Investment Financing for Malaysia

Financial institutions in Malaysia are open to financing foreign nationals investing in property in Malaysia and for this reason there are numerous options available from a variety of different financial institutions.

As well as the the options considered "traditional" by western investors, in Malaysia it is possible to find an alternative type of financing scheme on offer from Islamic and (increasingly) western banks. These “alternative” mortgages comply with Islamic banking practices, which prohibits the collection and payment of interest (usury).

Prohibited by Islamic law is termed Haram, whereas the approved by Islamic law is Halal. Islamic banks will also not finance any business which are considered Haram, for example dealing in alcohol, pork, gossip and pornography for example

Competetive pricing of these Halal mortgages makes them increasingly attractive to non-islamic home buyers. Generally, the loans are operated more like a lease rather than a loan and can be more attractive to the traditional, interest based mortgages to which western investors are more accustomed.

As an example (there are many different options), one of the finance possibilities in Islamic Banking is called Bai' al-Inah (sale and buy back agreement). In this scenario, the bank would sell an asset to the investor for a fixed price with deferred payment agreements, then immediately buys the asset back for cash at a discount. Hence, the Bank still owns the asset, the investor has the cash he requires and a contract is in place where the investor must continue his staged payments to the bank. There is no variable interest, the amount owed and the payments due are clearly stated in the agreement.

Another option, one of the most common is Murabahah, which translates as Cost-Plus financing. The financial institution purchases an asset for the client at a cost to the bank. They then sell this asset to the client at a previously agreed profit. The basic difference to Western banks is that rather than lending the client the money to go and buy an asset, then securing their debt plus interest against that asset, with Islamic banks, the asset belongs to the bank until such time as the payments are completed in full.

Whereas a debtor who defaults payments to a western bank will see the interest on their debt continually increasing, once the price has been settled with an Islamic bank, the amount of money owed can not be increased. Therefore, and to deter clients from defaulting, if a client defaults on payments to an Islamic bank, the bank may chose to blacklist that client with all the other Islamic banks in the network. This can only be done, however, if the default was wilful, because if the client suffered true hardship which prevented him from being able to repay the debt, according to the Holy Qu’ran, the debtor must be given a period of temporary delay. Normally the blacklisting will only take place once the conditions surrounding the default have been clarified.

Due to the large variety of options with regards to financing a property purchase in Malaysia, we recommend speaking to a financial analyst/advisor familiar with shariah banking who can advise you on the options available to you and which one would be suit your needs.

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