Auction risks are what makes the property cheap sometimes and proper risk mitigation will be very rewarding. Purchasing a property through an auction—commonly known in Malaysia as lelong—can be attractive to both homebuyers and investors. Auction properties are often marketed at prices lower than prevailing market value, creating the impression of an excellent bargain. However, behind these seemingly attractive prices may lie legal, financial, and physical risks that can turn an opportunity into an expensive mistake.
In Malaysia, property auctions are conducted either by banks under the Loan Agreement cum Assignment (LACA) framework or through the High Court. Regardless of the auction type, buyers must understand the risks and legal consequences involved. Below are five major risks associated with buying auction properties and the steps buyers can take to reduce exposure to these risks.
Risk 1: Properties Are Sold on an “As Is, Where Is” Basis
One of the most important aspects of buying a lelong property in Malaysia is understanding that it is sold strictly on an “as is, where is” basis. This means the buyer accepts the property in its existing condition, including any defects, damages, or missing items—whether visible or hidden.
In most auction cases, buyers are not allowed to inspect the interior of the property before bidding. As a result, purchasers may unknowingly acquire properties with serious issues, such as:
- Removed piping, wiring, or fixtures
- Severe water seepage, mould, or structural damage
- Units left cluttered with rubbish or abandoned belongings
Relying solely on the external appearance can be misleading. What appears acceptable from the outside may be severely damaged internally.
How to Reduce This Risk
To better protect yourself before bidding:
- Study the Proclamation of Sale (POS) and Conditions of Sale (COS) carefully, as these documents outline the legal terms and property details.
- Inspect the property externally, noting signs of neglect, vandalism, or forced entry.
- Speak with neighbours or building management, who may have insight into the unit’s condition or history.
- Estimate renovation costs in advance by consulting contractors if extensive repairs are likely.
- Budget for worst-case scenarios, assuming repairs may exceed initial expectations.
- Careful preparation and conservative budgeting can help avoid unpleasant surprises after purchase.
Risk 2: Outstanding Bills and Maintenance Arrears Auction Risks
A common oversight among first-time auction buyers is failing to account for unpaid charges left behind by the previous owner. These may include:
- Electricity (TNB) arrears
- Water bills (Air Selangor or other providers)
- Indah Water Konsortium (IWK) charges
- Quit rent and assessment tax (cukai tanah and cukai pintu)
- Maintenance fees and sinking fund arrears for strata properties
Unlike sub-sale transactions—where sellers usually settle these dues prior to completion—auction properties often transfer these liabilities to the buyer unless the POS states otherwise. Good to note that many banks will cover a portion of these but not entirely.
Many buyers only discover these outstanding amounts after winning the auction, resulting in unexpected financial burdens.
What to do:
- Contact utility providers, local councils, or the JMB/MC to inquire about unpaid balances.
- Request written statements of account where possible to confirm outstanding amounts.
- Review the POS thoroughly to determine who is responsible for unpaid charges (banks rarely assume these costs).
- Budget for arrears in your purchase budget, even if exact figures are unavailable.
When in doubt, assume that unpaid charges will be your responsibility and plan accordingly.
Risk 3: Occupied Properties and Eviction Challenges
Winning an auction does not automatically guarantee vacant possession. Many lelong properties remain occupied by former owners, tenants, or even unlawful occupants.
While ownership may transfer to the buyer, physical possession requires a separate process. Malaysian law strictly prohibits self-eviction. Forcibly removing occupants can expose buyers to criminal and civil liabilities.
Eviction Considerations
If a property is occupied:
- The new owner must issue a formal notice to vacate.
- If the occupant refuses, legal action must be taken under laws
- Legal fees, court costs, and enforcement expenses are borne by the buyer and can be substantial.
Some occupants may even request wang saguhati (goodwill compensation) in exchange for vacating, despite having no legal entitlement.
How to Manage This Risk
- Check occupancy status by visiting the property before the auction.
- Review POS carefully—if vacant possession is not guaranteed, assume eviction will be required.
- Issue a formal notice to vacate immediately after successful purchase.
- Engage a lawyer if resistance occurs to initiate proper legal proceedings.
- Budget for eviction costs, which may range from the tens of thousands or more.
Risk 4: Legal Restrictions and Title Issues
Not all auction properties come with clear and straightforward titles. Some may involve legal or ownership complications that delay or prevent transfer and financing.
Common issues include:
- Private caveats lodged by third parties
- Bumiputera restrictions, limiting eligibility to Bumiputera buyers only
- Master title properties without individual or strata titles
These complications are not always clearly highlighted in auction listings, placing the burden of investigation on the buyer.
How to Reduce Legal Risks
- Conduct a title search at the Land Office or through a solicitor.
- Confirm strata title issuance for high-rise properties.
- Check for caveats or pending legal disputes.
- Verify Bumiputera eligibility, if applicable.
- Engage an experienced property lawyer to review all legal aspects before bidding.
Consequences of Ignoring Title Issues
- Loan applications may be rejected
- Ownership transfer may be delayed
- Buyers may face prolonged legal disputes
Thorough legal due diligence is essential to avoid these pitfalls.
Risk 5: Financing Failure and Loss of Deposit
One of the most serious risks in auction purchases is winning a bid but failing to secure financing. Upon success, buyers must pay a 10% deposit immediately and settle the remaining balance within a fixed timeframe—typically 90 or 120 days.
If the buyer fails to complete payment within the stipulated period, the entire 10% deposit is forfeited, and the sale is cancelled if negotiations with the auctioning bank to extend the period is unsuccessful.
Many buyers mistakenly believe that obtaining a loan after winning the auction is guaranteed. In reality, banks may reject financing applications due to various factors, and deposits are generally non-refundable unless the seller breaches the Conditions of Sale.
Common Reasons for Loan Rejection
- Poor credit history or high existing debt
- Property title issues that make the unit unfinancable
- Bank valuation lower than the auction purchase price
How to Protect Yourself
- Secure loan pre-approval before participating in any auction.
- Understand your borrowing capacity and set a strict bidding limit.
- Ensure the property is bankable, with no major legal or title encumbrances.
- Work with bankers experienced in auction properties, as not all banks finance lelong purchases.
Failure to secure financing can result in substantial financial loss and may negatively affect future loan applications. Preparation and financial readiness are critical before bidding on any auction property.
Final Note
Auction properties in Malaysia can offer genuine opportunities, but they also carry significant risks. Buyers who conduct proper due diligence, understand the legal framework, and prepare financially are far more likely to benefit from the lelong market—while those who rush in unprepared may pay a heavy price.