skype_highlighting 07-2666880 end_of_the_skype_highlighting / Fax. No. 07-2661414 / www.johordt.gov.my/ptgj. Inquiry and correspondence address: Pengarah Tanah dan Galian Johor Pejabat Pengarah Tanah dan Galian Aras 3, Blok C2S Sayap Barat Pusat Pentadbiran Baru Kerajaan Johor 79756 Kota Iskandar, Nusajaya, Johor Darul Takzim. All applications must be in Borang KA 1/2005 to KA.5/2005 and Check-List is available free from the Department. You may surf its website. For clarification of any doubts, to contact – Unit Perolehan Kepentingan Asing, Pejabat Tanah dan Galian Johor; No. Tel -07-266 6865 / 07-266 6802 begin_of_the_skype_highlighting 07-266 6802 end_of_the_skype_highlighting No. Fax -07-266 1414 (For reference: Pekeliling PTG Johor Bil. 1 Tahun 2009 bertarikh 18 Mach 2009 Pekeliling PTG Johor Bil. 5 Tahun 2005 bertarikh 07 April 2005 Surat Edaran Garis Panduan Baru Mengenai Perolehan Hartanah Oleh Kepentingan Asing Berkuatkuasa Mulai 1.1.2005 bertarikh 14 Januari 2005 Surat Bil. (24) dlm. PTG.15/92 (WA) Jld.2 bertarikh 21 November 1997 – Bayaran kelulusan Pemilikan Tanah/Kepentingan Mengenai Tanah Kepada Bukan Warganegara / Syarikat Asing). (You may obtain a copy of the “Guidelines” from Pejabat Tanah dan Galian Johor website: www.johordt.gov.my/ptgj) Conclusion The FIC approval has been done away with in most of the transactions. Now only two types of transactions valued at RM20 million or more resulting in a dilution of bumiputera interests, require EPU approval. Foreigners can only buy properties valued at RM500,000 and above with some conditions attached. Whether such change of policy will encourage foreign investments in this country is yet to be seen. 30 March 2010

Last Updated on Wednesday, 04 August 2010 07:14