The 2011 property report

KUALA LUMPUR, Jan 8 — Everyone is doing a list, so why shouldn’t I? Furthermore, 2011 has been an exciting year for the property market in Malaysia. Not every news can be considered as good news, though.

Let us go through these news which can be found the whole year of 2011:

1) MRT finally got off the ground

The government finally decided to integrate the capital city’s public transportation system by having the Klang Valley Mass Rapid Transit (KVMRT).

It is to be the final piece to the puzzle as Klang Valley public transport has always been fragmented. Launching it in July 2011, Prime Minister Datuk Seri Najib Razak said he hoped that it will finally solve the woes of the city dweller by allowing them to park their car from wherever they are staying and ride public transport to work.

News on the MRT project, among others were : Its alignment as to where the train will pass and who will benefit from it; land acquisition which threaten a few heritage sites; the issue of land surface acquisition vs. underground land for the projects which now were brought to the court of law by businesses in Jalan Sultan (Chinatown), Jalan Imbi and Jalan Bukit Bintang; the possibility land prices rising wherever the MRT will pass; the issue of MRT Corporation getting involved in property development; and whether the right companies were chosen to receive the contracts for the RM40 billion project.

It is good that the government has finally got its act together to launch the MRT. It is badly needed to help the Klang Valley grow outwardly and to create more connectivity in the urban areas of the Greater Klang Valley. However, except for area like Taman Tun Dr. Ismail, it seems that the land acquisition in places where there are already other public transport makes it overlapping and redundant.

2) My First Home Scheme

My First Home Scheme was announced for houses between the price of RM100,000 to RM220,000 for first-time homeowner with the maximum price for this scheme was raised to RM400,000 in the 2012 Budget.

This 100 per cent housing loan scheme is provided by various financial institutions in Malaysia. The arrangement is for the first 10 per cent payment to buy the property to be guaranteed by Cagamas Berhad and has a maximum tenure of 30 years. Eligible for the Malaysia citizen below the age of 35 years old with household income of less than RM3,000.

The scheme seems to attract very few applicants as financial institutions appear to be not too keen to promote it. The government should actually partner it with either PR1MA or SPNB so that they can easily sell their affordable houses.

3) Perumahan Rakyat 1 Malaysia (PR1MA)

Launched in May 2011 and is known as 1Malaysia People’s Housing Scheme/Perumahan Rakyat 1 Malaysia, (PR1MA).

First time house buyer

Unlike the My First Home Scheme, the executor for this project is a new entity which acts very much like a housing developer. PR1MA identifies locations around Malaysia and build houses for people who fulfill certain criteria.

1Malaysia Housing Program Corporation has launched two projects to date. One is in Putrajaya and will be built by PR1MA itself and the other one is a joint venture between PR1MA and Sime Darby Property in Bandar Ainsdale, Seremban. The property is allocated to the masses through balloting.

The price of the houses in this scheme are between RM100,000 to RM220,000. The criteria to be eligible for this scheme is that the applicant must be Malaysians who have never owned a house before (first time homebuyer) and has a household income of RM6,000.

Some of the features for the houses build by PR1MA include the exemption of stamp duty, eligibility of 105 per cent loan from selected financial institutions with the 5 per cent to be utilised to pay insurance and legal fees and a lock-in period, where the housebuyers cannot sell the house within the first 10 years of ownership. An Act of Parliament has been enacted for this scheme and was passed in early December 2011.

4) Syarikat Perumahan Negara Berhad (SPNB) to build 10,000 houses in 2012

Begun much earlier to build affordable houses for the government, at the end of 2011 SPNB can be seen to be back in the news.

As explained by the Prime Minister when the PR1MA bill was tabled in early December, PR1MA will concentrate to build affordable hosing in the urban area whilst SPNB will still build affordable housing in the rural area.

The statement by the PM is supposed to solved the problem on the overlapping functions of these two government agencies.

It was announced at the end of 2011, SPNB had entered into an agreement with Bank Simpanan Nasional (BSN) which will provide financing for the 10,000 units of houses which SPNB had been tasked to build in 2012.

The cost for the project was estimated at RM650 million with the government subsidising RM200 million of it and the balance will be financed with the housing loans provided. Each house is estimated to cost around RM65,000.

For the past few years, SPNB has been offering affordable houses in a various categories which overlap what PR1MA has to offer. Among them were Rumah Mampu Milik (Affordable Houses) and Rumah Mesra Rakyat (Rakyat-friendly Houses).

An example of the former is Alam Prima which is located in Section 22, Shah Alam and the latter can be found in various small towns in Selangor, Sabah and Sarawak. SPNB is also the agency in charge to revive abandoned projects around the country and to act as the contractor to build more government quarters.

5) 1Malaysia Development Berhad (1MDB)

Announced in 2010 as a fully government-owned sovereign wealth management fund with fingers in various pies which includes; a joint-venture with PetroSaudi International Limited to invest in oil and gas and real estate which has since made 1MDB RM425 million profit through part divestment; the building of Kuala Lumpur International Financial District (KLIFD) in the 30 hectares of the Imbi area bordering Jalan Tun Razak, Jalan Sultan Ismail and the MEX highway; and the building of Bandar Malaysia at the current Sungai Besi airport which will offer affordable houses.

1MDB was in the news at the end of 2011 due to the funding that they were said to have received from the government as subsidy at the tune of RM1.11 billion in Budget 2012 although they had already raised a sukuk worth RM5 billion in 2009; the lack of work on KLIFD; and the acquisition of the 495-acre land parcel which was the Royal Malaysia Armed Force (RMAF) Sg. Besi airport which will now be turned into Bandar Malaysia.

