5% RPGT A THORN FOR PROPERTY INVESTMENT

The already sluggish Malaysian property market will not benefit from several Budget 2019 proposals aimed at increasing taxes for property transactions.

One issue that stood out and for which the Malaysian Budget 2019 in respect of property was heavily criticised by all stakeholders in the industry was the 5% Real Property Gains Tax (RPGT) that would be imposed on Malaysian individuals for the disposal of property after the 5th year of ownership. The National House Buyers Association (HBA), developers, investors and property owners slammed the 5% tax that did not have any expiry year, meaning this tax will forever be imposed unless there is a cap year introduced in the future. According to tax accountant Koong Lin Loong, the cap year is ‘likely to be announced in the near future’.

The Ministry of Finance did make one concession however- following a petition from concerned buyers, the Finance Ministry announced that the RPGT valuation would only be calculated from the year 2000 onwards, to take into account property owners who have bought and owned property extending decades before 2000.

Koong added that with this new tax, all buyers will now have to take into account the 5% tax as part of the purchasing cost. He was speaking at a Budget 2019 Forum organised by Swhengtee Group in early November.

“This will dampen the property market which is still sluggish due to the huge supply overhang,” he continued.

The rest of the participants comprising lawyer Dato Tee Lian Eng, tax expert Agnes Wong and property expert Tan Hwa Chuan agreed. The experts viewed the 5 per cent RPGT as something that Malaysia is not ready yet. “It’s very unfair. In other countries, they implement it to cool the market, but here, the market is already cool, so to implement it here will further slow down the already sluggish market!”

The participants all agreed that the details need to be ironed out before implementation.

Currently, RPGT rates for the disposal of properties or shares in property holding companies within the first five years are between 0% and 30%.

The proposed new 5% tax is exempted for low cost, low-medium cost and affordable housing priced below RM200,000.

The rate has also been increased from 5% to 10% for companies, non-citizens and non-PR holders.

P2P – NOT SO SIMPLE?

Another proposal that drew a lot of criticisms was the proposed ‘Property Crowdfunding’ which will be overseen by the Securities Commission. The forum participants said there are many issues to be ironed out.

“If the regulations are not enforced strictly, it will give rise to “many ‘ah longs’ (unlicensed moneylenders) out there,” Koong said. There are also issues that need to be resolved such as the requirement for a money-lending licence, the quota, is it tax-free, can the lenders charge interest (maximum interest rate for secured loan is 12 per cent while for unsecured loan, it is 18 per cent).

“Can P2P lending or crowdfunding be this simple,” asked Koong. Agnes Wong concurred adding that as this would be under the purview of the Securities Commission, there would be issues like company structure, compliance and guaranteed returns for investors to deal with as well. She also noted that the success of crowdfunding has not been conclusively proven yet.

Another proposal that does not seem to help the sluggish market is the increase in stamp duty from 3% to 4% for transfers of property valued at more than RM1 mil. Transactions in the high end market have already slowed down substantially since the last few years.

The Budget which is heavily skewed towards affordable first home ownership has also proposed easier home financing. However, Agnes pointed out that this might have the unintended consequence of increasing non-performing loans (NPL) in the financial system in the future.

According to Tan Hwa Chuan, unsold inventory currently in the market is easily ‘worth over RM1 billion for each of the top 10 developers in Malaysia’. Hence, even without the government asking them to reduce prices, the developers themselves will lower prices in a variety of ways in order to drive sales and reduce their unsold stock. “And if one developer drops the price, the others will follow suit one after another.”

With regards to the stamp duty exemption for the first RM300K, the Sale and Purchase Agreement has to be signed by 30th June 2019, therefore, developers have only a 6-month window period to try to clear their stocks. Stamp duty may be about RM24K for property worth below RM500K, hence this might be the right time to buy, says Tan.

The experts also suggested that instead of a blanket ban on foreigners (an issue that the government seems to be flip flopping), they could perhaps follow the example of Thailand where the government restricts foreign ownership to not more than 49 per cent for each block of condominium. If the quota is exceeded, then the foreigner would have to buy the next block. This prevents any block from being under-occupied due to the foreigner being out of the country for long periods of time or not renting out their units.

The forum was moderated by property investment expert Dato Sri Gavin Tee and was co-organised by Asian Property Review magazine.

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