Rising assessment rates and your rights

BY CHANG KIM LOONG

Chang Kim Loong is the honorary secretary-general of the National House Buyers Association (HBA) and an NGO councillor at the Subang Jaya Municipal Council.

Zero engagement, public relations exercise non-existent

THE simple, routine exercise of a property revaluation in the city of Kuala Lumpur has somehow turned controversial due to the lack of apparent justification, given the magnitude of the increase and scarcity of explanation.

Perhaps, the people in Government think there is no need for some form of elementary public relations and that having power is enough. There was practically no public engagement, consultation or attempt to seek feedback from stakeholders.

If such a simple task as revaluing the properties in Kuala Lumpur cannot be carried out diligently and in a responsible manner, I am concerned with the impending introduction of the more complex goods and services tax (GST). Will the levy and collection of the GST be properly handled?

The National House Buyers Association (HBA) is dismayed with the unilateral and arbitrary proposal by the Kuala Lumpur City Hall (DBKL) to increase the revaluation of properties in Kuala Lumpur for both private and commercial properties. It is not that DBKL cannot exercise the process of revaluation under the Local Government Act, but the issue is that it is “simply doing it”, literally speaking. The media has widely reported that the increase could range between 70% and 300% in certain areas.

The reasons given by DBKL for the increase as reported in the media are as follows:

(i) the last increase was more than 20 years ago; and

(ii)property prices have increased in value.

HBA would like to highlight certain pertinent issues which should be taken into consideration.

(i) Most private properties are owner-occupied

A majority of private homes in Kuala Lumpur are owner occupied, and many are retirees and pensioners.

Based on this logic, regardless of the increase in the market value of the said property, the owner does not reap any benefit as he is still living in the said property. It would, thus, be unfair to penalise the owner for the increase in property prices when he has not enjoyed any such benefit arising from the continuous ownership.

The owner would only be able to enjoy any increase in property prices when he decides to sell the said property to a third party. To say that property owners should be thankful to DBKL for affixing a high valuation on the property because property owners would be able to sell their property at a higher market value is preposterous. Assessment is based on market rental and not vice versa.

(ii) Many private homes are long-term investments

Many individuals use private homes as long-term investment to fund post-retirement needs or their children’s education expenses. It would be very burdensome to these people who have managed to save enough to acquire a second private home as a long-term investment as the returns from such an investment are just barely enough to cover expenses of the property itself such as this savage increase of rates proposed by DBKL.

(iii) An increase in assessment rates does not translate into better services

Would such a revision commensurate with the quality of services to be provided by DBKL in justifying such an increment? Currently, it would seem that there is no discernible improvement in either service or facility. It is only reasonable to expect a 300% increase in the level of service quality if DBKL is going to increase the assessment rates by up to 300%.

For DBKL to increase assessment rates without promising an equal increase in the level of service quality is morally wrong and akin to snatching candy from a baby; the culprit merely snatches the candy away knowing that the baby cannot fight back.

(iv) Poor planning and indiscriminate approvals

Poor planning and indiscriminate approvals granted by DBKL to new developments without indepth studies on the impact to the surrounding environment, especially existing housing estates, have overloaded the existing infrastructure. The servicing highways, byways and main carriageways today have excessive volume of traffic that was not catered for originally. This has resulted in long crawls at peak hours in many places.

In certain neighbourhoods, the communities are plagued by haphazard parking along the road reserves due to lack of enforcement.

(v) Against the Government’s aspiration to help the rakyat

Our honourable Prime Minister has decided to lower the personal income tax rates to lighten the burden of the rakyat in view of the impending GST. DBKL’s move to increase the assessment rates by such a high rate will be burdensome to the rakyat and goes against the very grain of our PM’s wishes to lighten the rakyat’s burden.

HBA does recognise the fact that there are speculators who may have amassed multiple properties. However, an increase in assessment rates will only penalise the majority of private home-owners who only own one or perhaps two properties. HBA had in the past proposed a higher real property gains tax (RPGT) and stamp duty for the transfer of properties to be imposed on such speculators who had amassed numerous properties. The measures announced in Budget 2014 by our Prime Minister and the recent strict lending guidelines imposed by Bank Negara have, to a certain degree, curbed and muted such unhealthy manipulation of property prices. The effects can be seen in the recent announcement by the National Property Information Centre or Napic under the Valuation & Property Services Departmentdata “that the property market is expected to see slower growth this year (2013), as there will be an adjustment in terms of prices, which is expected to moderate”.

This, in turn, brings us to the question: “Does this mean that DBKL will undertake another round of revaluation for a subsequent corresponding reduction following the announcement?”

Advice to taxpayers

HBA urges DBKL to reconsider its decision to increase assessment rates for private homes in Kuala Lumpur based on the above-mentioned points. If DBKL wishes to increase the assessment rates for private homes and commercial properties to cover the increase in operating costs, then HBA proposes an increase of not more than 10% of the current tax.

