Guide To Buy Auction Property In Malaysia

A - Introduction

While the nation’s economy is under serious threat of Covid-19 pandemic and implementation of different phases of Movement Control Order (MCO), many of the Licensed Financial Institutions have to make the decision to enforce the collaterals pledged or charged to them by the borrowers. This further means that more properties will go into the “Auction Market” rather than the conventional, usual “Developer Sales Market” or “Sub-sales Market”.

Without surprises, the properties’ price will be notably reduced and usually lower than the conventional, usual market, however the lower price tags also come with some items that all potential buyers at the auction should be warned before they charging in.

One that often got bidders blind sighted is that you may need to have more cash in hand than you making your purchase through the conventional, usual market. Fair enough, if you are enjoying the luxury of extra cash in hand, you could have your field day from the “Auction Market”. Again as intriguing it sounds, our advise to you is to take every steps with extra cautious (and preferably with a lawyer).

Now let’s drop the teaser and talk about few things that you need to know before you take part in a property auction.

B - Types of Auction in Malaysia

There are 2 types of auction in Malaysia:

I) Loan Agreement cum Assignment (LACA) Auction

LACA is known as a non-judicial auction (to be conducted by respective bank). It involves auction property which the individual/strata title has not been issued. If owner defaulted the mortgage repayments, banks have the right to sell the property without applying for an order for sale.

Bidders who are interested to buy such property are required to submit 5% of the reserve price as the bid deposit to the auctioneer while the balance purchase price has to be paid by the successful bidder within 90 days.

II) Non-Loan Agreement cum Assignment (Non-LACA) Auction

Non-LACA which is also known as judicial auction is regulated by the National Land Code (to be conducted by High Court). Properties auction under Non-LACA are those whose individual/strata title has been issued under name of borrower, charge is created and perfected. When borrower defaulted the mortgage repayments, bank needs to apply to the High Court (for Land Registry Title) or the Land Administrator (for Land Office title) for an order for sale before auctioning off the property.

Unlike LACA auction, the bidders in non-LACA auction are required to submit 10% of the reserve price as the bid deposit while the balance purchase price has to be paid within 120 days.

C - What Potential Buyers Need to Know Regarding Auction Process According to Stages?

I) Pre-Auction Stage

Since auction property is selling based on “as is where is” basis, buyers need to understand the simple steps before joining for the auction, as follows:-

a) Know the property

It is important for buyers who are interested to buy an auction property to do their own research about the property. Buyers should physically visit the property to check out the conditions of the property and whether the property is occupied by anyone. Buyers are advisable to do a land search at the land office to find out the following:-

• Whether the property is freehold or leasehold;

• Whether there is any restriction on the property;

• Whether there is any caveat lodged on the property (Note: Private caveat may prevent the bank from approving the bank loan to the borrower until or unless it has been removed);

• Whether there is any outgoing bill payments, such as quick rent, assessment, maintenance fee and utilities bills as the successful bidder will need to bear all the outstanding bills (if any).

b) Proclamation of Sale & Conditions of Sale

Proclamation of Sale (POS) & Conditions of Sale (COS) contain all the relevant details of the auction property and amount that need to be prepared by the potential buyers. Buyers can get a copy of both documents from the auctioneer before start bidding for the property.

c) Loan Eligibility

Before paying bid deposit for an auction property, buyers should check whether they are eligible for applying loan. Bear in mind that the bid deposit for a successful bid will not be refunded in the event that his/her loan application is rejected by the bank.

d) Seek Legal Advice

In order to ensure a smooth process, buyers are encouraged to seek for legal advice and representation prior to the auction.

II) During the Auction

Bidding can usually be done by 2 methods, either physically or online.

a) Online

Due to the Covid-19 pandemic, bidders nowadays prefer to bid online instead of going to the auction hall. The process of online bidding is as follows:

• Sign up on the e-auction portal. (https://elelong.kehakiman.gov.my/BidderWeb/Account/Login)

• Wait for their approval.

• Browse through the auction property listings and identify your ideal property.

• Understand the auction property and the auction process by reading the POS and COS.

