The average Malaysian property investor pays market price and hopes rental yield covers the mortgage. Lelong buyers start 20-40% below market value — which means their yield calculation begins from a fundamentally different position. A condo that yields 5% at RM400K yields 7.1% at RM280K. Same unit, same tenant, same rent. The only difference is how you bought it.
Lelong — court-ordered auction of properties where owners defaulted on their loans — is the most reliable source of below-market property in Malaysia. But it comes with real risks that can wipe out the price advantage if you do not understand the process. Occupant eviction, hidden maintenance arrears, outstanding utility bills, and title complications are not hypothetical — they happen on a significant share of lelong purchases.
Here is how lelong works, what the real risks cost, and when the cashflow math makes it worth pursuing.
What Is Lelong?
When a property owner defaults on their mortgage, the bank files for foreclosure. A court order authorizes the sale of the property through a public auction — this is lelong. The Proclamation of Sale (a legal document specifying the auction terms) is published in newspapers and on auctioneer websites.
The starting bid is typically set at the bank's reserve price, which is based on a valuation commissioned by the bank. Reserve prices generally sit 20-40% below current market value, depending on:
- How long the property has been in default
- How many previous auction attempts failed (price drops with each round)
- The bank's urgency to recover the outstanding loan
- Current market conditions in that area
First auction reserve prices are usually 10-20% below market. If no buyer bids, the property goes to a second auction at a further 10% discount. Third and subsequent auctions drop further. Properties that have been through 3-4 auction rounds can sit at 30-40% below market — but they often carry the heaviest risk baggage.
The Lelong Process — Step by Step
Step 1: Find Listings
Lelong properties are listed through:
- Court notice boards at the relevant High Court or Magistrate's Court
- Auctioneer websites — companies like AuctionGuru, LelongTips, PropertyGuru Auction
- Newspaper classifieds — legal requirement to publish the Proclamation of Sale
- Bank auction portals — some banks list their foreclosed properties directly
Filter by location, property type, and price range. Focus on areas where you already understand rental demand and market values.
Step 2: Inspect the Property
This is where lelong differs most from normal purchases. You typically cannot enter the unit. The property may be occupied — by the defaulting owner, a tenant, or even a squatter. Your inspection is limited to:
- Exterior condition — walk around the development, check the building facade, common areas
- Surrounding area — nearby amenities, transport links, neighborhood quality
- Management office inquiry — ask about outstanding maintenance fees, any known issues with the unit
- Land office search — verify title status, check for caveats or encumbrances
Do not skip the management office visit. This single step can save you tens of thousands in surprise arrears.
Step 3: Read the Proclamation of Sale
The Proclamation of Sale is the most important document in a lelong purchase. It specifies:
- Reserve price (starting bid)
- Deposit requirements (typically 10% of reserve price)
- Payment timeline for the balance (usually 90-120 days)
- Who bears outstanding charges (maintenance arrears, quit rent, assessment tax)
- Whether the property is sold with vacant possession or subject to existing tenancy/occupancy
- Any special conditions
Read every clause. Some proclamations state the property is sold "as is, where is" — meaning you inherit all outstanding obligations. Others specify that certain arrears are settled by the bank from the auction proceeds. The difference can be RM20,000-50,000.
Step 4: Prepare Financing
Critical timing issue: you must have financing pre-approved before the auction. If you win and cannot pay the balance within 90-120 days, you forfeit your deposit.
Approach your bank before the auction day with:
- The Proclamation of Sale
- Your own valuation estimate
- Proof of funds for the deposit
Most Malaysian banks finance lelong properties — the process is similar to a normal purchase, but faster execution is needed. Banks typically require their own valuation, which must be completed quickly post-auction.
Step 5: Prepare the Deposit
The deposit amount and payment timeline depend on whether the property is classified as LACA or Non-LACA:
| Type | Deposit | Balance Payment Period | Notes |
|---|---|---|---|
| LACA (Land Auction Court Act) | 5% of reserve price | 90 days | Older titles, typically individual/master title properties |
| Non-LACA | 10% of reserve price | 120 days | Strata titles, most condos and apartments |
Most investor-relevant properties — condominiums, apartments, and serviced residences — fall under the Non-LACA category. Non-LACA auctions are conducted by private auctioneers appointed by the chargee bank, whereas LACA auctions are conducted by the court itself.