Although the Mayor and Federal Territory Minister have assured the people of a possible reduction as they understood the taxpayers’ plight and hardship, the ‘Notice of Revision of the Valuation List’ under Section 141 of the Local Government Act, 1976 (LGA) was sent out. Why is this so?

To the taxpayers, let’s comply with the law and its due process by filing our ‘Notis Bantahan’ (NOT LATER than Dec 17) pursuant to Section 142 of the LGA rather than be caught in a situation of ‘by default’ or Mr Mayor and Mr Minister using the usual “there were only a handful of official written objections” rhetoric. The objection letters are absolutely necessary.

We have prepared three templates as a guide to object against the proposed hike, which can be uploaded from our website at www.hba.org.my. The templates are merely guidelines to facilitate the process. You are at the liberty to improvise the drafts as well as seek independent professional advice if in doubt.

An excerpt of Section 142 of the Local Government Act, 1976 (LGA) has been reproduced below for taxpayers to understand:

Section 142: Objections.

·Any person aggrieved on any  of the following grounds:

(a) that any holding for which he is rateable is valued beyond its rateable value;

(b) that any holding valued is not rateable;

(c) that any person who, or any holding which, ought to be included in the Valuation List is omitted there from;

(d) that any holding is valued below its rateable value; or

(e) that any holding, or holdings, which have been jointly or separately valued ought to be valued otherwise, may make an objection in writing to the local authority at any time not less than fourteen days before the time fixed for the revision of the Valuation List.

·All objections shall be enquired into and the persons making them shall at such enquiry be allowed an opportunity to be heard either in person or by an authorised agent.

I would like to come clean and declare that I am a rate-payer and have a vested interest in challenging the proposed rate hike by DBKL.

Go ahead, flood DBKL with letters of objection.

Chang Kim Loong, AMN, is the Honorary Secretary-General of the National House Buyers Association (HBA): www.hba.org.my, a non-profit, non-governmental organisation (NGO) manned by volunteers. He is also an NGO councillor at theSubang Jaya Municipal Council. - The Star

Rush to sell off properties in Ipoh

REAL estate agents in Ipoh are worried that several measures announced during Budget 2014, such as the Real Property Gains Tax (RPGT) hike, will dampen the already soft Ipoh property market.

PWP Properties (N) Sdn Bhd business development director Stephanie Chang said the announcement of the increase in RPGT, ranging from 30% to 15% of profits for properties sold within five years, had caused a scramble among several of her clients to sell off their properties before the new rates are imposed on Jan 1, 2014.

“The day after Budget 2014 was tabled, we started receiving calls from clients urging us to speed up sales of their properties.

“Some are even willing to sell their property at lower prices, but the process is not as simple as one thinks.

“You need a willing buyer and if the property is leasehold, you need to get the Mentri Besar’s consent and go through a lot of paperwork that will take at least a month to be finalised.

“By the time the sale can go through, it will already be next year and subject to the increased RPGT rate,” she said.

Chang said she foresees a drop in the number of second-hand property next year, while investors get accustomed to the new rates but said the extent of the impact on business will only be known when the time comes.

“Having been in the business of selling second-hand property for several years now, I have watched how the industry was affected by the announcement of the RPGT a few years ago and its gradual increments.

“However, the hike is quite drastic this time around but I cannot make an assumption on how big an impact it will make.

“The market will be more challenging when Budget 2014 measures take effect, but in spite of that, there is always business to be made in property and real estate,” she said.

Another policy changed during the Budget 2014 tabling that Chang expects to affect the property market is the increase in the minimum price of property that can be purchased by foreigners, from RM500,000 to RM1mil.

“Quite a number of Singaporeans and Chinese nationals contacted us after Budget 2014 announcement in the hope of buying Ipoh property before the RM1mil minimum price is implemented.

“Personally, I am a bit apprehensive about the increase because while the minimum price makes sense in areas such as Kuala Lumpur and Penang, with sky-high property prices, there are barely any properties for sale in Ipoh that reach RM1mil.

“I feel it would be better if the policy was amended to suit the market in each state,” she said.

As for Raine and Horne International Zaki and Partners Ipoh resident valuer James Chou, he feels that Budget 2014 policies will further soften the already slow property market in Ipoh.

“Just take a look around the city and you will see quite a number of shops lying empty, as the economy in Ipoh is not as strong as in Kuala Lumpur or Penang.

“With that in mind, I feel the RPGT hike is a little too drastic and not fair to smaller economies such as in Ipoh.

“There is practically no need to curb speculation in Ipoh since the market is already slowing down,” he said.

Instead, Chou felt that the Government should look into revising housing loan rates if it wanted to make property prices more realistic.

“The difference between maximum loan rates for first property purchases and subsequent purchases should be widened if the Government’s aim is to reduce speculation.

“On the whole, I believe the property market should be left to operate with as few government regulations as possible.

