We question a few housing incentives and current real estate measures which might bring more harm than good.
Housing woes in Malaysia have become more acute with a majority of the rakyat unable to afford a residential property of their own. To tackle the conundrum, the government has introduced a number of measures under the last two Federal Budgets, most notably the year-long Home Ownership Campaign (HOC) 2019 where purchasers of new launch properties are exempted from paying stamp duty fees.
This might seem like a positive move, but…
The HOC 2019 serves to bail out developers who’ve built the wrong products
Despite explanation by Housing and Local Government Minister Zuraida Kamaruddin as to why the government is assisting developers to clear their property overhang, it is difficult to understand why taxpayers’ money is being utilised for this purpose.
And that is exactly what is being done here. How else do you explain the waiving of stamp duties for property transactions under the HOC? Less fees collected means government expenditure is being paid for from other tax monies.
Why should the rest of the country subsidise developers who built properties which are out of reach of the M40 income bracket? It’s akin to subsidising losses due to a bad business decision. Instead, developers should give sufficient discounts on these unsold units. It’s basic economics that when a product can’t sell, you sell it at a cheaper price in a soft market.
There is no difference between these two scenarios:
- RM1 million with the stamp duties (tax) of RM28,500 waived by the government
- Developer selling the property at RM971,500 and purchaser paying the RM27,517 stamp fee to the government.
The purchaser still pays about RM1 million in both cases.
The person who makes the decision should bear the consequences, not the rest of the country.
Lowering the threshold for foreign property purchase will have adverse effects
Undeniably, there is a problem of unsold high-end properties but this problem was caused by the developers’ greed for profit. They should have focused instead on building affordable units, as there is ample demand from the rakyat.
The proposal to lower the threshold for foreign property purchases may help tackle the unsold high-end properties issue, but it will also encourage developers to ignore building affordable properties costing below RM300,000, not to mention incentivise real estate developers to target foreigners.
The massive discount will open the floodgates to foreign purchases. The situation will be most acute in Johor as property prices in Singapore are high. Should the threshold be reduced to RM600,000, this amounts to only less than S$200,000 for a Singaporean buyer.
An influx of Singaporean buyers will not only drown out locals but inadvertently push developers in urban areas to increase prices of properties in the RM500,000 range to beyond RM600,000 to capture the lucrative foreign buyer market.
This could create a domino effect where developers of housing products in the RM300,000 – RM400,000 range will be encouraged to raise their prices. Current property owners in the secondary market will also capitalise on this situation by increasing prices of their subsale units.
Property prices in urban areas could see a shock increase across the board, further squeezing locals out of the housing market and increasing the risk of a property bubble. The duty of every government is to ensure that its citizens have access to affordable housing, not draw up policies that help foreigners buy properties at much cheaper prices compared to their home country.
The government should leave the marketing of unsold high-end properties in the country to real estate developers themselves. Let developers solve their self-inflicted problem – they will have to think of ways to off-load such properties via discounts or other incentives to attract local buyers.
Here are a few other suggestions to fine-tune the government’s real estate measures:
#1 Lower the price threshold for Rent-to-own (RTO)
RM10 billion has been allocated for the Rent to Own Programme, a scheme for first time home buyers who cannot afford a 10% downpayment for homes priced up to RM500,000. The government will provide stamp duty exemptions as well, where the exemptions are on the instruments of transfer between developers and financial institutions, and between financial institutions and buyers.
Though we support this move, we do not agree with the RM500,00 threshold. This figure quoted by developers as ‘affordable housing’ is actually on the high side of the price spectrum.
Comparatively, here’s the official definition by the Ministry of Housing (KPKT) for what constitutes affordable housing:
1) Priced between RM150,000 to RM300,000 (between rural and urban areas)
2) Must be conducive for family living with a minimum built-up of 900 sq ft (excluding balcony) and at least 3 bedrooms
3) Located in areas that are easily accessible and served by good public transportation links such as buses, LRT, MRT and KTM. There must also be basic public amenities in the vicinity such as government schools, public hospitals and hypermarkets.
With a lower threshold, the government will be able to help more house buyers. To illustrate, the RM10 billion fund can be utilised in the following ways:
- RM500,000 house – 20,000 eligible buyers, or
- RM300,000 house – 33,333 eligible buyers
Moreover, by setting a lower threshold, developers will try to build more properties within the price range in order to qualify for the RTO scheme.
#2 Revise the Real Property Gains Tax (RPGT) to favour genuine homebuyers instead
We respectfully disagree with the government’s decision to continue to charge a 5% RPGT on the gains of disposal of properties after the sixth year.
The current property tax system does not differentiate between genuine long-term property investors and property speculators as the tax rate is the same regardless of how many properties are disposed of. Imposing RPGT for properties held for more than six years acts to punish genuine homeowners and long-term property investors.
Find out how the perpetual 5% RPGT is actually a “Tax on Inflation”.
In the recent Budget 2020, the government did try to stave off the blow for property sellers by revising the base year for property acquisition to January 1, 2013 for assets acquired before January 1, 2013 as compared to the previous base year of January 1, 2000. Nevertheless, this only provides a slight relief.
More should be done, particularly:
1. Keep property speculators and flippers in check by increasing the RPGT tier rate for disposals within the 2nd, 3rd and 4th years with a corresponding increase of an additional 5%, from 30% to 35%. The rate of RPGT imposed on foreign owners should be increased correspondingly too; or
2. Push back the cut-off point or grace period by one or two years. This means that no RPGT will have to be paid if a property is disposed of in the 7th or 8th year.
3. Change date of acquisition to Date of Vacant Possession. For properties bought under construction, this is to ensure that speculators must hold on to the properties longer before selling it if they wish to pay a lower RPGT rate.
#3 Skim Rumah Mampu Milik (SRMP) should be extended to the secondary market
Skim Rumah Mampu Milik (SRMP) was launched under Budget 2019. The government parked RM1 billion under Bank Negara Malaysia (BNM) to give low-interest loans of 3.5% to households earning less than RM2,300 per month, for them to buy properties not exceeding RM150,000 in price.
Also known as the Affordable Home Fund (AHF), the scheme is a great initiative as it helps the target demographic solve two problems that afflict them – coming up with the 10% down payment and qualifying for a housing loan. According to BNM, the scheme can result in monthly financial savings of up to 23%.
However, up to June 2019, only 300 families had reportedly applied for and were awarded the loans. The scheme’s requirements have since been modified to include households earning not more than RM4,360 (B40 category) and for properties priced up to RM300,000.
To further encourage uptake among the B40, the government should allow the AHF to be utilised by buyers in the secondary property market to buy subsale homes.
Edited by Reena Kaur Bhatt