(1) If you could have your way, what property-related regulation would you add or amend in the 2017 Budget?
(2) What would be on your 2017 Budget Wish List? Please name three.
I want a comprehensive and committed sustainable master plan to address the issue of affordable housing once and for all instead of the stop-gap measures announced every year.
Housing is a real issue as Malaysia is on its last lap to a developed nation status. There are clear signs in the market that home ownership moving forward is out of the reach for single income earners.
• Getting the banks’ commitment to finance affordable housing.
• Incentives in attracting foreign talents and establish good practices to improve the property management sectors in Malaysia.
• Setting aside funds for strata living education and awareness
I would like to have more budget allocated for the My First Home Deposit Scheme for 2017. In 2016, RM200 million had been allocated. However, there are still many young Malaysians who did not get to apply for the scheme. In addition, I feel that the government should seriously look into the PR1MA schemes as they are still many young Malaysians who are without a home. Many have applied some two to three years ago but they have yet to receive a reply or any other form of acknowledgment from the government. The government must make more of an effort to engage this group who are sadly, left wanting.
• The government should set up a special body to educate young Malaysians on the importance of financial literacy. They must address the importance of clearing their PTPTN loans, car loans and so on before applying for their first home. There must be outreach programmes in schools across the country.
• A central body being set up to specifically solve the housing issues among young Malaysians. The central body must look into their financial background and match them according to the types of homes they can afford.
The following property related regulations should be reviewed:
(A) Commercial properties were slammed with a new GST ruling in August 2015. The superfluous ruling will result in double taxation for purchasers and does not encourage healthy transactions. It creates a wide-cast net which will inadvertently create an unreal pricing to avoid GST. The August 2015 ruling should be removed.
(B) RPGT rates on properties sold after 3 years of acquisition should be reduced to 10% and 5% for the 4th and 5th year, respectively. The first 3 years at 30% is already a deterrent from unhealthy speculation. Those who sell after this period should be seen as investors, hence the rates should be reduced. It is also one way to stimulate the economy by placing more money in the market for more investment.
(C) Under the Strata Management Act 2013, recovery of outstanding maintenance fee can currently be recovered by the seizure of chattels. This is not effective in the management of strata properties. It will be better to allow for said property to be auctioned, as practiced effectively by other countries. This will reform the mindset of defaulters as it will be very costly to default.
• A proper definition of affordable housing which takes into consideration the location and demographic profile of an area should be adopted. In a smaller town, prices should be capped between RM100,000 and RM250,000 while in larger cities, the range should be RM250,000 – RM500,000.
• The Government should take steps to improve transportation infrastructures in the country. Infrastructure by itself creates value for the landowners in the new frontiers.
• Unnecessary compliance costs for developers should be abolished as these only add to the selling prices.
The following initiatives are proposed to further incentivise first-time home buyers in Malaysia and also to property developers in undertaking the construction of residential property:
(A) Additional tax relief for first-time home buyers in respect of the interest on loans taken for residential property from any financial institution for the purchase of residential property of a value up to RM500,000. The above tax relief should be given for the full duration of the loan tenure rather than limited to a specified period.
(B) Full stamp duty exemption for instruments of transfer and loan agreements for first-time home buyers for the purchase of residential property not exceeding RM500,000. The existing partial stamp duty exemption to effect the above will be expiring on 31st December 2016.
(C) Partial income tax exemption in respect of the income derived by property developers in undertaking residential property below RM500,000 on the condition that said residential property is sold to the first-time homeowner.
(D) To zero-rate GST on the sale of residential property below RM500,000 instead of the current categorisation as an exempt supply in order to:
• Reduce the cost of property development, whereby the GST incurred by the developers will be claimable. This will lower down prices of properties, increasing the chances of low and medium income earners to own their own home.
• Relieve property developers from the need to claim any GST incurred on the acquisitions of goods and services used or consumed on an apportionment basis.