“While some regulations are needed, those announced in Budget 2014 are quite drastic,” he said.

D. Henry Valuers Realtor director D. Henrey Arther concurred that the second-hand property market in Ipoh has been quite slow this year, with the number of sales at his agency taking a 50% dip compared to last year.

“During the first half of the year, potential buyers were waiting for the general election to see if there would be any changes in the political landscape that would affect the property market.

“After that, they waited for the tabling of Budget 2014 before making any purchase decisions,” he said.
However, Arther said the recurring problem affecting property sales under his watch were not directly related to any policies amended in Budget 2014 and had to do with bank loans instead.

“Ever since Bank Negara tightened its regulations for housing loans early this year, banks have followed suit and this has resulted in quite a high rejection rate for such loans.

“While they were more accommodating with paperwork and the applicant’s financial history before this, I have faced many cases this year where the purchaser is more than capable of servicing their property loans, but a slight blemish in their financial records or income tax statement causes problems in their loan applications.

“Now, the simplest mistake such as neglecting to pay a RM100 instalment a decade ago can result in a housing loan being rejected.

“This has affected first-time property purchasers such as young families significantly.

“They neither have experience in dealing with stringent regulations for bank loans nor the cash to buy property without taking loans,” he said.

Arther said that if the Government wanted to help first-time property purchasers through its Budget
2014 policies, it should also look into providing financial consultation and education to such purchasers.

“None of these people are cash-rich and they need to go to financial institutions to be able to buy their first houses.

“The problem is quite distressing in Ipoh, as property prices are low compared to bigger cities, yet locals cannot buy homes due to red tape and paperwork problems.

“If the Government is serious in ensuring that everyone is able to own a home, they should guide the people through the complicated process of obtaining property loans,” he said. - The Star

Scheme aimed at helping the poor to own homes in Penang

THE Shared Ownership Scheme set to be implemented first in south Seberang Prai, Penang, next year, is expected to help the low-income group to own low-cost homes.

Penang Chief Minister Lim Guan Eng said the scheme is aimed at helping the lower income group, who were unable to secure bank loans to own affordable homes.

“I have heard of cases where they cannot afford to buy houses as they cannot qualify for bank loans due to their low pay. They are unable to apply for 80, 90 or 100 per cent of the loan. So we are trying to help them.

“With this scheme, the state owns 30% and the qualified buyer owns 70%. The new home owner will then pay back the 30% to the state every month without interest. The house will be in their name.

“This is something new in Malaysia. It has never been done before in other states,” he told a press conference after tabling the state’s Budget 2014 during its assembly sitting yesterday.

To take advantage of this scheme, Lim said potential house buyers have to be qualified to buy low-cost homes.

“The state has bought 104 low-cost homes, which are town houses, in Taman Sungai Duri Permai, Sungai Duri in south Seberang Prai.

“These 104 units will then be sold to those who are registered with the Housing Department and who are qualified to buy low-cost homes,” he said, adding that each unit costs RM38,000.

When asked about defaulters, Lim said that they would put their faith in the house buyers, whom he said would be committed to repay the state on time.

Lim added that the state would impose the 3% levy on transacted prices of properties bought by foreigners effective from Feb 1 next year.

“The state is also studying on the implementation of the 2% levy on those who sell their properties within three years of buying their unit.

“The levies on both foreigners and locals are to curb the speculative transactions to control property prices,” he said, adding that the state would also be discussing the proposal with the state housing industry.

Lim added that the state would be continuing the Hire-Purchase Scheme by buying 51 units of low-cost flats in Taman Seruling Emas in south Seberang Prai.

Under this scheme, the monthly rent is RM100 while the maintenance fees is RM20 a month. - The Star

Five new property players

FITTERS Diversified Bhd started as a fire-fighting equipment and services company. But in 2008 it set its eyes on the property market. Major shareholder and managing director Datuk Richard Wong tells StarBizWeek that “the company had a clear intention of diversification to seize viable opportunities to enhance the sustainability of business” in 2008. Two business areas were identified for this: property and renewable energy.

In 2009, Fitters embarked on RM650mil GDV project called the Festival City Mall, a three-storey shopping mall located along Jalan Genting Kelang, and which was built for client, the Parkson Retail Group. The project also included Soho/work suites and residential apartments – which were fully sold and are due for handover to buyers next year. In August, Fitters launched 284 units of condominiums called ZetaDeSkye@Jalan Ipoh with an estimated GDV of RM180mil. It will also embark on a RM300mil GDV development of affordable housing on 50 acre.

Earnings wise, the property division is bringing in the income: Wong puts the figure at 50% of revenue and 60% of profit for FY2013 and predicts that the property business will continue to be viable, contributing 40% of revenue and profits.

Asdion Bhd

HEAD honcho at Nextnation Communication Bhd Tey Por Yee has been buying up stakes in a string of companies since the end of last year.