On auction day, you need a bank draft (not a personal cheque) for the deposit amount, payable immediately upon winning.
The bank draft must be made payable to the party specified in the Proclamation of Sale (usually the plaintiff bank's solicitors). Bring your identification documents and the bank draft to the auction venue.
Step 6: Attend the Auction and Bid
Auctions are held at the location specified in the Proclamation — often at the court house or an auctioneer's office. Registration opens 30-60 minutes before the auction.
Bidding starts at the reserve price and increments are announced by the auctioneer (typically RM1,000-5,000 per bid). Set your maximum bid before walking in and stick to it. Emotional bidding is the fastest way to overpay and destroy the yield advantage you came for.
Step 7: Complete the Purchase
If you win:
- Pay the earnest deposit immediately (bank draft)
- Pay the balance of the deposit (if 10% total) within the specified period
- Complete financing and pay the remaining balance within 90-120 days
- Your lawyer processes the transfer of ownership
- Take possession of the property
If the property is occupied, you may need to initiate eviction proceedings — a process that can take additional months and legal costs.
Key Risks — Quantified
The below-market price is the headline. The risks are the footnotes. Here is what each one can actually cost you:
| Risk | Typical Cost (RM) | Probability | Impact on Yield |
|---|---|---|---|
| Maintenance arrears | 10,000 - 50,000 | High (60-70% of lelong units) | 3-15% of purchase price |
| Utility bill arrears (TNB, water) | 2,000 - 8,000 | Moderate (40-50%) | 1-3% |
| Quit rent & assessment arrears | 500 - 3,000 | Moderate (30-40%) | <1% |
| Occupant eviction (legal + time) | 5,000 - 15,000 | Moderate (30-40%) | 2-5% + 3-12 months vacancy |
| Renovation / repairs | 15,000 - 60,000 | High (most lelong units need work) | 5-20% |
| Title complications / caveats | 5,000 - 30,000 (legal fees) | Low (10-15%) | Unpredictable delay |
| Loan balance exceeds auction price | 0 (bank absorbs) | N/A | No impact on buyer |
Maintenance arrears are the most common hidden cost. A unit in default for 3 years at RM300/month maintenance accumulates RM10,800 in arrears — plus late payment interest that some management corporations charge at 10-12% per annum. Always verify the exact arrears figure with the management office before bidding.
The occupant eviction risk deserves special attention. If the previous owner or an unauthorized occupant refuses to vacate, you need to apply for a court order for vacant possession. This process involves:
- Filing an application at the High Court
- Serving notice to the occupant
- Obtaining a court date (can take 2-6 months)
- If the occupant still refuses, engaging the court bailiff for enforcement
During this entire period, you are paying mortgage installments on a property generating zero rent. Budget 3-12 months of carrying costs for occupied units.
Cashflow Worked Example — Lelong vs Market Price
Let us compare the same property purchased at lelong price versus market price.
Property: 3-bedroom condo in Petaling Jaya, 1,000 sqft Market value: RM400,000 Monthly rental: RM1,800 (based on comparable active listings) Maintenance: RM300/month Financing: Islamic, 4.0% profit rate, 90% margin, 35-year tenure
At Market Price (RM400,000)
| Item | Monthly (RM) |
|---|---|
| Rental income | 1,800 |
| Loan installment (RM360K at 4.0%, 35 years) | (1,574) |
| Maintenance & sinking fund | (300) |
| Assessment tax & quit rent | (60) |
| Vacancy allowance (1 month/12) | (150) |
| Rental income tax (estimated) | (90) |
| Net monthly cashflow | (374) |
Cashflow-negative by RM374/month. Gross yield: (1,800 x 12) / 400,000 = 5.4%.
At Lelong Price (RM280,000 — 30% discount)
| Item | Monthly (RM) |
|---|---|
| Rental income | 1,800 |
| Loan installment (RM252K at 4.0%, 35 years) | (1,102) |
| Maintenance & sinking fund | (300) |
| Assessment tax & quit rent | (60) |
| Vacancy allowance (1 month/12) | (150) |
| Rental income tax (estimated) | (90) |
| Net monthly cashflow | +98 |
Cashflow-positive by RM98/month. Gross yield: (1,800 x 12) / 280,000 = 7.7%.
