Foreign Acquisition of Property and Land in Penang and Johor: Key Legal Considerations

Introduction

Malaysia has long been an attractive destination for foreign property purchasers, whether for residential ownership or industrial investment. Its comparatively accessible property prices, established infrastructure and multilingual business environment continue to make it an appealing entry point for investors looking at Southeast Asia. While Kuala Lumpur naturally remains a major reference point for foreign purchasers, Penang and Johor have become increasingly relevant for different reasons. Penang’s appeal lies in its mature residential market, lifestyle offering and established industrial base. Johor, meanwhile, continues to attract attention because of its proximity to Singapore, the development of the Johor–Singapore Special Economic Zone (“JS-SEZ”) and the upcoming Johor Bahru–Singapore Rapid Transit System (“RTS”) Link. The JS-SEZ agreement, signed on 7 January 2025, is intended to strengthen connectivity, facilitate movement of people and attract investment, while the RTS Link is expected to enhance cross-border connectivity when operational.

However, foreign ownership of Malaysian property is not unrestricted. A foreign purchaser’s ability to complete an acquisition depends not only on the agreed purchase price, but also on whether the property falls within a permitted category, whether the transaction satisfies applicable federal requirements, and whether the relevant State Authority grants the necessary approval under Section 433B of the National Land Code.

Legal Framework for Foreign Property Acquisitions in Malaysia

State Consent under the National Land Code

Foreign acquisition of land in Peninsular Malaysia is primarily governed by the National Land Code (Revised 2020) (Act 828) (“NLC”). The NLC provides the statutory framework for dealings with land, including acquisitions by non-citizens and foreign companies.

Under Section 433B of the NLC, a non-citizen or foreign company may acquire land, or an interest in land, only with the approval of the relevant State Authority (“State Consent”) subject to the statutory exceptions and requirements. Where State Consent is required, the dealing generally cannot be registered until the approval has been obtained. State Consent is therefore a core requirement in any foreign acquisition. The sale and purchase agreement should consequently deal expressly with the approval as a condition precedent, identify the party responsible for the application, allocate the relevant costs and provide for the consequences if approval is refused, delayed or granted subject to unacceptable conditions.

Federal Restrictions under the EPU Guideline

The NLC framework is supplemented by the Guideline on the Acquisition of Properties issued by the Economic Planning Unit (now under the Ministry of Economy) (“EPU Guideline”), which generally restricts foreign interests from acquiring properties valued below RM1 million per unit, low-cost and low-medium-cost residential units, properties on Malay Reserved land, and properties allocated to Bumiputera interests in property development projects.

The Importance of State-Specific Requirements

The EPU Guideline, however, does not operate on its own. It must be read together with the requirements of the relevant State Authority. Depending on the State policy, land category and conditions attached to the title, foreign purchasers may acquire not only residential properties, but also commercial and industrial properties.

This is where foreign property acquisitions in Malaysia become State-specific. While the NLC provides the legal foundation, each State Authority may set its own minimum purchase thresholds, permitted and restricted property categories, approval conditions and fees. A foreign purchaser must therefore look beyond the purchase price and consider the land category, property type, title conditions, restrictions in interest, location and State policy.

This explains why Penang and Johor should be considered separately, as each State has its own policy approach and practical considerations for foreign acquisitions.

Foreign Property Acquisitions in Penang

State Approval and Minimum Purchase Thresholds

In Penang, foreign purchasers will generally require approval of the Penang State Authority. The applicable minimum purchase threshold depends on the location and type of property.

As a general guide, the threshold is higher on Penang Island than on the mainland. Strata properties such as condominiums and apartments on the island are generally subject to a RM1 million minimum threshold, while landed residential properties such as terrace houses, bungalows and semi-detached homes are subject to a higher threshold of RM3 million. In Seberang Perai (mainland), the thresholds are generally lower, with the threshold of RM500,000 for stratified properties and RM1 million for landed properties.

These figures should be verified against the version of the Penang guideline applicable when the SPA is signed, and against any relevant property-type, development or State-approved exception. These thresholds are only the starting point. A foreign purchaser should also review the land category, restrictions in interest, zoning, permitted use and whether any further consent is required.

Industrial Property and the PDC Framework

For foreign purchasers considering industrial land in Penang, key locations include Bayan Lepas, Batu Kawan, Bukit Minyak and Penang Science Park. Other mature industrial areas such as Perai and Seberang Jaya may also be relevant depending on the investor’s sector and supply chain.

