Budget 2020 wish list for the private property sector

2019-10-04

THE real property gains tax (RPGT) is a tax on capital gains on the disposal of the property and was intended to curb speculation.

In Budget 2019, the government has announced an RPGT rate increase for individual disposal of property from 0% to 5%, and an increase from 5% to 10% for companies and non-citizens.

The government’s intention is to prevent speculation of properties in the market and also to control the spike housing prices due to speculation.

However, in view of the lacklustre property market and the high oversupply, this revision of RPGT rates had a negative impact on the property market and had become a burden to investors, especially senior citizens and their families who are now burdened with a 5% tax, although they have ownership of their property for many years.

In addition, the RPGT is also expected to impact the investors market with the reduction of the property investment in the market.

The Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) is of the opinion that ownership of property from the sixth year onwards is no longer deemed a speculator and wish that the 5% tax for individual citizens/PR to be withdrawn and the 10% tax for individual non-citizens and companies to be reinstated as the status quo.

The removal and reduction of the RPGT after the fifth year will indirectly stimulate the property market and encourage more buyers and investors to re-enter the property market and this will also help reduce the property overhang and assist developers to reduce the supply of unsold units in the secondary market.

In Budget 2019, the government announced an increase of stamp duty from 3% to 4% for property above RM1 million.

The revision of stamp duty rate for property above RM1 million to 4% was ill-timed due to the stagnant property market and this increase dampened the recovery of the property market.

The property overhang for those worth above RM1 million constitute 12.84% of the total, with 4,213 units worth RM8,391.33 million in H1 2019.

This revision of the stamp duty had slowed down the recovery of the property market and it is of no help in reducing the property overhang.

PEPS recommends that the stamp duty rate be reduced to 3.5% for property transactions worth more than RM1 million.

Affordable housing

During the various property market cycles, affordable housing had primarily been the neglected housing sub-sector. The main reasons why so little affordable housing are built are due to low profit margins and lack of suitable land.

Only recently from year 2012, the government had decided to take a proactive role to address the serious shortage of affordable housing. The Housing and Local Government Ministry is targeting to build 100,000 affordable homes by the end of this year, in line with the Pakatan Harapan government’s manifesto to build 1 million affordable housing in 10 years.

Here are some current issues facing the affordable housing market:

1. There is a shortage of affordable housing in Malaysia due to a mismatch in location, pricing and type of housing. The affordability is not compatible with the income/wage growth as the latter is slower than the increase of housing prices.

2. Currently there is no integrated data available for the demand and supply of affordable housing, income levels, affordability, pricing in order to provide the right products and build in the right location with the right pricing.

3. There is also lack of market and feasibility study done when affordable housing is being built.

4. Too many authorities are building affordable housing. Apart from PRIMA, there are about 20 national and state agencies that are involved in providing affordable housing.

5. There is no coordination among these national and state agencies, resulting in duplication and affordable housing built close to each other.

6. Each state government has different threshold pricing for affordable housing. PRIMA threshold for affordable housing is RM100,000 to RM400,000, Redha threshold for affordable housing is RM300,000 to RM500,000 and National House Buyers’ Association’s price range RM150,000 to RM300,000.

7. Based on JPPH Research, Malaysia’s median house price stands at RM280,000. In Kuala Lumpur, house price median is at RM500,000 and for Selangor is at RM380,000 as in H1 2019.

The housing price median has been increased 77.21% since year 2010 in Malaysia. The median monthly household income for Malaysians is at RM5,228 in 2016. In Kuala Lumpur, the mean monthly household income is at RM9,073 and Selangor is at RM7,225.

According to Khazanah Research, the “affordable” market should have a “median multiple” (median house prices as a multiple of median annual household income) of 3.0x, hence, based on the current household income, most Malaysians will not be able to afford a house.

In this case, the affordable housing prices based on current household income should be as follows:

1. Malaysia- RM188,000/- compared to RM280,000/- current median house prices.

2. Kuala Lumpur- RM327,000/- compared to RM500,000/- current median house prices.

3. Selangor- RM260,000/- compared to RM380,000/- current median house prices.

Solving affordable housing problems and its shortage is one of the key priorities of the Pakatan Harapan government.

PEPS’ No. 1 wish list for the 2020 Budget is for the setting up of a National Housing Corporation on Affordable Housing.