The market has described him as “an opportunist” but it is only recently that the rationale of two of his purchases have become clear.

In September, it was revealed that Asdion Bhd, in which Tey is the largest shareholder, will partner with Protasco Bhd, where he has become the second largest shareholder – to embark on a property development project in Johor Baru.

Protasco is essentially a construction and property firm while Asdion is an information technology firm which makes software. In early September, Asdion said that it would diversify its business to include property investment and development.

The parcels of land in question are located within Mukim Plentong, said to be nearIskandar Malaysia.

In explaining its rationale, Asdion says there is no assurance that the group will be successful in adapting to advances in technology or in addressing changes in customer needs on a timely basis.

Therefore, the board has identified the proposed joint venture with Protasco as a new business opportunity and to reduce the group’s dependency on its existing business.

The proposed joint venture is expected to contribute 25% or more to the net profits of the group, says Asdion.

Asdion concedes that there is “inherent’ risk to this venture.

Asdion was listed in 2005 on the then Mesdaq market, one of the many software companies taking advantage of the “sofware and IT craze” of that era.

It never quite made it as one of the stars among its Mesdaq peers, partly owing to it being a generic accounting software maker. It has also since slipped into the red.

Asdion has also proposed some corporate exercises, including one free warrant for every 10 shares held by its shareholders as well as a private placement of up to 35% of the company’s paid-up capital.

Caely Holdings Bhd

PERAK-BASED lingerie manufacturer Caely Holdings Bhd has completed its diversification into property development and construction early this year.

In July, it announced a joint venture with a private company to develop an abandoned project in Gombak with a GDV of RM155.3mil. It took over the project, which comprises of three blocks of condominiums on leasehold land, for RM7.4mil.

The company said the venture was part of its strategy to expedite the expansion of its property development business while it also marks its foray into the Klang Valley property market. Its venture into property development was in 2011 when it bought 21.4 ha in Batang Padang, Perak to build 181 shops and 304 units of linked, semi-detached and bungalow units worth RM145mil.

Later that year, Koperasi Peserta-peserta Felcra Malaysia Bhd offered the company to build 300 residential units and relevant infrastructure works in Seberang Perak. Subsequently, it was appointed the turnkey contractor for the project with a contract value of RM47.94mil.

Managing director Datuk Alan Chuah reportedly said property development could be its main income contributor going forward, contributing to more than half of its total revenue in the next two years. The division accounted for RM23.66mil or 23.33% of its total revenue for its financial year ended March 31, 2013.

Digistar Corp Bhd

INFORMATION and communications technology firm Digistar Corp Bhd, which recently introduced a hi-tech central monitoring system known as Panther 911 that will contribute to its recurring income from the financial year ending Sept 30, 2014 onwards, is also focusing on its property division.

Group chief executive officer Datuk Wira Lee Wah Chong has expressed his vision to set up another public-listed company for its property arm.

It secured its maiden contract, a RM250mil private financing initiative for a government training centre in Malacca this year. For this particular project, Digistar has a 40% stake. The construction job, with expected completion by early 2016, will also provide earnings flow for the firm as it will operate and maintain the facility for the next 12 years.

Last year, it launched its maiden condominium project at the Malacca city centre. Located across Equatorial Hotel and Dataran Pahlawan in the World Heritage City,

The Heritage Service Apartments, has a GDV of RM150mil. Response for the development was good, recording transaction prices of RM930 to RM1,200 per sq ft.

For its first nine months, property development contributed RM14.83mil or some 31% to its revenue compared with about 7% in the corresponding period a year ago.

Iris Corp Bhd

E-PASSPORT maker Iris Corp Bhd is no stranger to the market, having had its news-making moments.

While most will recall how Iris, the stock was designated many years back due to excessive speculation, these days investors are talking more about Federal Land Development Authority (Felda) coming in as the largest shareholder in the company and its foray into property market.

Iris is reportedly going to venture into the property segment via joint ventures in overseas markets.

According to recent media reports, the company would embark on its first project in Papua New Guinea and consequently in Angola and China.

Iris has been involved in developing homes for Felda. - The Star

The complex market of property

NOT many people know that the biggest property players in the country started off doing something else. A good example is Mah Sing Group Bhd, the second largest property company in terms of sales, which began as a plastic manufacturer. And S P Setia Bhd’s roots are in the construction industry.

Then there was the wave of plantation companies capitalising on their land bank to become property developers. IOI Corp Bhd comes to mind.

But while S P Setia, Mah Sing and IOI are known to have been successful in their venture into property, there have been others who failed miserably.

Prior to the 1997 Asian financial crisis, a property craze swept through the local corporate scene.

Many second board listed companies, as they were known then, decided to jump on the bandwagon by venturing into the seemingly lucrative business of property development.

Not only was selling brisk due to demand, but project financing was also easily secured.

One of the major funders for property developers then was Malaysia Building Society Bhd (MBSB).

