Effects Of Budget 2014 On Malaysia’s Property Market

With the property prices in Malaysia shooting full speed ahead towards overheating levels, the government has stepped in and introduced various measures to cool down temperatures and stabilize property prices. These measures were announced in the Budget 2014.

There are 3 measures that will most greatly impact the property market.

1) Increase of Real Property Gain Tax (RPGT) from 15% to 30% for disposal of property within the first 3 years of holding will definitely help to cool down speculation buying activities, the main culprit cited to increase property prices.

Disposal of properties during the fourth year of purchase will be taxed 20% and 15% for the fifth year. There will be no tax imposed for properties disposed during the sixth year of holding.

The new RPGT is applicable to both individuals and corporate entities.

However, corporate entities will be taxed 5% for any disposal of properties from the sixth year of holding onwards.

For foreigners, the RPGT of 30% will apply for the first 5 years of holding. Any disposal of properties from the sixth year onwards will be imposed a 5% tax.

This measure is not viewed favorably, especially when it comes to projects like Iskandar where foreign investment is the main driving force of the economy.

2) Developers are prohibited from implementing projects that have “Developer Interest Banking Scheme” (DIBS) features. This will prevent developers from incorporating interest rates on loans in house prices during the period when the house is still under construction. As such, banks and financial institutions can’t offer final funding for projects that have DIBS features.

3) The minimal price that foreigners are allowed to purchase properties is increased to RM1 million compared to RM500,000 previously. Again, this measure is aimed at stopping foreigners from buying properties in Malaysia in bulk because of their superior currency exchange rate.

Another positive measure announced during Budget 2014 is to establish a National Housing Council and RM1 billion being allocated to spearhead the affordable housing scheme is another positive move in the right direction. However, government agencies need to make more land available. This is because land prices in general, and especially in hot areas like Southern Johor, the Klang Valley and Penang have gone up tremendously in the past few years. As such, it is virtually impossible for developers to build affordable houses, even if they want to.

Thus far, these measures have been viewed positively by many, in particular, associations like Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS), Master Builders Association Malaysia (MBAM) and the National House Buyers Association (HBA).

Meanwhile, on the other side of the spectrum, there are certain quarters who speculate that while the measures seem positive and a move in the right direction on the surface, they are not effective enough to cool the property market or stop property prices from increasing in the long run.

This is because the measures are designed to stop speculation when speculation is not the main culprit that is making properties rise.

Because owners delay in selling in order to avoid the new RPGT, there will only be an increase in demand due to the decrease in supply.

Also because foreigners are now limited to buying properties that are RM1 million and above, this will cause a dent on developers’ sales. Experts foresee the biggest area affected by this to be Iskandar as the majority of buyers there are Singaporeans.

All in all, at the moment, these measures seem to be aimed at stabilizing the property market rather than making properties more affordable for the low to middle income groups in the long run.

Milan Doshi holds regular talks on the topic of investing in property. If you want to know what to invest in property, then come to his Property Intensive seminar organized by Wealth Mastery Academy that has helped opened the minds of many to the opportunities available in property investment.