In a conventional home purchase in Malaysia, an offer to buy is accepted, the buyer and seller meet to exchange funds and settle final costs, and, at the close of the transaction, the property and its title change hands. Typically, buyers will apply a loan from the bank to finance the purchase their home property.
But in recent times there is an alternative way to buy a home: a lease option agreement, also called a rent-to-own or a lease-to-own agreement to help ease the home purchasing process in Malaysia. When home buyers sign this kind of contract, they agree to rent the home for a set amount of time before exercising an option to purchase the property when or before the lease expires.
How Property Lease Option Works in Malaysia?
In a typical lease option agreement, potential buyers get to move into a house right away. The tenants typically rent the property for a set amount of time (usually three to five years), after which the tenants can purchase the house from the seller. It’s not as simple as paying rent for three years and then buying the house, though. Certain terms and conditions must be met, in accordance with the contract.
In a lease option agreement, the potential buyer pays the seller a one-time, usually non-refundable lease option fee called option money or option consideration. This gives him or her the opportunity to purchase the house in the future. It is important to note that some contracts (lease-option contracts) give the potential buyer the right but not the obligation to purchase when the lease expires. If the purchase decides not to purchase the property at the end of the lease, the option will cease. If the wording is “lease-purchase,” without the word “option,” the buyer could be legally obligated to purchase the property at the end of the lease. So, it is crucial for you to check the wording in the lease option contract or referring to your lawyer before agreeing to it.
What is Option Money?
The size of the option is negotiable. There’s no standard rate. It typically ranges between 2.5% and 7% (3% is common) of the purchase price. In some (but not all) contracts, all or some of the option money may be applied to the purchase price at closing. That’s a valuable clause. Consider that if a home has a purchase price of RM200,000 and a 7% option consideration, the buyer would need to pay RM14,000 up front. That’s a lot less than the RM20,000 (the size of the standard 10% down payment) if you acquire the house through conventional purchase.
During the Term of the Lease of the Property
The potential buyer pays the seller a specified amount of rent, usually each month. In many contracts, a percentage of each monthly rent payment, called a rent credit, is applied to the purchase price. For example, assume the contract states that the buyer will pay RM1,200 each month for rent, and that 25% of that will be credited to the purchase. If the lease term is three years, the buyer will earn a RM10,800 rent credit to apply toward the purchase .
RM1,200 x 0.25 = RM300; RM300 x 36 months = RM10,800
For the buyer, the amount of RM10,800 will act as down payments on the property. For the seller, they act as compensation for having taken the property off the market.
Purchasing the Property
If the potential buyer decides not to purchase the property (or is unable to secure financing) at the end of the lease term, the option expires. The buyer forfeits any funds paid until that point, including the option money and any rent credit earned. If the buyer cannot purchase the property but has a legal obligation to (as stated in the contract), legal proceedings may be initiated.
If the buyer wants to purchase the property, he or she typically applies for financing (i.e., a loan) and pays the seller in full. According to the terms of the contract, a certain percentage of the option money and rent paid may be deducted from the purchase price. The transaction is completed at the closing, and the buyer becomes a homeowner.
Lease Option in Malaysia
Now that you have understand the concept of lease options, here are some of the platforms you can go to. For lease option Malaysia, Wonderlist Property is the first in Malaysia to provide a digital listing for lease to own homes Malaysia through the online platform, https://lease.wonderlist.property/ or https://wonderlist.my/lease-option
Users will able to enjoy a large selection of lease to own homes Malaysia through the platform.
Read More >> Not ready to buy house? Try lease option