Then came the financial crisis and MBSB almost went bankrupt, only to be bailed out by the Employees Provident Fund, which explains why the pension fund today owns 70% of MBSB.

The second boarders also suffered massive losses from these property ventures and until today, there are remnants of abandoned projects across the country that are testament to the building frenzy that started at that time.

New landmark: Fitters has completed a project with GDV of RM650mil called the Festival City Mall in Kuala Lumpur.

New landmark: Fitters has completed a project with GDV of RM650mil called the Festival City Mall in Kuala Lumpur.

One example of a company that ventured into property during that period is Bonia Corp Bhd.

The leather goods retailer went into the property business in the late 1990s. However, barely a decade later, it restructured its business divisions again, completing the disposal of all of its non-core property assets.

Now a new similar wave is taking place – small companies, driven by easy profits that property development seems to offer, have ventured into the business.

Property cycle

Maybank IB Research analyst Wong Wei Sum tells StarBizWeek that it is an alarming sign as business owners without the core competency in property are jumping on the bandwagon.

“It is a sign that the property cycle is at its peak when too many non-experts jump on the bandwagon,” she says.

She adds that the non-developers could create an oversupply in the market with the wrong products if they did not carry out their studies diligently or execute their projects efficiently. But a market expert seems to think that there is a positive side to this.

Lim: ‘There are always certain market sections that have yet to be filled by the big boys.’

Henry Butcher Malaysia president Lim Eng Chongopines that the market should encourage this kind of competition as these small players will be forced to distinguish themselves from other developers.

“There are always certain market sections that have yet to be filled by the big boys as the latter may have a different focus like mass production or big-scale project,” he says.

These companies can always hire consultants and outsource expertise to help them with the development, he adds.

Maybank’s Wong concurs.

“There are exceptions whereby companies with good assets partner with property developers to carry out projects.

“This will create a win-win situation as the landowner would be able to realise the value of the property projects as well,” says Wong.

Lim says that as a growing nation, demand will increase over time and with the stricter regulations imposed by the Government and related authorities, the housing industry should continue to improve over time.

Diversification move

This is one of the tenets Datuk Richard Wong, major shareholders and managing director of Fitters Diversified Bhd. Originally a fire-fighting equipment and services company, it had taken the decision to diversify its income stream in 2008, with property being one of its new divisions and the other being renewable energy.

Fitters has already completed a project with gross development value (GDV) of RM650mil called the Festival City Mall.

Wong says,“Property development can be lucrative if you identify the right location, product mix and sales strategy. We have tasted success with our maiden development project with the achievement of RM650mil GDV”.

He reckons that this sets Fitters’ apart from other newcomers in the sector. “They may not have this track record,” Wong says, adding that “Being niche and selective will ensure that we focus on the quick completion of our projects as well as capping and controlling construction costs.”

Wong agrees that newcomers to property could be facing challenging times, due to increasing raw material prices, the new measures by Bank Negara and the scarcity of labour.

Wong says Fitters strategy has also been to outsource to professionals such as architects and planners and to have a core, competent team to manage this.

Long gestation period

An industry player reckons that some of the newcomers will be badly impacted by potential slow down in the property sector.

“The gestation period for property development is very long and it is capital intensive and it may not be as easy as it seems for people who have not been in the industry.”

He says the nature of the business is cyclical and the point of entry for new comers is crucial. He also points out that buyers may be more selective and opt to buy from reputable developers following the recent cooling measures.

Clearly, factors like land costs will determine the profitability of these niche developers.

In a previous interview with StarBizWeek, Scientex Bhd managing director Lim Peng Jin says as a rule of thumb, land cost should not exceed 10% of GDV and it would not go for expensive land. Scientex, which started as a PVC leather cloth maker, ventured into property, which it now continues to pursue.

As for Weida (M) Bhd, a building materials specialist that ventured into property a few years ago, the new curbs are welcome as they will “ensure the property development industry continues growing at a balanced and sustainable pace,” says Victor Lee, a director of its property division. “The industry is perpetually going through changes and challenges. The recent rulings introduced by Bank Negara such as the abolition of developers interest bearing scheme or DIBS, changes in real property gains tax and loan-to-value ratio are just some of these challenges. Having said that, our management feels that these risks are manageable”.

Lee adds that in Weida’s case, the property sector is a “long-term and viable industry to be in.”

“The country’s macro picture and demographics reveals a largely young population who will continue to fuel the sector.”

He adds that Weida has the right expertise and it picks its landbank carefully, in “prime and mature” locations. But while these new breed of property developers claim to have the right ingredients to succeed in the property game, the jury is still out as to whether all of them will succeed. - The Star

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City & Country: Will GST exemption translate into cheaper homes?

ANTICIPATION is high that an increase in the Real Property Gains Tax (RPGT) and a ban on the developer interest-bearing scheme (DIBS) will bring down property prices. But there has been little focus on the government’s move to exempt residential properties from the Goods and Services Tax (GST), which will replace the current sales and service tax from April 2015.

