After the Singapore government announced the steepest increase of Additional Buyer Stamp Duty (ABSD) among the past few property cooling measures on 26 April 2023, more Singaporeans have expressed their interest in overseas properties and Singaporeans are now considered the top buyers of property in Johor Bahru, which has seen prices of condominiums in Johor climb by up to 30% in the first half of this year.
Recently, Channelnewsasia reported about the Singaporeans who bought properties in Johor, Malaysia who discovered to their horror that they are not the legal owners of the properties they had bought. More than 100 of them are now locked in a legal dispute with a Malaysian developer, alleging that it was not upfront about the sale terms and conditions. Property lawyers representing the buyers and the developer are now urging buyers to read the fine print and to be more aware of local conditions before purchasing properties in Johor as the buyers claimed they did not realise they are actually buying the properties under Private Lease Scheme (PLS) when they signed the Sales and Purchase agreements at the law firms.
What is Private Lease Scheme (PLS)?
The Private Lease Scheme (PLS) allows land owners / developers to lease out their freehold land for development for a term of 30 – 99 years under a Certificate of Private Lease, often seen in overseas property arrangements.
Under the Private Lease Scheme (PLS) - buyers are actually “renting” for the duration of the lease period. Buyers of Private Lease Scheme (PLS) properties must be made aware that they are not buying the said property but are instead merely renting or leasing the property from the sellers for a specific number of years. At the end of the lease period, the future descendants of the buyer (lessee) must surrender the property back to the seller / developer (lessor).
Difficult to Resell
While it might be easy to buy Private Lease Scheme (PLS) properties directly from developers, re-selling them in the future might not be so easy. Typically, banks with many business dealings with developers would normally be willing to provide 90% end-financing to the first batch of buyers who buy directly from the developers. However, over time, if the homeowner decides to sell the property in the open market, the re-selling of such Private Lease Scheme (PLS) properties will become harder, as most banks will hesitate to provide full end-financing to the owner who technically doesn't own the property.
The developer may also require the homeowner to resell back to the developer at a specific price instead of allowing them to sell in the open market. Sometimes, Private Lease Scheme (PLS) property homeowners may not have legal ownership of their property, thus they won’t be able to sell, transfer or use it as collateral.
Other countries like England also faced such controversial Private Lease Scheme (PLS) issues surrounding the leasehold system which has gathered a huge momentum in recent years that prompted the authorities in England to clamp down on such PLS schemes.
Most, if not all buyers who purchase directly from developers (whether in England or in Malaysia) generally will use developer-appointed lawyers as some are packaged as free legal fees. What is important to note is, the lawyer is acting for the developer and not the buyer and thus the developer is not obliged to inform house buyers of the pitfalls of buying Private Lease Scheme (PLS) properties.
Usually Private Lease Scheme (PLS) leasehold homeowners were unaware of the escalating ground rent that can be charged by the land owner, especially when the landlord changed hands and a new landlord owns the land. In the example in England, the house buyers were only vaguely informed about the need to pay annual maintenance charges and were subsequently surprised to discover that these charges can increase exponentially over the lease period. However, by then, it would be very difficult to challenge the validity of such maintenance charges and most buyers have no choice but to pay.
The first new condo launch in Toa Payoh in 8 years. Register your interest today to receive ebrochure & floorplans!
Interestingly, Singapore's Housing Development Board (HDB) flats also used a form of Private Lease Scheme (PLS) as a policy that allows HDB flat owners in Singapore to rent out or sell their flat in the open market subject to HDB's approval under specific conditions, while retaining the right to live in the flat for a pre-agreed lease period if the buyer does not sell the HDB flat.
Kiwi Lim, Associate Group Director of Propnex Realty said "the Private Lease Scheme (PLS) by HDB is generally different from overseas properties in two areas: firstly HDB allows flat owners (lessee) to enjoy the flexibility of taking a bank loan to finance / refinance their HDB flats unlike some overseas properties that were bought under the Private Lease Scheme (PLS)."
"Secondly, Singaporeans generally trust the Housing Development Board (HDB) which is protected by the Singapore government and that it will not go bust unlike some private property developers overseas. Thus HDB homeowners do not expect HDB to go bankrupt and having to lose their HDB flats in the process."
Kiwi Lim warned that when buyers buy their overseas properties under the Private Lease Scheme (PLS) scheme, it should be noted that homebuyers may not have any proprietary rights on leases but that these rights essentially may still belong to the developer / seller. These homebuyers may find their properties being confiscated from them but still legally obligated to pay off the housing loans when the developer goes bust or face financial burdens and the properties taken away from the homebuyers without compensation as part of the developer's debt liability obligations to their creditors.
The information above is provided for general information and reference only. The writer makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.
RSS Feed
