Double whammy for home owners
Joseph Wong 

All eyes were on the Budget 2019 which was tabled on Nov 2 by the new government as it had to strike a balance between achieving growth and managing the country’s debt.

Malaysians were probably not expecting a bag of goodies to be announced in the budget given the challenging environment but there was much outrage over the proposed implementation of a perpetual Real Property Gains Tax (RPGT) of 5% upon sale from the sixth year of purchase onwards.

Currently, the RPGT for citizens and permanent residents is 30% if they dispose of their property within three years, 20% in the fourth year and 15% in the fifth year. Beyond five years, the gains are not taxable.

Essentially, under the proposed measure, Malaysians will have to pay RPGT even if they have held their property beyond the minimum number of years required to enjoy zero tax on their gains.

Syarikat Ong Sdn Bhd managing partner Agnes Wong feels that the property sector is not quite ready for a perpetual RPGT, although this has been implemented in other Asean countries.

“The other countries in this region also have perpetual taxes on properties from 2% to 10%. Singapore has the highest taxation but they have different system,” she tells FocusM.

Singapore uses the Buyer Stamp Duty, Additional Buyer Stamp Duty (ABSD) and Seller’s Stamp Duty approach. The Buyer Stamp Duty is calculated at 1% for the first S$180,000 (RM545,533), 2% for the next S$180,000, 3% for the next S$640,000 and 4% for the remainder.

The ABSD is pegged at 12% for the second property and 15% for the third and subsequent properties.

Wong says it would be unfair to compare the RPGT directly with other neighbouring countries as each nation has its own property sector ecosystem.

“It would be better for now to limit the number of years for the 5% rather than having it perpetual (unless it is the government’s intention to continue cooling down the property market),” she says.

National House Buyers Association (HBA) secretary-general Datuk Chang Kim Loong is equally unhappy over the introduction of the perpetual RPGT.

He feels that it would have a detrimental effect on genuine property owners, who in the normal scheme of things, would generally have two homes – one for their own stay and another as a long-term investment to hedge against inflation.

“By charging RPGT rate for people who had held properties for five years or more, the Pakatan Harapan government is effectively imposing tax on inflation,” he says.


Weaker buying interest

MIDF Research points out that the effect of the perpetual RPGT could be weaker interest from those who purchase property for investment.

“This will further discourage property transactions in the secondary market,” it says, pointing out that the property market is already experiencing a slowdown.

The residential volume of transactions for 1H2018 (94,202 units) is 0.8% lower than the corresponding period in 2017 (94,969 units). Likewise, the residential value of transactions for 1H2018 (RM31.66 bil) is 3.6% lower than the corresponding period in 2017 (RM32.86 bil).

Overall, the volume of transactions for 1H2018 (149,889 units) is 2.4% lower than the corresponding in 2017 (153,526 units). Similarly, the overall value of transactions in 1H2018 (RM67.74 bil) is 0.1% lower than in 1H2017 (RM67.83 bil).

A property owner concurs. “The property sector has not yet recovered and this move will serve to impede the growth of this market further,” he says.

“The ones who will feel the brunt are those families that are looking to upgrade their current homes. These are the middle-come earners who are already facing reducing value of their properties due to an overbuild of affordable homes which come in direct competition with the sub-sale market.”

He predicts the property market will face a further slowdown as sellers will feel a greater reluctance to dispose of their properties as they would suffer a “double-whammy.”

He doesn’t believe that the stamp duty exemption and the “up to 10% discount” will spur buyers to go for the overhang or new property as discounts are currently already being offered by the developers.

“If it didn’t work before, offering the same deal now won’t make a difference,” he says.

Moreover, for the high-end market, the RPGT being raised to 10% from 5% for companies, non-citizens and non-permanent residents in the sixth year and above, will also dampen the market.

Budget 2019 also spells out proposals for a two-year stamp duty exemption for the first RM300,000 for houses priced up to RM500,000 as well as a six-month stamp duty exemption for first-time buyers of houses priced between RM300,000 and RM1 mil. In addition, the Real Estate and Housing Developers' Association Malaysia (Rehda) has agreed to reduce house prices by as much as 10% for houses which are not subject to price control for new projects.


Not all bad

However, CBRE|WTW managing director Foo Jee Gen believes that the impact of the revised RPGT will only be for the short term and is likely to be minimal in the long run.

On a brighter note, he says the increase in stamp duty from 3% to 4% for property valued at more than RM1 mil would raise the cost of house purchase for this segment of the market, which in turn will encourage developers to build more houses priced below RM1 mil.

In addition, the setting-up of a RM1 bil fund by Bank Negara Malaysia (BNM) for first-time homebuyers who wish to purchase residential units not exceeding RM150,000 would provide a new source of financing, he says.

“The income eligibility criteria at RM2,300 and below per month infers that the target group would be those in the B40 (bottom 40% of the income earners) category whose access to mortgage is restricted.

“In addition, first-time homebuyers with a monthly income of under RM5,000 can now be guaranteed by Cagamas (National Mortgage Corporation) when they apply for loans. This is, again, a step forward in improving the financial accessibility for prospective homebuyers,” he explains.

While the assistance to the B40 group is applauded, there is a fear that they will end up being worse off without proper guidance. This is especially so if the lower income group is unable to service their loans if they choose to buy beyond their means, warns Reanda LLKG International Chartered Accountants CEO Koong Ling Long.

He says that banks could possibly end up with more non-performing loans.

Property developers, particularly those building affordable homes, are pleased with BNM’s RM1 bil fund.

Mah Sing Group Bhd lauds the government’s commitment in addressing the need for affordable homes, says its group managing director Tan Sri Leong Hoy Kum.

“The mortgage guarantee for buyers with household income of up to RM5,000 will enable them to enjoy substantial savings of between 7% and 11%.

“Many measures pertaining to stamp duties are also favourable for first-time home buyers of properties below RM500,000 and those looking for homes for immediate occupation below RM1 mil.

“The newly-announced measures would be able to empower the young generation to own their first home while propelling steady growth for the industry” Leong adds.

With the newly-announced initiatives of Budget 2019 and the impending National Housing Policy, Mah Sing foresees that these new policies and incentives will continue to drive the momentum of the property industry and contribute to the country’s economy growth. FocusM

This article first appeared in Focus Malaysia Issue 307.