Advisory: Exemptions for foreign buyers in Medini Iskandar

MALAYSIA - Medini Iskandar Malaysia is a world-class approved development of 2,230 acres/96 million sq ft with gross floor area of 182 million sq ft complete with infrastructure. Designed as an international metropolis, it is meant to attract international population and tourists to live within a sustainable development.

Medini, being in one of the flagships in Iskandar Malaysia, located within the Nusajaya Flagship Area, has strong support from the Johor state government. It is envisioned to attract foreign purchasers in hordes.

Leases for foreigners

This unique development has come up with a special way to deal with foreign purchasers. Instead of foreigners directly buying the freehold land, Iskandar Investment Berhad (IIB) has appointed Master Concessionaire Lease Developer (MCLD) / Subsequent Layer Investor (SLI) who would sell leases to end purchasers.

This means that what the end purchasers acquire is only a lease for a certain period of time, namely 99 years, and in some cases, an option for a further 30 years. Since the investment and development concept in Medini involves local retention of freehold ownership, the concept of ownership for foreigners in Medini is based on a lease structure whereby at the end of the lease period, the land will revert to IIB.

Each transaction carried out by the registered lessee will only involve a lease transaction and will not affect the freehold title of the land. So what the purchaser gets is a lease which can be said to be a long- term tenancy and not a leasehold.

This sale of leases is perhaps one of the first of its kind in Malaysia although it is a well-known practice in other countries like Australia and Canada. In these countries, there are special legislations relating to sale of leases in stratified developments.

The distinguishing feature is that under the Strata Schemes (Leasehold Development) Act 1986 of New South Wales, for example, the original owner is able to retain a fee simple interest in the entire estate, with subsequent purchasers obtaining only a leasehold interest in their respective lots. These lacunas or gaps in our legislation need to be addressed in order to properly manage the parcels once the developments are completed.

As the law stands currently in Malaysia, there can only be the standard agreement between purchasers and developers, namely Schedule H and G of the Housing Development (Control and Licensing) Regulations 1989, which does not cater for sale of leases. Therefore, developers undertaking developments in Medini have to apply for an exemption from the Minister of Urban Wellbeing, Housing and Local Government to cater for varied forms of these agreements in order to implement their projects.

Basic Guidelines

The main focus of the Guidelines is to serve as a guide for the process of transfer of lease/granting of lease to foreign end-users (after MCLD/SLI) in Medini.

The State Authority via the Land and Mines department (PTG) has provided the following flexibilities to end-users (foreigners):

• Consent for foreign ownership would not be required to go through the State Authority (through Jawatankuasa Hasil Bumi Committee/EXCO); and
• Generally, blanket approval has been granted by the State Authority to the Land and Mines Department (PTG), subject to the Foreign Ownership Guideline in Johor i.e. - to grant consent for foreign acquisition of lease (by the end user) in respect of properties in Medini without having to go through the State Authority (through Jawatankuasa Hasil Bumi Committee/EXCO)

Fees and processing timeline:

• Levy of RM10,000 (S$3,900) and application fee of RM500 will have to be paid during application for consent.
• The whole process will be shortened to two weeks as compared to the normal process which takes three months.