Mark-Up
Property Transactions in Malaysia: The Hidden Costs and Legal Risks
A property
“mark-up” transaction may appear to help a buyer obtain a larger housing loan
and reduce the amount of cash required upfront. However, behind that apparent
benefit are substantial financial, taxation and legal risks for the buyer,
seller and any professional who knowingly facilitates the arrangement.
A property
mark-up generally occurs when the price stated in the sale and purchase
agreement is higher than the price the seller has actually agreed to accept.
For example:
The seller agrees to sell the
property for RM400,000
The sale and purchase agreement
states a price of RM470,000.
The buyer applies for financing
based on the stated price of RM470,000.
The difference of RM70,000 is
treated as a rebate, refund or other adjustment.The attraction is
obvious: the buyer may believe that the larger loan will cover most or even
all of the deposit and transaction expenses.
However, the
contractual price no longer reflects the true commercial arrangement. If the
inflated price is presented to a bank to obtain a larger loan, the transaction
may expose the parties to serious consequences.
A Simple
Illustration
Assume that the
parties have agreed on the following figures:
Description | Amount |
Actual price
accepted by the seller | RM400,000 |
Price stated in
the agreement | RM470,000 |
Bank valuation | RM470,000 |
Loan at 90% of
RM470,000 | RM423,000 |
Difference
between the two prices | RM70,000 |
On paper, the
buyer appears to have found a way to purchase the property with very little
personal capital. In reality, the buyer has not eliminated the deposit. The
amount has effectively been transferred into a larger loan that will attract
interest throughout the loan period.
The transaction
may also create additional tax liabilities, legal expenses and disputes over
who is responsible for the difference.
The Hidden
RPGT Consequences
Real Property
Gains Tax, commonly known as RPGT, is generally imposed on chargeable gains
arising from the disposal of real property in Malaysia.
When an inflated
disposal price is stated in the transaction documents, it may produce a higher
apparent gain. This could result in the seller being required to declare and
account for tax based on figures that do not reflect the true arrangement.
However, the
amount of RPGT cannot be determined merely by comparing the original purchase
price with the selling price. A proper calculation must also consider:
a) the seller’s status;
Therefore, any
RPGT figures used in an example should be treated as illustrations only. The
actual tax position must be calculated according to the facts of the particular
transaction and the prevailing RPGT rules.
If the mark-up
causes additional tax to become payable, an immediate dispute may arise: who
should bear it?
If the buyer is
expected to reimburse the seller, the buyer has taken on a hidden expense that
may never have been properly documented.
If the seller
absorbs the additional tax, the seller may effectively be financing the buyer’s
deposit while simultaneously carrying the tax and legal risks of the
arrangement.
Either way, the
cost has not disappeared. It has merely been transferred from one party to
another.
Potential
Criminal Liability
A difference
between the stated price and the actual commercial arrangement should never be
treated casually. Depending on the facts, intention, documents and
representations made, several provisions of the Penal Code may become relevant.
Section 423:
False Statement of Consideration
Section 423 of
the Penal Code concerns the dishonest or fraudulent execution of a deed or
instrument transferring property where the document contains a false statement
relating to the consideration.
Where parties
knowingly state a false purchase price in a transfer instrument, the provision
may be engaged if the necessary dishonest or fraudulent intention is
established.
The offence
carries imprisonment of up to five years, a fine, or both.
It is important
to understand that a price discrepancy does not automatically establish a
criminal offence. The surrounding circumstances and the parties’ intentions
must be examined. Nevertheless, knowingly using false consideration in legal
documents creates an obvious and serious risk.
Section 420:
Cheating and Dishonestly Inducing Delivery of Property
Section 420 may
become relevant where an inflated purchase price or other false representation
is used to induce a bank to approve or release a larger loan.
This is
potentially more serious because the bank may have relied on information that
did not accurately represent the transaction.
A conviction
under section 420 can carry imprisonment, whipping and a fine. The precise
application of the provision will depend on the evidence, including what was
represented to the bank and whether the bank was dishonestly induced to release
funds.
Other Cheating
Provisions
Other Penal Code
provisions may also apply depending on the circumstances. For example, section
416 deals with cheating by personation, while section 417 provides the general
punishment for cheating.
The applicable
offence will depend on the manner in which the transaction was arranged, the
representations made and the identities or documents used.
“Everybody
Does It” Is Not a Defence
A questionable
practice does not become lawful merely because it is common within a particular
market.
Similarly,
calling the difference a “rebate”, “cashback”, “renovation package” or
“full-loan arrangement” does not resolve the underlying issue. The legal
question is whether the documents and representations accurately disclose the
true transaction.
If the real
arrangement is concealed from the financier, tax authority or other relevant
party, changing the label does not necessarily remove the legal risk.
The Lawyer’s
Position
A lawyer who
knows that the price stated in the transaction documents does not reflect the
true arrangement cannot assume that they are merely following the client’s
instructions.
Section 94(3) of
the Legal Profession Act 1976 defines professional misconduct broadly. It may
include:
- dishonest or fraudulent conduct in
the discharge of professional duties;
- breaches of rules governing legal
practice and etiquette;
- conduct that is unbefitting of an
advocate and solicitor; and
- conduct that brings the legal
profession into disrepute.
Depending on the
seriousness of the misconduct, disciplinary consequences may include:- a reprimand or censure;
- a financial penalty;
- suspension from legal practice; or
- removal from the Roll of Advocates
and Solicitors.