1. We recommend that the government introduce a new Act to set up a body to plan, coordinate and implement the government blueprint and plans on affordable housing nationwide; to coordinate and bring all government agencies involved in affordable housing under the National Housing Corporation on Affordable Housing; to liaise with the state governments on affordable housing including getting state governments to release suitable land bank for affordable housing; and identify suitable developers for joint venture developments; to carry out research on supply and demand, income levels, household incomes, affordability and pricing issues and buyer preferences so that when the affordable housing are built there will be effective demand; to get developers to allocate a certain percentage of their townships for affordable housing and to jointly develop with the National Housing Corporation.

PEPS proposes the business model of the National Housing Corporation for Affordable Housing be modelled after the Singapore Housing Development Board, CHDB, due to its success in tackling housing problems and create home ownership for eligible citizens.

We also propose that the government allocate a grant to kickstart the formation of this National Housing Corporation and existing government companies involved in affordable housing such as PRIMA be absorbed under this new corporation.

2. Reducing house prices. Some of the ways of reducing house prices is to get the government utility companies to reduce compliance cost to the developers.

3. Clear planning guidelines. To have clear planning guidelines on affordable housing by getting all local authorities to gazette local plans and designate areas for affordable housing. With clear planning guidelines, red tape and corruption will be minimised and this will help reduce house prices.

4. Bumiputera quota. There must be a mechanism for the fast release of unsold Bumiputera units into the open market for affordable housing.

5. Market and feasibility study. A market and feasibility study on developments has to be conducted starting any projects to ensure there is demand in that particular location.

Property overhang

As of H1 2019 based on NAPIC data, residential property overhang stands at 32,810 units worth RM19.76 billion.

House prices ranging from RM200,001 to RM300,000 formed the bulk of the property overhang which constitute about 22.33% of the total.

According to NAPIC, condominium/apartments formed 42.7% of the total overhang and are mostly priced between RM200,000 to RM300,000 and there are nearly 9,000 units under affordable housing schemes which constitutes 27% of the total.

The overall property overhang status has increased to 59,473 units, valued at RM41.732 billion in H1 2019 with 259% increase since year 2015 with only 16,576 units.

In terms of value, for residential property overhang above RM1 million, it constitutes 42.47%, which is equivalent to RM8.39 billion of the total value of residential property overhang.

Property overhang is defined as property that are completed and issued with CCC but remain unsold 9 months after launch.

Johor and Selangor are the states having the most property overhang units, with 21,701 units and 7,359 units respectively or 36.49% and 12.37% of the total property overhang respectively.

According to Rehda Johor, Bumiputera quota ranges 20% to 40% depending on the property selling prices. There is no clear timeline for release of the quota and this has caused the property overhang in Johor and impacted developers’ cash flow and revenue.

To overcome the huge property overhang, PEPS is recommending the following:

1. For property below RM500,000, to provide 100% loan to first time home buyers and increase the margin for third property onwards to 80% and to ease the lending eligibility.

2. Allow more funds from EPF Account 2 to be withdrawn for the purchase of affordable homes.

3. To review and make clear of the bumiputera quota mechanism and release bumiputera quota in order to clear property overhang.

4. PEPS is of the opinion that ownership of a property from the 6th year onwards is no longer deemed a speculator and wish that the 5% tax for individual citizens/PR and the 10% tax for individual non-citizen and companies to be reinstated as the status quo.

5. PEPS is recommending the government to reduce the financial criteria required for foreigners to apply for MM2H Visa Permit by lowering the liquid assets amount required to encourage more foreigners to consider Malaysia to be their second home.

6. To reduce threshold for foreigners to own property in Malaysia, such as from RM1 million to RM800,000 in Kuala Lumpur and from RM2 million to RM1 million in Selangor.

Industrialised building system

An industrialised building system is a construction system using prefabricated components. The components are manufactured off-site using machines, formworks and other mechanical equipment. The components will be delivered to the construction site for assembly and erection.

As of January 2019, it was reported by the Construction Industry Development Board (CIDB) the private sector IBS adoption stands at 35% compared to its target at 50%.

IBS needs high volume to be more cost effective and to achieve economies of scale in order to make it viable for developers. The cost of IBS adoption is also high, which turns off many developers to this technology.

PEPS suggests widening tax incentives and tax allowances given, not only limited to IBS manufacturers but also to property developers/contractors who are adopting IBS, so that more property developers and contractors will switch to IBS over the traditional construction system.

At the moment, only new IBS manufacturers or companies with pioneer status is given tax exemption and tax allowance. Reinvestment allowance and import duty exemption also applicable to manufacturers only. – October 4, 2019.

* This wish list is by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight.

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