That the government will revise the RPGT upwards in Budget 2014 was a foregone conclusion that generated many a discussion. However, the effectiveness of the new RPGT structure, and the DIBS ban, in forcing property prices down to more affordable levels remains to be seen because, ultimately, pricing is a function of supply and demand.

In the meantime, let’s focus on the exemption of residential properties from GST and its impact on homebuyers. Will prices dip or at least remain unchanged?

Unlikely. Why? First, there is a need to understand GST and the three supplies that come under it — standard-rated supply, zero-rated supply and exempt supply.

Simply put, standard-rated supply refers to goods and services that are subject to GST at a standard rate (which will be 6% based on the Budget 2014 announcement).

What this means: GST is collected by the businesses and paid to the government. Businesses providing standard-rated supplies are required to charge a GST of 6% on products or services provided to customers. This is known as the output tax. They themselves would have paid for supplies (goods or services) that are subject to GST, which is known as the input tax. If the input tax of the businesses is bigger than their output tax, they can recover the difference from the government.

Under zero-rated supplies, businesses are eligible to claim from the government input tax credit incurred from acquiring supplies to produce such goods or services. This means the consumer does not pay any GST.

Yam: There needs to be engagement and clarity, so that there will be no hiccups come April 2015

As for exempt supplies — the category in which residential properties have been placed — they are not subject to GST. Businesses providing exempt supplies cannot charge their customers GST on the end product (in this case, the residential property), but the developer of the residential property is not eligible to claim input tax credit from the government on GST paid to develop the project.

This being the case, the developer will be saddled with extra costs due to the 6% GST that is payable on nearly all its inputs (construction cost, services, materials and so on) which it cannot claim from the government. Being business entities, they would pass on the non-claimable input tax to the consumer (read: residential property buyer).

The effective percentage increase in cost to the developer due to the non-claimable input tax credit is not immediately clear.

Yes, a developer currently pays a certain amount of sales and service tax on, for example, consultant fees, but that would be a fraction of the input tax credit for, for instance, the cost of construction and infrastructure, which, incidentally, could account for up to 40% or 50% of the total cost of a development.

So, how can housing prices dip?

Commercial properties, on the other hand, come under standard-rated supplies. But will serviced apartments, which are, for all intents and purposes, dwellings built on commercial land, be classified as residential or commercial properties for the purposes of GST?

Then, there are the mixed-use developments that comprise residential, commercial and industrial offerings. Developers will face challenges in apportioning input tax credits on indirect costs. Should it be based on the gross built-up area? Or perhaps even on employee time for different aspects of the project.

Whatever the model, variations in the numbers can be expected as the project gets underway and this could stretch for 5, 6 or even 10 years, depending on the project’s size and market conditions.

Inevitably, developers will need to spend a hefty sum on GST compliance. Now, who will pick up the tab for this added cost? The consumer, of course.

Still, to echo Real Estate and Housing Developers’ Association Malaysia president Datuk Seri Michael Yam, the government cannot be expected to declare property development a zero-rated supply. Indeed, development companies are paying some form of sales and service tax even now.

“We support GST. Because the business of property development is complex, there needs to be engagement and clarity, so that there will be no hiccups come April 2015,” Yam says. “Otherwise, the experience could be hellish …”

Level the playing field

If you had bought a property last year, you would have signed on the dotted line with the understanding that whatever gains you make will be subject to a 10% or 5% tax if you were to dispose of it in the second or third year of ownership.

The government’s moves may not result in lower property prices

However, with the new RPGT structure that is effective from Jan 1, 2014, you will be taxed 30% on your gains should you sell the property within the first three years of ownership.

If indeed the sole intention of the government in raising the RPGT is to curb speculation, is there a need to render it retrospective? While this is not a new practice, what would stand Malaysia in good stead would be to level the playing field and make it transparent so that investors are bound by the RPGT that existed at the point of investment.

According to Rehda, the government collected a total of RM540 million from RPGT in 2011; RM300 million in 2010; RM42 million in 2009 and RM110 million in 2008.

Another move by the government to curb speculation is the abolition of DIBS. Developers are also required to be transparent on their pricing. In addition, foreigners can only buy properties priced at least RM1 million — up from RM500,000 before.

In all these moves, Yam sees the government equating the rise in property prices with speculation, and he begs to differ.

For instance, he says, the secondary market accounted for the bulk or RM50 billion of the RM68 billion worth of residential property transactions last year. Speculators tend to focus on new launches.

The minimum entry level of RM1 million for foreign buyers should also be location-specific, Yam says.

For instance, a Malaysia My Second Home participant wishing to settle away from the property hot spots will not require a RM1 million home, which would be too spacious for his or her lifestyle.

“We have 26,000 acres to build in Iskandar Malaysia. Do we or don’t we wish to roll out the red carpet for foreign buyers?” asks Yam.