But add the hidden costs:
| Lelong Additional Cost | Amount (RM) |
|---|---|
| Maintenance arrears (2 years) | 8,400 |
| Renovation (basic refresh) | 20,000 |
| Utility arrears | 3,000 |
| Legal fees (lelong-specific) | 2,000 |
| Total additional | 33,400 |
Effective purchase price: RM280,000 + RM33,400 = RM313,400. Adjusted gross yield: (1,800 x 12) / 313,400 = 6.9%.
Even after hidden costs, the lelong purchase yields 6.9% gross vs 5.4% at market price — a 1.5% spread that translates to the difference between negative and positive monthly cashflow. Run the specific numbers for any property using our cashflow calculator.
When Lelong Makes Cashflow Sense
The lelong discount needs to exceed your total additional costs (arrears, renovation, eviction risk, opportunity cost of delayed rental income) by enough margin to meaningfully improve your yield.
Good lelong candidates:
- Discount of 25%+ from verified market value (not the previous owner's asking price)
- Vacant unit — no eviction risk, faster time to rental income
- Maintenance arrears confirmed and manageable (under RM15K)
- Clean title with no caveats beyond the charge being foreclosed
- Location with strong rental demand — minimum 3 active comparables within the development
- Building in good structural condition (check for the signs of a cashflow-positive property)
Avoid:
- Units with confirmed occupants who refuse access — eviction timelines are unpredictable
- Properties where the Proclamation of Sale places all outstanding charges on the buyer without specifying amounts
- Developments with a history of special levies or management issues
- Lelong properties in areas with thin rental demand (fewer than 3 comparables)
- Units where the discount is less than 15% — the risk premium is not worth it
Financing Lelong Properties
Most major Malaysian banks finance lelong purchases. The key differences from standard purchases:
Pre-approval timing. Get a letter of offer or at minimum an in-principle approval before the auction. You have 90-120 days to pay the balance — banking bureaucracy can eat most of that window.
Valuation. The bank will commission its own valuation. If the bank's valuation comes in lower than your winning bid, you need to cover the shortfall in cash. This is more common with lelong properties because the bank's valuer may factor in the unit's condition.
Islamic financing works for lelong properties. The bank purchases the property and sells it to you under Murabahah or Musharakah Mutanaqisah structures — the auction mechanic does not change the financing structure.
Cash buyers have a significant advantage in lelong: no financing contingency, faster completion, and the ability to act on short-notice auctions. If you have the capital, cash purchases at lelong can be completed in weeks rather than months.
Tips From Experienced Lelong Buyers
Check management arrears before anything else. Walk into the management office, ask for the outstanding balance on the unit. This is public information for strata properties. If arrears exceed RM30K, factor that into your maximum bid or walk away.
Verify the property is vacant. Visit the development at different times of day. Check if lights are on in the unit, if there is laundry on the balcony, if the mailbox is overflowing or empty. A vacant unit dramatically reduces your risk timeline.
Budget 10-15% of purchase price for renovation. Lelong units have typically been neglected for months or years. Expect to replace air conditioning units, repaint, fix plumbing issues, and replace flooring. Budget RM15K-40K for a typical condo refresh.
Attend auctions as an observer first. Go to 2-3 auctions without bidding. Watch how bidding works, see how many people show up, understand the pace. This removes the nervousness factor when you bid for real.
Set a hard maximum bid and walk away. The entire lelong advantage is the price discount. If competitive bidding pushes the price above 80% of market value, the risk-adjusted return no longer justifies the extra complexity. There will be another auction next week.
Lelong is not a shortcut — it is a different acquisition channel with a higher skill threshold and a different risk profile. But for investors focused on cashflow rather than convenience, the 20-40% entry price advantage can turn properties that are cashflow-negative at market price into properties that pay you every month.
All figures in this post are based on publicly available information as of February 2026. Auction processes, bank financing terms, and associated costs are subject to change. Consult a qualified Malaysian property lawyer before participating in any lelong auction.