THE waiver of the real property gains tax (RPGT) has resulted in more secondary market transactions and new demand for sub-sale property, industry data showed.
Recent statistics by Juwai IQI, Asia’s largest proptech group, indicates sub-sale activity in the secondary property market recorded a 65% growth to 2,410 units in 2020 from 1,458 units in 2019.
The tax exemption also saw a 78% rise in transaction value for sub-sales to US$480 million (RM1.9 billion) in 2020 from US$270 million in 2019.
Juwai IQI group co-founder and CEO Kashif Ansari said the tax exemption has helped to reduce costs which allow homeowners to upgrade their respective properties before entering the secondary market.
Kashif said upgrade buyers account for 30% of the secondary market with more upgrade buyer activity translating to more secondary home sales. To compare, upgrade buyers account for only a quarter of the primary market.
“The gains tax exemption also benefits investors. While it may not directly put money in the pocket of investors purchasing today, it reassures them about investing in the property market and the possibility of making gains.
“The exemption suggests to investors that they will keep more of their earnings rather than pay taxes upon sale,” he told The Malaysian Reserve (TMR).
To stimulate the property market and provide financial relief to homebuyers, the government reintroduced the Home Ownership Campaign, featuring stamp duty and RPGT exemption under the short-term Economic Recovery Plan.
The RPGT relief is for disposal of residential homes which takes effect from June 1, 2020, to Dec 31, 2021. The exemption is limited to the disposal of three units of residential homes per individual.
Kashif believes the RPGT exemption will see upgrade buyers and investors bring homes to the market as the exemption gives buyers more options and leverage when it comes to negotiation.
“If the seller is saving 5% on tax, the buyer has more room to negotiate. Malaysians with an average priced home will save more than RM20,000 in gains tax due to the exemption.
“When buying secondary housing, purchasers can physically inspect the property before making an offer, unlike when one buys new units off the plan,” he added.
He said buyers today can obtain loans with interest rates of 2.85% to 4.5%, which saves them tens of thousands of ringgit over the loan’s lifetime.
“With a loan that charges a 3.5% interest rate, you would pay more than RM300,000 less in total interest over 30 years than if your rate were 6.5%,” he said.
Juwai IQI’s Property Survey and Index Malaysia for the third quarter of 2020 (3Q20), found that the real estate industry expects average home prices to rebound in the coming years by around 10.6%.
The growth will likely push home price growth above levels hit in recent years, partly driven by a similar recovery in general economic activity.
Kashif said data by the National Property Information Centre indicated that buyers have been responding to market changes as the number of transactions in 3Q20 climbed 7.4% to 89,245.
“We believe this is probably a good time to buy residential real estate if one has the financial wherewithal to do so. The recovery from the pandemic is coming and it is likely to be sustained and rapid once it begins. Anyone holding real assets is likely to benefit from significant appreciation,” he added.
CCO & Associates (KL) Sdn Bhd ED Chan Wai Seen said the RPGT exemption would encourage property owners to sell their properties, especially for owners who benefitted from the substantial price appreciation.
“It will be subjected to high RPGT. Genuine sellers may pass the savings to buyers in the form of discount or rebate to expedite the property sale.
“RPGT is imposed on the property seller when a property sale takes place. Hence, the seller will be the main beneficiary from the RPGT exemption,” he told TMR.
However, Chan said the recent emergency declaration will most likely have an impact on market confidence as it showed that the political condition in Malaysia has reached its worst.
“In the secondary market, prospective buyers may adopt a wait and see attitude and wait for clearer market direction,” he said.
On the market outlook, Chan said the secondary housing market will depend greatly on the Malaysian economic performances and the government incentives to sustain the housing market.
He said the overall secondary housing market dropped by over 30% in pricing during the 1997-1998 Asian Financial Crisis attributed to a sharp rise in non-performing loans.
“The moratorium and targeted incentives to the affected households have played a significant role to alleviate the negative impacts of the Covid-19 outbreak.
“With the targeted incentives and moratorium and barring any unforeseen circumstances, we expect the secondary housing market to be stable or reduce marginally,” he added.
Firdaus & Associates Property Professionals MD Firdaus Musa said the RPGT exemption will be a temporary measure to reactivate the property market, especially in the secondary residential property market.
“Exemption has good and bad effects. On one hand, there will not be any ‘under the table’ transactions as sellers have more capital gain and may consider lower selling prices for a quick sale. The sale process is much easier with no money being held by the lawyer for the payment of RPGT.
“On the other hand, it will also reactivate the speculative market where buyers buying cheap older properties, renovate or as is, flip for a quick capital gain. Property speculators or property clubs will also be buying new properties at a discounted price for similar capital gains. Such activities may give a false positive market indication and may again balloon the market,” he told TMR.
He said RPGT exemption will benefit mainly speculative buyers or investors.
“For owner-occupied buyers, it may hit a bit hard if they buy from the said speculative or investor owners or sellers,” Firdaus said.