Highlights of 1MDB for the whole of 2011 were when opposition claimed that 1MDB seems to be getting funding which it does not need; the tender process announced by 1MDB for major foundation work for KLIFD due to take off in early 2012; and when the price of houses at Bandar Malaysia was announced to be between RM220,000 and RM300,000 which is another affordable housing project by the government.

Depending on how you see it, there is a lot of overlap between the government agencies in providing affordable housing to the masses.

One other question which begs an answer is how will the government ensure that nobody will abuse the offer of so many affordable houses by various government-linked companies. There is also the issue about the term of ‘affordable housing’ when the government raised the limit of My First Home Scheme’s house price to RM400,000 and even now contemplating to raise the household income eligible for the scheme up to RM7,000.

6) Return of the mega property projects

At the start of 2011, the mega property projects seem to have lost some steam due to the property slowdown. It seemed then that the days of the launches for mega property projects in Malaysia are numbered.

Then a few announcements in the second half of the year of 2011 which made headlines dispelled this notion. Some of these property developments were old news with new owners or new managements.

Some were new projects which seemed to have been planned a long time ago but were just recently launched in 2011. Here are two of the most notables mega property project launches in 2011.

One of it that made the news was the launch of a new mega development project by NAZA TTDI called KL Metropolis at where the Matrade building is now situated. Spanning 75.5 acres, it is envisioned itself as the new international trade and exhibition district. To be developed in the span of 15 years, it will be done in 3 phases. The gross development value is estimated at RM15 billion and was launched by the Prime Minister in October 2011.

SP Setia has also finally launched its long awaited KL Eco City in November 2011, at a narrow piece of land formerly known as Kampung Haji Abdullah Hukum. Located opposite of the always busy Midvalley City, one can just imagine the hectic traffic situation of the area bordering Bangsar and the New Pantai Expressway, once it is completed.

It will comprise mixed-used commercial and residential properties which will be placed in a few towers within the 10.1 hectares of land. It is also said to be the first mixed-used commercial property to receive the currently sought after Malaysia Green Building Index (GBI) standard and will be completed in 10 years.

It seems that it is not the best of times to launch mega property projects with the end of the year 2011 on the Eurozone debts and the uncertainty of the financial crisis all over the world. Unless these developers have a good marketing strategy, it will a tough time for them to sell their properties.

7) Real Property Gain Tax

The tax treatment on the disposal of property was changed in 2010 after the Real Property Gain Tax (RPGT) was given a holiday for a few years due to the lackluster property market condition as the world’s economy took a tumble.

When it was reintroduced in January 2010, the tax treatment for RPGT was totally a different animal than what it was before April 2007 where RPGT was tiered according to how long you have owned a property. RPGT is calculated based on the profit you make when you dispose of a property at a maximum of 30 per cent within the first year of ownership but becomes zero per cent on the sixth year of ownership.

When it was reinforced (the law was never abolished but was just put on hold) in 2010, the tax treatment for the disposal of property was given a flat 5 per cent tax from the profit you make if the sale was done within the first five years of ownership of the property.

The way RPGT is collected also differs with 2 per cent of the transacted price to be paid before being refunded by Lembaga Hasil Dalam Negeri once it is checked and cleared.

Now, in 2012, after it was announced in the 2012 Budget in October 2011, the RPGT was changed again. Starting from January 2012, RPGT will now be two-tiered. Within the same vein when it was reintroduced in 2010, RPGT, which is taxed on any profit gained from the sale of a property will beat the rate of 10 per cent for any disposal below two years of ownership. Any property disposed after two years of ownership but less than five years will still have a 5 per cent levy but none will be levied after five years of ownership.

RPGT is good to curb speculation. The government should be moving back to pre-2007 RPGT calculation in the near future as the tiered RPGT had curbed speculation effectively. The government may also want to introduced more property tax such as property inheritance tax when the value of the property reach a certain limit which can be a new source of income for the government.

8) Regulation for banks in giving out property loans

In 2011, in order to slow down the overheating property market and to stop property speculator in damaging the affordable houses schemes, the government changed the rule on the amount of property loans. Bank Negara Malaysia made it into a rule that financial institutions can only gives out housing loan in the margin of 70 per cent for anyone who has more than two properties. Anyone who already owns two properties bought using housing loans will be limited to a margin of 70 per cent for his third property loan. However, his does not deter anyone who has cash to buy more than two houses and still speculate.

The rule had affected sales of properties in some ways. There was also news about the change of how loans related to household debt is going to be given out by banks in 2012.

It was decided, in not so many words, the criteria on the margin of loan and maybe even the interest rate levied on a property loan will now change due to the way a housing loan application is calculated. On the table but not yet announced or implemented is the new rule where the calculation for an application of a housing loan will be based on nett income of a borrower and not the current usage of gross income. It may even mean that one person or one household with incomes below RM5,000 can now only own one property below the price of RM300,000.

This rule will be in line with the promotion of affordable houses by the government though but will affect the business of housing development. In order to separate the genuine buyers with the speculators, housing loans can be separated from the nett income calculation so that it affect everyone’s credit rating.

These are all the news I consider worthy to be mentioned as the biggest property news in Malaysia during 2011. Some are already being implemented and some are coming days. From what I see, there are only a few keywords to the news: Affordable housing and curbing speculation. - The Malaysian Insider