• Small and medium sized enterprises (SMEs) are the backbone of the country’s economy which are expected to contribute 41% to the country’s gross domestic product by 2020 compared to 32% in 2012, according to the Minister of International Trade and Industry (MITI). With the weakening of the ringgit, declining oil prices, rising costs of doing business and the weak market sentiment both locally and globally, many SMEs have been negatively affected by the uncertainty of the overall Malaysian economy.
• Many of the existing tax incentives are not accessible to the SMEs due to the stringent requirements and the restricted interpretation by the relevant authorities which have dampened their success. To support the development and continuous growth of SMEs, we would suggest that the tax bracket for the existing preferential income tax rate at 19% of RM500,000 to be extended to RM1 million.
• Some of the proposed initiatives to alleviate this problem are to increase the Employees Provident Fund (EPF) and life insurance tax exemption limit from RM6,000 to RM10,000, to increase child relief for child below 18 years of age from RM2,000 to RM6,000, the special tax relief for middle income group of RM2,000 to be extended for 2 years and also medical insurance to be increased from RM3,000 to RM6,000.
The need for affordable housing has to be monitored closely. The government can assist private developers in ensuring speedy and continuous delivery while remaining relevant by producing quality products at the lowest cost possible. This can be achieved with lesser compliance costs or rebates to spur the supply of such products to meet market demands. Guidelines drawn have to be ‘non-compete’ among local and federal governments too.
Financing goodies from the banking sector for first-time home buyers should be encouraged with a higher loan-to-value (LTV) model based on entry level property prices and type, which is consistent with the mass market purchasing power.
I would propose for the good of our future generations, a considerable amount of allocation is highly required to invest in our education sector to kick-start areas such as:
• Entrepreneurship – The young mindset has to open up for the self-sustaining economic model from an early age and to be given a fair opportunity to excel in their field of talent and passion. A nation driven by entrepreneurs shall produce a high-income nation and eventually contribute back to the society through taxes. The fact lies in the current lack of exposure of such subject academically. In essence, one must be taught how to fish than to be given one. While handouts and goodies are popular, they are never a permanent solution to a nation building process.
• Financial Management – For many, this subject is only privy to those who seek them earnestly later in life and by then, many would have been caught in the vicious cycle of bad debt and lose all hope in building their golden nest of retirement not to mention the elusive financial freedom status. Given the macro perspective of things where the government manages our public finances, it is imperative the micro financials are taken care of from the onset as well. Otherwise, promoting ideas such as developers providing supplementary loans or even proposing the withdrawal of higher pension funds for asset buying could spell disaster if financial management is being taken for granted. As the saying goes, “Failure to Plan is Planning to Fail!”
• Investment (and Real Estate) Education – When the core of sustainable enterprise with good financial habits are in place, the mastery of wealth building becomes a necessity. Why start later when one can start young? Reinvesting back taxpayers monies into educating the future generation can only make sense when the monies are spent on proper investment education: the bigger picture!
The main issue with housing affordability is the size of the demand which, alone, the government can hardly face and satisfy. It would be best to work on a stronger cooperation between the public and private sectors to address the huge demand for affordable homes. Researches done by REI Group and supporting data from the Department of Statistics Malaysia, have showed that values of affordability are very different state by state in Malaysia.
If we all look at how to solve this issue in a pro-active and positive way, Malaysia could be one of those few countries which will properly address the housing affordability issue before it becomes an “unmanageable” one. The next 5-6 years will be crucial in solving this issue.
• Waiver for GST on construction costs of residential properties priced below RM700,000.
• Waiver of low-cost quota for residential projects sold below RM500,000 and with a minimum size of 850 sq ft.
• A discount on developer’s premium and utility contributions for residential projects sold below RM500,000 and with a minimum size of 850 sq ft.
• Possible revision of the Bumi quota (partial to total waiver) for residential projects sold below RM500,000 and with a minimum size of 850 sq ft.
• An increase in density for residential projects within certain areas (highly populated ones) and shifting from unit per acre toward plot ratio.