And, oh, for those who are relieved that Budget 2014 was silent on higher stamp duties on property purchases, it may be too soon to celebrate. The government does not need to wait until Budget 2015 to review this.

Au Foong Yee is managing director of The Edge Communications Sdn Bhd


This article first appeared in The Edge Malaysia Weekly, on November 4, 2013.

Malaysia restraining property boom

CHRIS METCALF commutes for 45 minutes to Singapore each day from Iskandar, a region just over the border in Malaysia, to work as a lawyer at Clyde & Co LLP.

“It’s too expensive to live in Singapore,” said Metcalf, who moved across the Johor Strait in June after finding he could no longer afford the island-state on a local salary and with four children. “We’re selling a house in the UK and when we do we’ll consider buying in Malaysia because it’s definitely better value.”

Malaysia is seeing the spillover from Singapore’s four-year property boom and its subsequent efforts to cool the market. Prices of homes at Horizon Hills, where Metcalf now lives, have jumped almost threefold over the past five years amid a flurry of foreign buying, according to data from property broker Knight Frank LLP.

Now Malaysia is taking steps to prevent its own real estate inflation from emerging and appeasing locals who say they can no longer afford to own a home. In last month’s budget, Prime Minister Datuk Seri Najib Razak doubled the minimum amount foreigners must spend on property and raised the capital gains tax to 30% on homes they sell within five years. The state governments of Johor, where Iskandar is based, and Penang, are considering additional tariffs on overseas buyers.

While Horizon Hills surrounds a golf course and is luxurious by Malaysian standards, homes cost far less than in Singapore. Four-bedroom houses in the 1,200-acre (487ha) development, popular with expatriates, are advertised online at US$270 (RM860) per sq ft (psf), compared with the US$503 psf asked for a four-bedroom public housing flat in Singapore’s central Bishan district.

Comparative costs

The average price of a new 1,000 sq ft condominium in Singapore is between US$800,000 and US$960,000, according to London-based broker Savills plc. A similar sized place in Kuala Lumpur costs about US$374,000, according to CBRE Group Inc’s Malaysian unit.

Singapore has ramped up efforts to bring down housing costs with measures such as linking borrowers’ maximum debt levels to their incomes, higher stamp duties and capital gains taxes. Home prices have still jumped 40% to a record since the island-state started introducing curbs four years ago. The gains led to Singapore being ranked the most expensive city to buy a luxury home in Asia after Hong Kong by Knight Frank in a wealth report in March.

Malaysia attracts

The difficulties of purchasing in Singapore have prompted potential buyers to explore Malaysia.

“Malaysia has certainly been the recipient of a lot of Singaporean money since the tighter cooling measures here,” said Nicholas Holt, Knight Frank’s Asia-Pacific research director. “Singaporeans probably top the list in terms of overseas buyers in Malaysia, most notably in Iskandar, but also in Kuala Lumpur and Penang.”

That’s prompting Malaysia to act, joining Hong Kong and mainland China in seeking to cool surging housing markets to help combat concerns over affordability and prevent a housing debacle from emerging in the financial system.

Bank Negara Malaysia shortened the maximum length on mortgages in July, saying household indebtedness has risen by an average 12% per annum in the past five years. Last month, the government barred developers from helping home buyers by absorbing some interest payments on loans.

Malaysians have accumulated Southeast Asia’s highest level of household borrowings at 80.5% of GDP, according to Bank of America Corp’s Merrill Lynch unit.

Priced out

B Shashikumar, a 32-year-old bank manager, wants to buy a home before he gets married.

“Even with my RM5,000 monthly salary, I can’t buy a house in Kuala Lumpur or Selangor below RM300,000,” he said. He spends three hours daily commuting to and from work in KL from Shah Alam, where he lives with his parents. “I’ll have to find one in another state. It’s difficult to get high loans for a house in the city.”

Average home values rose 43% to a record in the 4½ years to June, according to government data. Prices in Kuala Lumpur climbed 62% to RM605,711 between the start of 2009 and the end of the second quarter this year, said CBRE, citing government data. They rose 49% to RM298,697 in Penang and 37% to RM187,644 in Johor during the same period, the data showed.

Cooling measures

Cooling measures may slow home sales, according to consultants, including CBRE and Knight Frank. “The market is expected to self-correct in the next six to 12 months,” said Judy Ong Mei-Chen, a Kuala Lumpur-based executive director at Knight Frank.

Iskandar, a development zone spanning 2,217 sq km, three times the size of Singapore, started to develop in 2006 to compete for manufacturing and logistics business with its neighbour in the south. It’s aimed at piggy-backing on Singapore’s economic rise, just as Guangdong gained from Hong Kong, by offering lower-cost alternatives to manufacturers, food processors and energy companies.

