Visitor No since 22-10-98
‘FIC land deals guide has no force of law’ Print E-mail
Friday, 13 August 1993

The Business Times

By Zakariya Othman

IF A non-citizen or a foreign company wants to own landed property in Malaysia, regard must be given to the provisions of the National Land Code 1965 (NLC) and not the Foreign Investment Committee guidelines, said Roger Tan Kor Mee, a practising lawyer in Johor Bahru.

In his article entitled “National Land Code vs FIC (Foreign Investment Committee) Guidelines”, published in the August 1993 issue of Bankers Journal, he stressed that it is only the state authority, based on the existing provisions of the Federal Constitution and the NLC, that can impose any terms and conditions it deems necessary relating to land matters.

He argued that FIC guidelines in relation to land transactions do not have the force of law.

In other words, even if the FIC guidelines are recognised in any statutory provisions other than Section 433B of the NLC, it may be still ultra-vires.

This is because land is a state government’s matter and by virtue of Article 74(2) of the Federal Constitution, the state government may make laws respect to any matters in the state list which include land matters.

Furthermore the terms and conditions imposed by the state government shall take precedence over the FIC guidelines because such terms and conditions are made in (sic) pursuant to the statutory power vested in it under Section 433b(2) of the NLC.

Tan also noted that by virtue of section 433B of the NLC, it is stated that foreigners cannot own properties in Malaysia without the approval of the state authority.

“This power is specifically vested in the state authority only and no one else,” he said.

Citing a few cases, the writer is of the view that the FIC guidelines are enforceable by the courts but only in applications of those parts of the guidelines that do not relate to land transactions.

It was in 1992 that FIC asserted its authority by directing the Bar Council to issue a directive to its members not to permit execution of any land transaction involving foreigners without first having obtained approval from FIC.

With this development and following Malaysia’s rapid economic recovery, the FIC guidelines assumed a bigger role in regulating foreign acquisition of fixed assets in Malaysia.

This was also due partly to criticisms from Malaysians over foreigners pouring into Malaysia to acquire landed properties taking advantage of non-restrictive market for acquisition of land in Malaysia.

The FIC guidelines then stipulated that any acquisition by foreign interests of any substantial fixed assets in Malaysia, required the prior consent of the FIC.

It was argued that this applied to acquisition of all fixed assets irrespective of its value as the word substantial could not be defined but rested solely on FIC’s discretion.

Some quarters then attempted, unsuccessfully, to circumvent the FIC guidelines by stating that only acquisition of properties by foreigners up to a value of RM5 million required FIC’s consent.

Foreign purchasers were advised to enter into a number of sale and purchase afreements seach with a value of less than RM5 million.

Thus the FIC guidelines were not followed strictly by parties advising the foreign purchasers including financial institutions providing finance to these purchasers.

At the same time, Bank Negara issued directives to the banks and financial institutions to stop giving out loans to foreigners acquiring residential properties.

As a result, the construction industry became alarmed.

The lawyers, finding themselves restricted once again, tried to outdo each other in looking out for new loopholes in circumventing the FIC guidelines.

The financial institutions, also affected, allowed their head offices/ branches operating outside Malaysia to disburse loans.

The provisions of the NLC do not stop landowners charging their properties in favour of financial institutions operating outside Malaysia whilst keeping the title deeds in their head offices/ branches in Malaysia.

For properties without title, the developers gave their consent freely to foreigners to resell to Malaysians by way of an assignment before issuance of title, as no registration of transfer is necessary until issuance.

However, the end result for a foreigner’s decision to invest is still what would be if no approval is obtained from the FIC. To a businessman, the thought of offending the establishment is frightening. In this case non-legal consequences have overweighed legal ones.


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