Datuk Chang Kim Loong, Honorary Secretary-General of the National House Buyers Association (HBA) shares his thoughts on the recently-tabled Budget 2021 and proposes several recommendations to improve budget initiatives which affect house buyers and Malaysians who were severely affected by COVID-19.
Stamp Duty Exemptions well thought-out
HBA notes that the Government has announced a full stamp duty exemption up to 31 December 2025 for the Memorandum of Transfer (MOT) and for Loan Agreements (LA) for first-time house buyers for residential properties valued up to RM500,000. This is a good proposal as this incentive is restricted to those who are buying a home for the first time. The Stamp Duty savings of RM9,000 on MOT and RM2,250 on the LA (assuming 90% financing) will certainly help first-time house buyers who wish to secure a roof over their head which they own, irrespective whether from housing developers or from the secondary market.
We also note that Budget 2021 is proposing a stamp duty exemption on Loan Agreements and Memorandum of Transfer where ‘white knight’ contractors who are reviving abandoned projects with the original house buyers of said abandoned property projects be extended for a further 5-years to 31 December 2025. HBA supports this proposal as the affected buyers/ victims have suffered tremendously from the abandonment for no fault of their own except for the lack in the Ministry of Housing and Local Government’s (KPKT) monitoring, supervision and enforcement process. The exemption will to a certain extent reduce the burden of the original buyers/ victims.
Moreover, HBA welcomes the announcement that the Government will allocate up to RM1.2 billion to build comfortable and quality homes for the lower-income segment. This is a noble aspiration by the Perikatan Nasional Government to ensure that every Rakyat including the lower-income segment has access to comfortable and quality housing.
Promotion of Rent To Own (RTO) is admirable
We also welcome the announcement that the Government will work together with selected financial institutions to implement a Rent-to-Own Scheme that will run until 2022 which will involve 5,000 selected PR1MA properties valued at up to RM1 billion for first time home buyers. HBA has been urging the Government for years ago to implement a rent to own scheme especially for the Middle Income Group (M40) apart from B40 groups to assist them with buying their first home.
However, HBA feels that the threshold should not be extended to cover property pricing up to RM500,000. This figure is the housing developers’ qualification of ‘Affordable Housing” and is on the high side as compared to the official definition by the Ministry of Housing. The official definition of ‘Affordable Housing’ must meet 3-criteria as follows:
1) Property Price – Affordable Housing are properties priced between RM150,000 to RM300,000 ( between rural and urban)
2) Unit Built-up – Affordable Housing must be conducive for “Family Living” and must have a minimum built-up of 900 sq ft (excluding accessory parcels like balcony) and have at least 3-bedrooms
3) Location – Affordable Housing must be located in areas that are accessible and served by good public transportation links such as buses and rail links such as LRT, MRT, KTM, etc and located in areas with good public amenities such as government schools, public hospitals, hypermarkets, etc
There were not much ‘further incentives’ announced by the Government and it is because they have previously announced them in the PENJANA economic recovery plan, three (3) initiatives in June this year:
- The HOC 2020 (Home Ownership Campaign) which features waiver of stamp duty for residential units priced between RM300,000 to RM2.5 million but capped at RM1 million.
- Reduction of Real Property Gains Tax (RPGT) to 0%, which is applicable between June 1, 2020 to Dec 31, 2021. Property sellers are allowed to enjoy this RPGT exemption for three (3) residential properties.
- Relaxation of the loan to value ratio for the third house purchase under the HOC 2020.
Generous financial incentives for the rakyat, but it could be refined further…
HBA is grateful that Budget 2021 announced that Banks will continue to offer a targeted loan moratorium for those affected by Covid-19. Such a targeted loan moratorium will be much welcomed by those affected by the pandemic so that they do not need to worry about their loan obligations as they try to get back on their feet.
Budget 2021 also announced a reduction in the employee contribution for the Employees Provident Fund (EPF) from 11% to 9%. This move is expected to increase the disposable income of the Rakyat and is hoped that it will indirectly help to stimulate the local economy. Although HBA supports moves to increase the disposable income of the Rakyat, HBA hopes that employees will have the option to maintain the contribution at 11% if they so wish to as the dividends form EPF is still much higher than the current fixed deposit rates offered by Banks. Contributors of EPF must be mindful that the monies in EPF should always be intended to be used as retirement funds and not to splurge on unnecessary things.
Budget 2021 also allows for contributors to withdraw from their EPF Account 1, an amount of RM500 a month for 12-months or RM6,000 in total. HBA would only advice that contributors withdraw funds from their EPF Account 1 as the last resort and to spend these monies only on the most important necessities. This is because the monies in your EPF Account is primarily for retirement. Assuming that contributors did not withdraw this amount, the RM6,000 would have increased to RM22,800 after 25-years based on assumed dividend rate of 5.50%.
Finance Minister Tengku Zafrul also announced several increases in tax reliefs:
- medical treatment for serious illness from RM6,000 to RM8,000
- for a full health screening from RM500 to RM1,000, tax relief on expenses for medical treatment
- special needs and parental care from RM5,000 to RM8,000
- tax exemption of up to RM1,000 for the vaccination cost for personal, spouse and children.
These additional tax reliefs will be much welcomed by the Rakyat as we battle the rising cost of living amind a pandemic outbreak including the cost of medical expenses.
Budget 2021 also announced that the personal income tax rate will be lowered by 1% for those earning taxable wages from RM50,001 to RM70,000 which is expected to benefit 1.4 million taxpayers. However, it would be more meaningful if such a reduction in income tax rate is also introduced for those who are earning more than RM70,000 as Covid-19 has affected everyone in the country regardless of income levels.
We hope the Government would reconsider this qualification. It should be made across the board to have a holistic impact on all taxpayers.
If you enjoyed this guide, check out: A beginner’s guide to the Memorandum of Transfer (MOT) and Stamp Duty in Malaysia