Residential neighbourhoods featuring large homes, gardens and swimming pools, are being built. Spin-offs of foreign schools and universities are also opening offering cheaper international standard education than Singapore, including Britain’s Marlborough College, where Metcalf now sends his kids.

Legoland, Pinewood

Some high-profile projects, including the Legoland Malaysia amusement park and Pinewood Iskandar Malaysia Studios — a franchise of the UK-based company where James Bond films were made — are done or nearing completion in a flagship development zone called Nusajaya.

Wealthier foreigners are encouraged to settle in the country under the government’s Malaysia My Second Home Programme, which provides them with renewable 10-year multiple entry social visit passes. About 77% of the 22,709 people who have applied are from Asia, with the largest number of recent arrivals coming from China, government data showed.

Singaporeans account for 70% of overseas buyers in Malaysia, making them the largest group of foreign purchasers, Datuk Wan Abdullah Wan Ibrahim, CEO of UEM Sunrise Bhd, told reporters on Nov 13. UEM, which is co-developing Horizon Hills with Gamuda Bhd, is the biggest landowner in Iskandar.

“The impact of the budget measures will be temporary,” Wan Abdullah said. “Developers are very creative. We will find other means of attracting buyers.” — Bloomberg


This article first appeared in The Edge Financial Daily, on November 21, 2013.

抑制产业投机应适可而止 过度干预料现反效果

（吉隆坡23日讯）鉴于全面和广泛的2014财政预算案措施，可以遏制过度投机的房地产市场，而所有利益相关者，不论是否正在寻求购买或出售产业或作为产业经纪，皆在明年1月1日起，受到不同程度的影响。

今次预算案措施所涉及的范围是最广泛，但有人说，“市场将会面对艰辛”。无论你是潜在购房者、卖家、发展商或产业顾问，在多管齐下的措施中，将会影响他们的决策。

该预算案将会促进一个更加稳定和可持续的房地产市场，主要是它恢复实施产业盈利税（RPGT）、禁止发展商推出负担利息计划（DIBS）、落实增加兴建廉价屋，以及提高外国买家购买本地房屋的价格门槛，无疑对产业需求和供应带来一些重大变化。

而发展商无论在产品种类、定价方面，以及针对买家的融资额度上，将面对更激烈的竞争。

对于首次置业人士来称，自从政府给每单位3万令吉的奖励予发展商兴建廉价屋后，较实惠的住宅项目预计将在未来数个月内推出。

本地买家在购入房屋的3年内出售，所取得的盈利须缴交30％的产业盈利税，在第4年是20％，第5年是15％，而超过5年则不须缴税。

此外，连外国买家也受到影响，他们在购入房屋的5年内出售，所取得的盈利须缴税30％，而在第6年起则是5％。至于购买房屋的价格限制也由之前的50万令吉起提高到100万令吉。

在融资额度方面，发展商不能为买家提供负担利息计划，这意味着购房者在房屋施工期间必须承担利息。今后，买家不能够仅仅支付最低5％或10％的首期订金，以及待房屋交付后才开始偿还贷款。

再加上2015年4月开始推行6％的消费税，市场业者将会紧盯着一系列在未来的挑战。

世邦魏理仕（马）集团执行董事孔保罗（译音）认为，今次的预算案，尤其是对明年房地产行业来说，是比较艰辛的。

他观察道：“取消发展商的负担利息计划，将影响新推出的中及中高档产业，尤其是高层住宅市场。然而，产业盈利税可以将整个市场冷静下来，因为它可以遏制投机者寻找短期收益。”

说到发展商，实业及房屋发展商协会（REHDA）主席拿督斯里任麦克（译音）说，利用措施打击市场上的投机活动，可能会扰乱房地产市场的健康发展。

在关注发展商的利益下，任氏质疑政府干预房市的必要性。

如果大部分市场是在一定程度上受到控制，以及获得不同程度的补贴，那么政府该不该咄咄逼人地干预自由的房产市场。

他承认：“大众化的房屋需求已经被顾及到，难道那些廉价屋还需提升设施以满足不断要求的买家吗？若然如此，他们必须付出更多。至于推行一刀切的打房措施，可能会对市场产生不良影响。”

任氏解释，产业价格上升主要是由成本因素推动（包括建筑投入成本，特别是材料、劳动力、土地，以及遵从成本），并在一些城市地区，需求和供应出现不平衡。

他声称，从长远来看，通胀压力和供应不足将会继续推高价格。

任氏透露：“基本上来说，数据显示由于人口增长和购屋者增加，导致整体供应短缺。尤其是在财经中心的吉隆坡、槟城，以及在某种程度上的依斯干达特区，这种情况更为严重。”

他指出，提高产业盈利税将会导致近期买家，保留产业拥有权至超过5年期限，从而降低了二手楼的供应量。他表示：“因此，原本打算购买旧产业的买家，现在将注意力转向新的供应市场，例如有地屋和高需求的住宅区，导致供求平衡被推高，并加添房价的上涨压力。” - 光华