Bayan Lepas remains closely associated with Penang’s electrical and electronics ecosystem, while Batu Kawan has become a major mainland growth area supported by its proximity to the Second Penang Bridge and wider industrial development in Seberang Perai.

Where the intended industrial site falls within land developed, sold, leased or administered by the Penang Development Corporation (“PDC”), the purchaser or tenant should check whether PDC consent is required. PDC consent is not required for every foreign acquisition in Penang. It becomes relevant where the land is subject to PDC administration or PDC-imposed conditions.

PDC’s published guidance states that property owners must apply for PDC consent before renting or selling PDC industrial land to third parties. Accordingly, the title, original acquisition documents, PDC approval letters and contractual conditions should be reviewed to determine whether consent is also required for a transfer, lease, sublease, tenancy, letting or other dealing in the particular case.

Applying for PDC Consent

In practice, the application for PDC consent is usually made by the existing landowner, vendor or landlord, depending on the nature of the transaction. PDC’s published sub-sale and sub-let materials indicate that the application is made by the landlord or existing owner. However, a purchaser or tenant should not treat this as solely the vendor’s or landlord’s issue, and should ensure that the required consent, approved use and any consent conditions are properly addressed in the sale and purchase agreement, lease or tenancy agreement.

The documents should identify the consent as a condition precedent where appropriate, require the responsible party to submit and pursue the application within a specified period, regulate the consequences of refusal or conditional approval, and deal with any consent fee or other approval cost.

The approval fees and other transaction costs arising from PDC consent and State Consent are discussed further below.

Purchasing vs Leasing Industrial Property

For foreign investors entering Penang’s industrial market, the choice between purchasing and leasing depends largely on the intended duration and nature of the business operations.

A purchase may be suitable where the investor requires long-term control or intends to make a long-term commitment in Penang. However, ownership carries a heavier legal and financial burden, including State Consent under Section 433B of the National Land Code, applicable financing and security requirements, compliance with the title’s express and implied conditions, and where the land is PDC industrial land or is otherwise subject to PDC requirements, PDC consent and applicable approval fees.

Industrial land may also be subject to conditions requiring it to be developed or used for the approved industrial purpose within a specified period. The precise obligation and timeframe should be confirmed from the issue document of title, conditions of title and relevant approvals rather than assumed to be uniform for all industrial land. In addition, under the current Penang guideline, a non-citizen or foreign company may sell industrial property only after three years from the date of the sale and purchase agreement. That restriction should be considered together with any separate consent, levy or approval requirements, including the PDC requirements, where applicable, and  incorporated into the investor’s exit planning from the outset.

Leasing may be more suitable where the investor prioritises operational flexibility, a shorter commitment period or reduced upfront capital expenditure. It does not, however, eliminate the need for regulatory and third-party approvals. Where the premises comprise PDC industrial land or are otherwise subject to PDC requirements, the proposed lease, sublease, tenancy or subletting arrangement may require PDC’s prior consent and payment of the applicable approval fee.

Foreign Property Acquisitions in Johor

State Approval and Minimum Purchase Thresholds

Johor generally applies a minimum purchase price of RM1 million to specified categories of residential, commercial and industrial property acquired by foreign interests, whether directly from a developer or through a subsale. The threshold is not, however, a blanket rule permitting the acquisition of any property priced at RM1 million or above. The purchaser must also confirm that the property falls within a permitted category, is not subject to an applicable off-limits restriction, and obtains the required State Authority approval.

Special treatment or exemptions may apply to designated areas or State-approved developments, including certain transactions within Medini Iskandar. These should not be treated as general Johor rules. Their availability may depend on the precise location, property type, transaction route, development status and applicable State or project approval. The purchaser should therefore verify the current State guidelines and project-specific approvals before signing the sale and purchase agreement or committing funds.

Restricted Property Categories in Johor

In addition to the general restrictions under the EPU Guideline, Johor’s current published requirements identify specific property categories that foreign interests may not acquire. These include low-cost and low-medium-cost residential or shop units, one-storey and one-and-a-half-storey terrace houses, shops or shop offices below three storeys, unreleased Bumiputera quota units, properties sold pursuant to a court order or public auction, Malay Reserve land, stalls or service workshops, agricultural land developed based on the homestead concept, and properties gazetted under the National Heritage Act 2005.