I would want to see the following amendments to existing property regulations:
(A) Mortgage interest rates only payment for a two-year period and the principal repayment to be held in abeyance. Stricter fundamentals in banks’ lending checklist now include a net income regime in the form of TDSR and student loan repayments, namely PTPTN which apparently has broached a mind boggling figure of RM20 billion. The price of essential foodstuffs and the general costs of living in lieu of the shrinking ringgit have had their dire consequences on purchasing power with its ill effects reverberating across the retail sector.
(B) Reconsider the RPGT
The RPGT was obviously initiated to keep in check runaway prices of properties over the last couple of years as easy credit, incentives like the zero down, Developers’ Interest Bearing Scheme (DIBS), furniture/refurbishment vouchers, and holidays abroad were amongst the sweeteners dangled to lure investors. Nevertheless, the current legislation is all encompassing – a one shoe fits all example irrespective of the value of the property.
I would encourage the authorities to initiate an exhaustive study of all residential properties and compartmentalising them into fixed price ranges for different ‘levels’ of properties. The current affordable pricing threshold is RM250,000 – RM400,000. I would request that RPGT takes on a tiered structure and all properties priced below the affordable threshold be exempted from RPGT. An exercise along these lines would offer an exit strategy for the financially distressed albeit create transactions and liquidity in the market.
• Developers should not be given money lending licenses; instead, a national housing policy on actual needs and demands should be carried out taking into consideration plot ratio’s density in tandem with supporting infrastructure. The authorities should also put in place a corporate liability pledge whereby company directors are to be personally held liable for non-subscription to building by-laws and standards.
(A) Relax lending requirements for first-time homeowners and owner-occupied commercial properties. Debt to service ratios (DSR) should also take into account future and potential earning capacity; eg: promotions and cumulative working experience.
(B) Supply of social housing (low-cost) to be fully borne by the Federal Government (with specific allocation to Sarawak and Sabah) to reduce development costs by private developers in Sarawak (and rest of Malaysia, where applicable). This is because the cost of building low-cost housing is priced into the cost of building medium-cost and higher-end homes instead – which are then shouldered by the M40 and U40 groups. This shifting of responsibility to the private housing sector is one of the root causes of a national housing problem of inadequate public housing which are sometimes poorly located, built and maintained.
(C) GST and stamp duty (on loan documentation & assignment/transfer) waiver for first-time homeowners. As residential properties are GST exempt, developers have to price in the cost of construction into properties’ selling price. Residential properties should be zero-rated affordable and low-cost housing and other projects for first-time homebuyers.
(D) Regulations and government policies should be amended to reflect a level playing field for private developers. Other government housing agencies such as PR1MA are providing schemes which are directly competing in the middle-income market.
It should be noted that the household income in Sabah and Sarawak are much lower as compared to states in West Malaysia. Hence, it should only make sense that the cap selling price of PR1MA homes and other government housing schemes’ in East Malaysia must be apportioned accordingly and not lumped in with their West Malaysia counterparts.
Facilitate Home acquisition by:
(1) Continuing MyDeposit and other similar first home owner schemes with higher Federal Budget allocation; which should also include a specific grant for Sabah and Sarawak to be administered by respective State Ministry of Housing.
(2) Increasing allocation from Account 2 of EPF from 30% to 50% for first-time homebuyers to help with the down payment and part payment. It should be considered that a home is also a form of inflation-adjusted long-term saving plan and provides a sense of security for the house owner and their dependents.
Reduce developers’ compliance cost of doing business by:
(1) Reducing utility capital contribution cost (including water, electricity, gas, telecommunications).
(2) To relax the open space and public use infrastructure to be built by developer requirement as well as allow for higher density by shifting to the plot ratio system for urban areas which have scarce unutilised land.
(3) Tax relief – Income Tax, GST, RPGT and stamp duty.
GST relief order for residential properties
(1) To allow low-cost and affordable homes currently under construction/ being planned for construction to enjoy zero-rated status.
(2) GST relief for all secondary property transactions to avoid further increase in the cost of building property with each transfer/transaction. This is an example of increasing the cost of doing business without much input to the productivity of the economy.
(3) GST relief order for all building materials that go into affordable housing to redu