Industry experts dish out their thoughts on the recently tabled Budget. REENA KAUR BHATT runs through the good bits and highlights a few suggestions on what governmental initiatives could be improved on.
The good stuff
50% Tax exemption for rental income up to RM2,000 per month – This will be valid from 2018 to 2020 and applicable to Malaysians only. This tax exemption will spur property investment as the country’s top 20 percent income earners (T20) will enjoy better rental yields. As monthly rentals of RM2,000 are applicable for properties costing up to RM1million, this measure is timely indeed as it will help stimulate renewed demand for such residential properties, especially in the Klang Valley. Also, the middle income-earners (M40) would have more rental options as more rental properties enter the market, making it a win-win situation.
New legislation of Residential Rental Act to protect tenants and landlords is welcome news. CBRE | WTW recommends that the government could take an extra step to set-up a centralized depository whereby tenant profiles and credit history are kept in an online database. This will improve the protection of landlords’ rights, where many are currently at risk of tenants defaulting on rent and utility charges.
The Government is encouraging the 2-step housing loan scheme to be extended to private developers which should ease credit availability and therefore improve sales rates. This will benefit home buyers as they will enjoy a reduced loan repayment for the first 5 years upon purchase. Thus this will boost home-ownership as buyers’ upfront financial commitment is lower and they have a longer time period to build-up their financial capacity. However, more details and fine-tuning are required before such a scheme can be implemented in collaboration with private developers.
2000 units of houses have been allocated for the MyDeposit programme and MyHome scheme combined. Under the MyDeposit programme, first time home buyers are entitled to apply for funding from the Ministry of Urban Wellbeing, Housing and Local Government (KPKT) to cover the 10% or RM30,000 of down-payment for home purchase, whichever is lower. This again will improve buyers’ purchasing ability. Meanwhile, the incentive in the form of RM30,000 per sold unit of affordable housing under the MyHome scheme will encourage private developers to join in the provision of affordable housing.
GST exemption on property management of stratified properties is extended to private developers beginning 1 January, 2018. This will benefit the M40, many of whom occupy stratified properties.
Public Sector Home Financing Board (LPPSA) incentives. The credit facility by LPPSA will soon cover legal fees incurred for loan agreements. Meanwhile, the introduction of joint-loan mechanism with immediate family members with condition that one of the recipients is serving in the public sector, will lower the barrier/increase the loan amount eligibility of civil servants, making a higher range of houses more affordable to them.
Some suggestions to consider
“It would be timely to relaunch a more strategic and concentrated DIBS, for genuine home buyers – this move wil help alleviate the residential overhang issue as well.
Universal Properties
1. Revise current real estate policies
The Budget certainly took a step in the right direction with some of its rakyat-friendly incentives including the income tax reduction and the 2,000 unit allocation under the MyDeposit scheme. However, certain policies pertaining to the improvement of the property market could have been addressed better.
The essence of the market relies on financing; the current high ratio of rejected property loans is the main reason why real estate transaction activity is muted. Ideally, Bank Negara Malaysia (BNM) should at the very least, relax lending requirements for first-time homeowners and owner-occupied commercial properties. This could be done by either lowering the minimum net household income requirement or interest rates.
Besides that, the government should reconsider bringing back the Developer Interest Bearing Scheme (DIBS) for first-time home buyers only. Admittedly, when DIBS was first introduced in over 5 years back, speculators fuelled a spike in demand for properties they neither could afford nor needed.
Considering how property prices have stabilized in the past few years, it would be timely to relaunch a more strategic and concentrated DIBS, for genuine home buyers. This move will help alleviate the residential overhang issue too – just last month, JPPH reported that the number of unsold residential units rose by 40% Y-O-Y in H12017.
A revision in the Real Property Gains Tax (RPGT) and foreign property purchasing policies must be reconsidered too. Example of amendments includes the reduction of RPGT rates after the third year upon acquisition as this is a deterrent enough to speculation as well as the lowering of the RM2 million price ceiling for foreign property purchasing in Selangor. These revisions are key in rejuvenating the stagnant property market.
