You purchased a house, and it seemed like you were staying for a long time. Then, something unexpected came up that forced you to consider selling it. The big question is whether it’s possible to sell a house within 5 years after purchase. This article will explore this topic in detail to help you decide.
1) Is It Possible to Sell a House Within 5 Years After Purchase?
The short answer is…
Yes, it is possible to sell a house even if you haven't owned it for more than 5 years, unless there are transfer restrictions, such as low-cost housing. However, it's important to note that you may encounter taxes and potential penalties from the bank. Additionally, the remaining balance on your loan might not have decreased significantly.
Before drawing any conclusions, please read this article, as some of the situations discussed may not apply to your case.
2) Hefty Real Property Gains Tax (RPGT)
The government imposes RPGT on the profit generated from selling a property. The tax rate varies based on how long you have owned the property.
- First year to third year: 30%
- Fourth year: 20%
- Fifth year: 15%
- Sixth year onwards: 5%
For instance, you purchased a house for RM150,000 and sold it during the third year for RM250,000.
Your profit is RM100,000 (RM250k – RM150k), and the RPGT rate is 30%. Therefore, you can expect to pay RM30,000 in RPGT.
Note: Please note that RPGT calculations follow a format where you can deduct certain expenses. However, for this example, I have used simple calculations. Consult a lawyer or certified tax agent for an accurate estimation.
As you can observe, selling a property within 5 years can result in a huge RPGT sum.
Nevertheless, there is the option of utilizing a one-time RPGT exemption. By applying this, no tax charges will be imposed.
It is essential to remember that this exemption can only be used once. If you sell another property in the future, you must fulfil your tax obligations.
The property must be classified as a private residence to qualify for this exemption. Further conditions are available on the LHDN website.
3) Possible Penalty for Breaking the Lock-in Period
Potential repercussions arise if you breach the lock-in period outlined in your agreement with the bank, usually within 3 years after you obtain the financing. This penalty typically ranges from 3% to 5% of the loan amount.
For example, if your principal loan amount is RM100,000 and your penalty amounts to 3%, then your liability towards the bank would be RM3,000.
Therefore, it is essential to review the letter of offer from your bank or contact them for information regarding the lock-in period and penalty rate.
4) Not Much Reduction in Your Bank Loan
You should not expect much reduction in your loan balance if you plan to sell a house within five years of its purchase.
Most of the payments made during this period mainly cover the bank’s interest, which means your profits may be insignificant.
5) Property Price Increase Might Be Insignificant
The price increase might also be insignificant if you resell within 5 years due to the current oversupply of properties and much lower demand.
This is unlike ten years ago, when prices would immediately rise upon project completion.
6) Low-Cost Houses Cannot Be Sold Within 5 Years
In Selangor, low-cost houses must be owned for five years before being sold. Lembaga Perumahan Dan Hartanah Selangor (LPHS) will only allow the transfer if you comply.
Additionally, government-controlled houses, like RUMAWIP and PR1MA, have a ten-year moratorium during which you cannot sell them after purchase.
The authorities will consider the ownership duration starting from when the sales and purchase agreement is made.
That’s everything I have to share in this article. Below are a few more articles in which you might be interested: