Buying property under construction in Malaysia: progressive payments, progressive interest and LAD

The contract is written for you, not by the developer

A licensed housing developer selling residential property in Peninsular Malaysia cannot write its own sale and purchase agreement. The Housing Development (Control and Licensing) Act 1966 and its 1989 Regulations prescribe the form: Schedule G for landed property sold with an individual title, and Schedule H for subdivided buildings — condominiums, serviced apartments and anything that will be issued a strata title. The terms are statutory, so a clause that tries to give the developer a better deal than the prescribed form is unenforceable against you.

The practical consequence is that the payment schedule in your SPA is not a commercial negotiation. It is the Third Schedule to the prescribed form, and it has been the same percentages for Schedule G and Schedule H since the 2015 amendment. Every claim must be certified by the developer's architect or engineer, and payment only becomes due 30 days after you receive written notice of that certification — not when the developer says the work looks done.

The Third Schedule payment stages

Each stage is a percentage of the purchase price. The cumulative column is what you will actually have paid out by the time that stage is billed:

Progressive interest: why the instalment keeps climbing

Your bank disburses the loan against exactly the same stages. Interest accrues only on what has actually been released, so during construction you are not paying a full instalment — you are paying interest on a balance that steps up every time the developer certifies a stage. Banks call this progressive interest or the interest-servicing period, and it typically runs until the final release, after which the full principal-and-interest instalment begins.

Take a RM600,000 unit with a 90% loan of RM540,000 at 4% a year over 30 years. Your own 10% deposit covers the first stage, so the bank's releases start at the foundation. The interest you pay each month tracks the cumulative release:

• After foundation (bank has released RM60,000): about RM200 a month.
• After the structural framework (RM150,000): about RM500 a month.
• After internal and external finishes (RM330,000): about RM1,100 a month.
• After roads and drains (RM390,000): about RM1,300 a month.
• After vacant possession (RM495,000): about RM1,650 a month.
• Once the full RM540,000 is released, the real instalment starts: about RM2,578 a month.

Budget for the overlap, not the final figure

Two mistakes cost buyers the most money here. The first is budgeting only for the eventual instalment and treating the construction years as free — the progressive interest is real cash, it is not capitalised into the loan by default at most Malaysian banks, and across a three-year build on the example above it adds up to roughly RM30,000 of pure interest before you hold a single key.

The second is forgetting that if you are currently renting or servicing another home loan, the progressive interest sits on top of that. The month vacant possession is delivered is usually the worst month of the whole purchase: the 17.5% release pushes the interest near its peak, maintenance and sinking-fund charges begin, assessment and quit rent start accruing, and you still have to fit out an empty unit. A bank will approve you on your debt service ratio at the full instalment, but it will not tell you how to survive the overlap.

The 24-month and 36-month clock

The prescribed SPA gives the developer a fixed delivery period: 24 months from the agreement for Schedule G (landed) and 36 months for Schedule H (strata). Miss it, and the developer owes you liquidated ascertained damages — LAD — at 10% a year on the purchase price, calculated on a daily basis from the day after the deadline until vacant possession is actually delivered. On a RM600,000 unit that is roughly RM164 for every day of delay.

Two Federal Court decisions shifted this decisively in buyers' favour. In Ang Ming Lee (2019) the court held that the Controller of Housing had no power to grant developers an extension of time beyond the regulations, which invalidated the EOT letters many developers had relied on to defeat LAD claims. In PJD Regency (2021) the court held that the delivery period runs from the date the booking fee was paid, not from the later date typed on the SPA — which for most buyers moves the deadline several months earlier and increases the claim.

LAD claims below RM50,000 go to the Tribunal for Homebuyer Claims (Tribunal Tuntutan Pembeli Rumah), which is cheap, does not require a lawyer, and is the normal route for an individual buyer. The claim is time-barred if filed more than 12 months after the cause of action arises, so do not sit on it while waiting for the developer to be reasonable.

Vacant possession, CCC and the 5% held back

Vacant possession is only valid when it comes with the certificate of completion and compliance (CCC) and with water and electricity ready for connection. A notice to collect keys without those is not vacant possession, and the LAD clock keeps running.

The final 5% of the price is not paid to the developer. It is held by the developer's solicitor as stakeholder through the 24-month defect liability period: 2.5% is released 8 months after vacant possession and the remaining 2.5% at 24 months, in each case only once any defects you notified have been certified as made good. Notify defects in writing, with photographs and dates. If the developer fails to repair within 30 days of your notice, you are entitled to carry out the work and recover the cost from that stakeholder sum — which is precisely why the money is held there.

What to check before you sign

• The developer's licence and advertising permit numbers must appear on the SPA and the sales brochure. No permit, no legitimate sale.
• Confirm whether your unit is Schedule G or Schedule H — it decides whether your deadline is 24 or 36 months.
• Keep the booking fee receipt. After PJD Regency, that date is what starts the delivery clock.
• Ask the bank in writing for a progressive interest projection against the Third Schedule stages before you accept the letter of offer.
• Check whether the developer's package absorbs legal fees and stamp duty, and what lock-in or clawback comes attached.
• Payments go into the developer's HDA (housing development) account, not to the company's general account — pay as the SPA directs and keep every receipt.

Important caveats

This guide covers residential property sold by a licensed developer in Peninsular Malaysia under the Housing Development (Control and Licensing) Act 1966 and the 1989 Regulations. Sabah and Sarawak have their own housing legislation, and commercial units, SoHo or serviced apartments on commercial title, sub-sale purchases and completed stock are not governed by the prescribed Schedule G or H form at all — in those cases the payment terms genuinely are negotiable and there may be no statutory LAD.

The interest figures above are illustrative, assume a constant rate, and ignore the bank's own fees. Confirm the stage percentages against the Third Schedule in your own signed SPA, and take legal advice before filing or settling an LAD claim. Use the calculator below to work out the instalment that applies once the loan is fully released.