Malaysian case
law has repeatedly emphasised that professional misconduct is not confined to
conduct that results in a criminal conviction. Conduct involving fraud,
dishonesty, deceit, serious neglect or a failure to maintain the standards of
integrity and trust expected of a lawyer may be sufficient to justify
disciplinary action.
A lawyer cannot
justify participation by saying that the client requested it or that the
practice is common in the property market.
RPGT
Self-Assessment from 1 January 2025
Malaysia
introduced the RPGT self-assessment system for disposals from 1 January 2025.
Under this
system, the disposer is generally responsible for determining the chargeable
gain, calculating the tax payable and submitting the relevant RPGT return
electronically through e-CKHT. Electronic filing has also become mandatory.
According to
HASiL, RPGT returns must generally be filed within 60 days from the date of
disposal or acquisition, as applicable. For disposals from the 2025 year of
assessment onward, the disposer calculates the tax in the submitted return, and
no separate notice of assessment is ordinarily issued.
This development
makes accurate reporting even more important. The seller is personally
responsible for declaring the transaction and the disposal price. A false or
incorrect declaration may expose the seller to additional tax, penalties and
possible enforcement action.
More information
about the filing requirements is available from HASiL’s
official RPGT filing guidance.
The Wider
Impact on the Property Market
Mark-up
transactions do not affect only the immediate buyer and seller. They can also
distort recorded property values.
When inflated
prices are registered:
- official transaction records may no
longer reflect genuine market value;
- future sellers may rely on
inaccurate comparable prices;
- future buyers may pay more based on
artificial market data;
- valuers and financial institutions
may receive a distorted picture of the market; and
- genuine purchasers may be priced
out by valuations based partly on invented figures.
One transaction
may therefore contribute to a larger cycle in which paper prices gradually move
away from actual property values.
Frequently
Asked Questions
Is every
mark-up transaction automatically illegal?
Not every
incentive, rebate or financing arrangement is automatically unlawful. Some
developer rebates and genuine financing packages may be legitimate if they are
transparently documented and properly disclosed to all relevant parties.
The danger arises
when the agreement, transfer instrument or loan application contains a false
price or conceals the true arrangement, particularly where this is done
dishonestly or fraudulently.
The buyer pays
no deposit. Why is that a problem?
The deposit has
not necessarily disappeared. It may have been converted into a larger loan,
resulting in more interest over the financing period.
There may also be
additional tax, legal and valuation consequences. A cost that is hidden or
deferred is still a cost.
Does the
seller necessarily pay more RPGT?
Not necessarily.
The actual RPGT depends on the seller’s circumstances, including the holding
period, tax rate, allowable expenses and available exemptions.
However, an
inflated disposal price may increase the apparent chargeable gain or create
reporting inconsistencies. The seller should obtain a proper RPGT calculation
before signing any agreement.
Is a genuine
100% housing loan the same as a mark-up?
No. A legitimate
100% financing scheme offered and approved by a financial institution is
different from artificially increasing the contract price to obtain a larger
loan.
The important
question is whether the price and financing structure have been fully and
truthfully disclosed to the bank and accurately recorded in the transaction
documents.
How can I
determine whether my transaction involves a mark-up?
Ask one basic
question:
Is the price
stated in the sale and purchase agreement the same price that the seller has
genuinely agreed to receive?
If the answer is
no, the parties should clearly establish:
- why there is a difference;
- where the difference will go;
- whether the bank has been informed;
- how it will be treated for RPGT and
stamp duty purposes; and
- whether the arrangement is
accurately recorded in the documents.
If the
explanation is unclear, inconsistent or deliberately kept away from the
financier, you should obtain independent legal advice before proceeding.
What if I have
already signed the agreement?
Speak to your own
lawyer as soon as possible, especially if your lawyer was not involved in
arranging the mark-up.
Do not sign
further documents or make additional declarations until you understand your
position. Possible remedies depend on what was represented, who knew about the
arrangement and which documents have already been executed or submitted.
Under the
Contracts Act 1950, fraud or misrepresentation may in certain circumstances
make an agreement voidable at the option of the affected party. However,
whether this assists a particular buyer or seller depends on the complete facts
and should not be assumed without legal advice.
Before You
Sign
A property
mark-up may appear to solve an immediate financing problem, but it can leave
the parties with a larger loan, unexpected tax exposure, disputes over the
difference and potential civil, criminal or professional consequences.
Before signing,
make sure that the price stated in every document accurately reflects the real
transaction and that all relevant information has been properly disclosed.
If you are buying
or selling property in Johor Bahru and are uncertain whether the figures in
your agreement reflect the actual arrangement, obtain legal advice before
signing—not after the documents have been executed and submitted.
Head Office – LarkinAddress: No. 34-01, Jalan Idaman 2, Taman Larkin Idaman, 80350 Larkin, Johor
Telephone: 07-226 6533 / 07-224 2277
Fax: 07-223 7722
Second Office – SouthkeyAddress: C-3-28, Block C, Pusat Komersial Bayu Tasek, Persiaran Southkey 1, 80150 Johor Bahru, JohorTelephone: 07-287 7925Email: florence.toh@wfpartners.com.my
Third Office – Nusa Jaya MasAddress: 15A, Jalan NJM 1/1, Taman Nusa Jaya Mas, 81300 Skudai, JohorTelephone: 07-559 2883Mobile/WhatsApp: 016-800 6743Email: william.lim@wfpartners.com.my This article provides general information on Malaysian law and does not constitute legal advice for any particular transaction. The applicable law, tax treatment and available remedies depend on the facts of each case. Tax rates, procedures and statutory provisions may change.
