We’ve previously covered the 10 steps of buying auction properties in Malaysia, but no matter how much research you’ve done before deciding to purchase a property from auction, there are still some ‘traps’ you might fall into during the buying process.
Good bargains can be found as banks are motivated to sell and their objective is to recover the loan in the shortest time possible. However, you might encounter various pitfalls or ‘traps’ when buying a lelong (auction) property, so our advice is to always proceed with caution and care. Some of these pitfalls are:
1. Outstanding management fees and taxes
When the price of an auction property seems too good to be true, it is usually saddled or burdened with encumbrances. Hidden costs and accumulated charges can be a real pain in the neck. A prospective bidder should do a title search at the land office to find out in detail any caveats on the property, as well as check with the relevant authorities (if landed property) and management office (if strata property) on any outstanding service charges, quit rent, assessment and other outgoing charges in the event the bank does not absorb them.
2. Damage to property
Auction properties are sold on an “as is where is” basis. Bear in mind you do not get to inspect the property before buying,so you might not be able to see any minor or major damages to the interior of the property. If possible, bring along a professional to determine the value of the property and also the potential repair costs. Inspection and survey are very crucial.
3. Property is still occupied
As nearly all POS stipulate that the bank has no obligation to give vacant possession, one needs to find out whether the property is vacant or occupied. If it is tenanted, it is usually much better as you can talk to the tenant. Tell the tenant you want to buy the property and maybe even sign a new tenancy agreement. However, you may have some issues if the property is still tenanted by the owner who is refusing to move out.
4. Loan not extended by bank
Check whether there are any limitations on the property. This includes whether it is a Bumi lot, meant for specific industry use, height restrictions, or remaining tenure. For example, banks will not finance properties with only 20 years left on the lease. Bear in mind that banks will not extend the loan if there is a caveat on the property and there is a timeframe for you to settle the purchase price, e.g. within 90 or 120 days.
Word of Advice
One of the best advice by industry experts and seasoned investors is to check the POS, also known as Proclamation of Sale. The proclamation of sale provides details of the land, including whether it is Malay reserved, has any conditions in respect of use, or whether there are any caveats entered on the title document.
If you require any further details or any clarification, always contact the auctioneer or the lawyers named in the proclamation before conducting any searches or investigation of your own. Proper enquiry into the property or land you intend to bid for will save you a significant amount of legal fees later on.