PETALING JAYA: The "bold measures" to cool the market under the Budget 2014 will help the property market self-correct within the next six month to one year, said the spokesperson for the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS)
The higher real property gains tax (RPGT), goods and services tax (GST) which will kick in April 2015, banks to stop funding projects with developer interest-bearing schemes (DIBS) and developers to be more upfront about their freebies will likely cause a surge in property transactions and launches as developers, institutions and individuals rush to "beat the system", followed by a dearth of launches as developers cope with added cost arising from the GST.
"The market is dynamic. If supply is less than demand, developers will come in to build more. So the mechanism of demand and supply will self-correct," said James Wong, publicity chairman for PEPS.
PEPS past president Elvin Fernandez also noted that the RPGT will help mitigate the higher property prices - including residential properties due to higher material and labour cost arising from the GST.
"We have 17 months before GST kicks in and in the meantime you have the RPGT so that will arrest the rush into property to beat the artificiality inherent in the implementation of the GST.
The effective abolishment of the DIBS and transparency about marketing packages will also lead to a more balanced and realistic market, said PEPS vice president Siders Sittampalam.
"With this moves against excessive speculation, we will have more realistic pricing, backed by fundamentals rather than excessive speculation," he said.
He added that the market was distorted by all the incentives by the developers, who had initially introduced these innovative schemes to boost flagging sales in the aftermath of the 2008 financial crisis.
"Prior to this we had speculators outstripping investors and with these measures to curb excessive speculation we will have a market that is a little more realistic, dominated by investors and owner-occupiers.
"With the abolishment of the DIBS... the secondary market will start leading the way in terms of pricing," he said.
Meanwhile, PEPS president Lim Lian Hong noted that the revised RPGT is more effective in reducing excessive speculation because it covered the usual construction period of 36 months.
"Buyers should at least see the construction of their property to completon, because if there is a lot of selling and reseling, it would interrupt construction, cause a lot of upheavals, so the project will not go on smoothly. The exemption after five years is also good because it protects long-term investors," he said.
According to Lim, in the past two yeard hotspots such as Kuala Lumpur, Penang and Johor have seen prices rise by 20% to 30% per year.
The new RPGT rate imposes a 30% tax on the first three years of holding, followed by 20% on the fourth year and 15% on the fifth year. Sales from the sixth year onwards are exempt.
Meanwhile, foreign investors and companies will be charged a 30% tax for the first five years and 5% on sales in subsequent years. - The Edge Property
All of them agree that the overall budget for the property sector is good and are of the view that the the new RPGT which imposes a 30% tax on gains within the first three years of disposal upon the signing of the sale and purchase agreement coupled with the removal of DIBS will help curb speculation. (See table)
The new RPGT, effective Jan 1, 2014, targets individuals and companies. It is a more stringent regime and has more bite than the previous regime.
Says BIMB property sector analyst Law Mei Chi: “Many have expected the RPGT. The impact will be on the secondary market and may slow down transactions. What is good from the budget vis-a-vis the property sector is the removal of DIBS.
“However, the increase in the RPGT might discourage some speculators but the strong holding power (of buyers) due to the low interest rate environment will provide a buffer for speculators to hold a property longer before disposing of it.
“The removal of DIBS may affect many high-end developers.”
Another analyst who declined to be named said he was “pleased” with the propertymeasures in the sense that they were “lower than expected”. “At least there was no reduction in the loan-to-value (LTV) ratio to 60% or a rise in stamp duties,” he explained.
As for the removal of DIBS, he said he was not at all worried about that impacting developers negatively, as “they (developers) can still circumvent (the removal) with rebates.”
Meanwhile, the Association of Valuers, Property Managers, Estate Agents &Property Consultants in the Private Sector Malaysia (PEPS) publicity chairmanJames Wong said the new regime was a more effective anti-speculation tool. The previous regime involved a 15% tax in the first two years of disposal.
“Property is a long-term investment and this new regime actually promotes long-term investment among investors and, at the same time, also helps to prevent excessive speculation,” Wong said.
“Government revenue will also increase. In 2011, the revenue received from RPGT was RM1.24bil and this involved a tax of 10% for the first two years.
“In 2012, RPGT revenue is estimated to be between RM1.5mil and RM2bil. This increase will help to bring more revenue to the government,” Wong said.
Wong said the 5% tax on companies and non-citizens was also significant as it involved disposal from the sixth and subsequent years.
“This will stamp bulk buying by foreigners with speculative intentions. However, it will also affect Iskandar Malaysia, if there is excessive speculation there but on a longer time, it will bring confidence into that market. In the interim, there may be a slight slowdown in sales but in six months to a year, it will self-correct.”