Income Tax collection for entrepreneurs/freelancers should be shifted to GST instead – these savvy individuals stand a better chance to boost their ‘business’ by investing the tax savings into enhancing their skill-set or for purchasing necessary equipment and marketing initiatives.
2. Reduce income tax and shift to GST collection
A few exemptions for the Goods and Services Tax (GST) were announced under Budget 2018. These include the management and maintenance services of stratified residential buildings; on services provided by the local authorities and all reading materials will be zero-rated from Jan 1, 2018.
Introduced in April 2015, GST which is a multi-stage consumption tax on goods and services is a strategic move towards making Malaysia’s taxation system more efficient, effective, transparent and business friendly.
Most people only see the GST as a form of taxation – however, this value-added tax actually has the capacity to empower and encourage the freelancer or self-preneur industry as well. The rise of the digital economy has brought forth a wave of self-employment where more people are now working as freelancers, consultants/contractors, and entrepreneurs.
Hence, why I suggest that the Income Tax collection for self-preneurs be shifted to GST instead – these savvy individuals stand a better chance to boost their ‘business’ by investing the tax savings into enhancing their skill-set or for purchasing necessary equipment and marketing initiatives. Indirectly, it cultivates these citizens to strive for better income by being more productive and resourceful.
Moreover, it would be easier for the government to track tax collection; at the moment it is pretty easy for a freelancer/undeclared entrepreneur to conceal their income. Should GST be implemented instead, there would be a record of consumption as GST is charged for every good and service being bought/supplied.
To fully capture the collection of GST income, our government should encourage the adoption of electronic payments by ironing out the kinks in the electronic transaction process, i.e payment made through credit cards, debit cards, e-wallet, Touch-n-go, etc.
Currently, Malaysians must pay additional charges for parking fees paid using Touch-N-Go cards. Also, some merchants charge an extra 2-3% for credit card payments or require a minimum of roughly RM50 for cashless transactions. Hence more reasons on why the government should roll out initiatives such as banning merchants from imposing additional fees and providing incentives for merchants who accept electronic payments.
This will certainly help reduce cash usage, which is hard to capture without the proper records thus causing a potential loss of tax revenue.
The current consumer sentiment might be negative, but not because there is no demand – properties with the right concept and pricing will sell well, if purchasers are able to secure home loans, that is.
3. Help Gen-Ys purchase their own homes.
The announced housing-related measures including additional homes under PR1MA and PPA1M as well as the step-up financing scheme (for PR1MA homes) to be extended to private developers are promising indeed. The step-up scheme especially will help boost home ownership and improve overall market sentiment.
The current consumer sentiment might be negative, but not because there is no demand – properties with the right concept and pricing will sell well, if purchasers are able to secure home loans, that is.
The Malaysian Department of Statistics recently reported that the average median salary in 2016 was RM 5,228. Zooming into Kuala Lumpur and Selangor, the median figures were RM9,073 and RM7,225, respectively. Taking into consideration that an affordable market is one where the median house price is three times the annual median household income, the average KLite and Selangorian can only afford a home costing RM326,628 and RM260,100, respectively.
At this rate, most urbanites will only be able to afford studio units or homes located outside the Klang Valley conurbation. Married couples and young families with kids will require bigger, comfortable homes which are conducive enough for family living.
Housing is a basic need which must be addressed by the government and relevant stakeholders as we need more schemes and incentives targeted for the affordable property segment. The median age of the country’s population is only 28 years – these millennials are beginning to settle down with families. Hence, explaining emerging trends such as “kids-eat-free” at restaurants and the introduction of affordable baby product lines. The demand for housing is only going to grow in coming years, in tangent with the population boom.
More strategic efforts should be put into place today; for instance, help developers build more affordably priced properties by reducing compliance and conversion costs and work on improving the productivity and efficiency of our local graduates to help enhance their earning capacity and increase the country’s overall monthly disposable income.
Should more and more citizens find it impossible to purchase their own home, there would be social and economic repercussions down the road.