• Register and submit deposit before the auction.

• During the auction day, login 15 minutes earlier before the bidding starts.

• The highest bidder wins the auction.

b) Physical

Bidders who are physically present at the auction hall have to register and submit their deposit to the auctioneer prior to the auction. Bidders can choose to be represented by auction agent. On the auction day, bidders need to bring along the following items:

• Identification card;

• Bank draft or banker’s cheque amounting to 10% of the reserve price being the bid deposit;

• Additional cash equivalent to 10% of the bid (successful bidder has to top up the difference if the final auction price is higher than reserve price); and

• Other relevant documents.

III) Post-Auction

Auction is completed at the fall of hammer and the auction property will be sold to the highest bidder.

Successful bidder is required to sign a Contract of Sale, pay the difference (if need be) and settle the balance purchase price within the next 90 or 120 days. Meanwhile, unsuccessful bidder is entitled to get back their deposit from the auctioneer after the auction.

D - Stringent Timeline to Pay Balance Purchase Price

I) Strict 120 days

Pursuant to word “shall” used in Section 257(1)(g) of the National Land Code 1965 (NLC 1965), the timeline is stringent, where the transaction must be completed within 120 days and no extension of time should be allowed.

The 120 days requirement can be difficult as it involves loan and especially comes to low costs unit which requires low costs consent. Failing which may result in late completion interest or losing the 10% paid and/or letting the property back to the Auction Market.

II) Is MCO a good excuse for extension of time?

The answer to this question is becoming more important again with the implementation of FMCO. However, the Court are yet to provide the public with a definite answer to the question. According to the recent case of Ho Kean Pin v Malayan Banking Berhad (2020), Plaintiff was the successful bidder at the public auction, 1st Defendant was the Charge Bank.

Plaintiff had paid 10% of the reserve price as deposit and subsequently secured bank loan for paying the balance purchase price. As per the Clause 16 of Conditions for Sale, Plaintiff is required to settle the payment of balance purchase price within the next 120 days (before expiry date of 06.05.2020).

However, government imposed MCO for 56 days, where the land office, law firms and other relevant bodies were not allowed to operate from 18.03.2020 until 04.05.2020. Hence, Plaintiff filed application seeking for extension of time to complete the transaction. Plaintiff averred that the extension of time applied for is merely to substitute the 50 days lost as a result of MCO.

1st Defendant argued there shall be no extension of time for the period of 120 days pursuant to the mandatory stipulation in Section 257(1)(g) of the National Land Code 1965 (NLC 1965), which reads:-

“specify that the balance of the purchase price shall be settled on a date not later than one hundred and twenty days from the date of the sale and that there shall be no extension of the period so specified;” [Emphasis added]

Consequently, the word “shall” used therein, prima facie can be no extension for the period stipulated for payment of balance purchase price.

Court stated that the Plaintiff is unfortunate to be placed in this dire predicament due to no fault of Plaintiff but for the imposition of MCO. The court in its Judgment expressed the possibility to interpret Section 257(1)(g) of the NLC 1965 differently by invoking inherent jurisdiction to allow the extension of time, but due other technical problem the court dismissed the said application as court have to ensure the charger’s interests are not jeopardized when deciding whether to allow Plaintiff’s application for extension of time.

In conclusion, as at the date of this write up, it is yet to have an precedent to say that the court will invoke their inherent jurisdiction in favour of successful bidder in order to extend the timeline for payment of balance purchase price.

E - Pros and Cons of Buying a Auction Property

1. Pros

• Auction property is usually much cheaper than newly launched or second hand property.

• If the auction property failed to secure a bidder, the reserve price of the auction property can go lower in its subsequent auction.

• Bidder can be represented or unrepresented.

2. Cons

• Heavy work load on doing research and obtaining information of the auction property.

• Possible bad condition of property and may incur high renovation costs.

• Possible bill shock when sighting the outstanding outgoing bill payments and utility payments.

• Previous owner/tenant occupying the property and refuse to move out and additional costs may be incurred to remove them.

Last but not least, we hope you find this article helpful! Please do not hesitate to contact us if there is anything that we could assist you with!