Accordingly, due diligence remains essential. Before committing to the transaction, the purchaser should verify the land category, building type, title conditions, restrictions in interest, Bumiputera release status, consent requirements and whether the property falls within any prohibited category.

The transaction documents should also allow sufficient time for the application and grant of State approval. Although a straightforward application may be processed within a shorter period, the overall completion timeline may still be affected by approval of the State Authority and registration requirements.

Transaction Costs and Tax Considerations

Foreign purchasers should also account for costs beyond the purchase price or rental. Stamp duty and, where applicable, real property gains tax are part of the broader Malaysian tax framework.  Other charges depend on the State, property category and transaction structure, and may include Johor State consent or approval fees, levies, registration charges and project-specific administrative fees. PDC approval fees are relevant where the property is PDC industrial land, and PDC consent is required for a sale, lease or subletting arrangement.

Stamp Duty, RPGT and CGT

A key cost item is the stamp duty on the instrument of transfer. With effect from 1 January 2026, instruments of transfer of residential property executed by non-citizen individuals and foreign companies are subject to a fixed stamp duty rate of 8%, increased from 4%.

Real Property Gains Tax (“RPGT”) should also be considered when planning an exit. RPGT is imposed on chargeable gains arising from a disposal of real property or shares in a real property company (“RPC”). Following the introduction of capital gains tax (“CGT”) with effect from 1 January 2024, disposals of RPC shares by persons within the specified CGT categories — including companies, limited liability partnerships, co-operatives and trust bodies are generally subject to CGT rather than RPGT. RPGT continues to apply to disposals of RPC shares by individuals who are not within the CGT regime, subject to the applicable RPGT provisions. For a disposer who is neither a Malaysian citizen nor a permanent resident, or a company not incorporated in Malaysia, the current RPGT rate is generally 30% for disposals within the first five years from acquisition and 10% from the sixth year onwards. This makes the holding period commercially important, especially for foreign purchasers considering a short-term resale.

State Consent fees, Levies and Approval Charges

State-level approval costs vary between Penang and Johor.

In Penang, the latest applicable rates should be checked against the fee schedules published by the Penang Land and Mines Office, including the schedules for foreigner consent and State Consent. Where the transaction involves PDC industrial land, separate PDC consent and approval fees may also be payable, particularly in connection with a subsale, lease or subletting arrangement.

For the approval levy, the Penang guideline provides that landed property, including landed strata, is generally subject to a levy of 3% of the acquisition value. Strata property is also generally subject to a 3% levy, except that strata property on Penang Island with an acquisition value between RM1 million and RM1.5 million attracts a reduced levy of 1.5%. The applicable levy is determined by reference to the date of the sale and purchase agreement.

Johor’s approval and registration charges should likewise be checked against the latest ruling issued by the Johor Land and Mines Office. Under the revised rates for foreign-interest acquisitions, residential and commercial property are generally subject to a 3% approval levy, subject to a minimum of RM30,000, while industrial acquisitions are subject to a 4% approval levy, with no minimum levy stated in the published rate table.

Transaction Process and Timing

Foreign acquisitions should be planned with sufficient lead time. The overall timeline is not determined by State Consent alone, but may also be affected by title conditions, valuation, stamping, approvals and any additional consent required from bodies such as PDC.

Foreign purchasers should therefore seek legal advice at an early stage to understand the expected transaction timeline and approval requirements. Proper planning allows the transaction documents to be structured around the relevant conditions precedent, approval process, expected timeline and budget.

Conclusion

The practical point is that foreign acquisition should be planned as an integrated transaction process, not merely as a land search and signing exercise. A purchaser should understand the approval requirements, title conditions, applicable fees, tax exposure, financing timeline, development obligations and post-completion restrictions before committing to the transaction.

Experienced solicitors and other professional advisers can assist in identifying these issues at an early stage, coordinating the relevant searches, valuations and approvals, incorporating appropriate protections into the transaction documents, and reducing the risk of delay or unexpected costs.

This article was co-authored by Partner Ho Yu Jing and Pupil-in-Chambers Deong Min Rui.

This article is for general information only and does not constitute legal, tax or investment advice. Readers should obtain specific professional advice before acting on any information in this article.

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