PEPS calls for government assistance for the property industry and property market. Its Budget 2022 wishlist is centred on reviving the property sector, tackling overhang properties, solutions to affordable housing issues, and property taxes.
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Association of Valuers, Property Managers, Estate Agents & Property Consultants in the Private Sector Malaysia (PEPS) is calling to the government to assist the property industry and market under the upcoming Budget 2022 that will revive the industry and resolve loose ends regarding overhang properties and issues surrounding affordable housing.
According to PEPS, the COVID-19 pandemic and prolonged Movement Control Order (MCO) since early 2020 have severely impacted property launches, construction, and completion. As consumers’ sentiments are still weak, the property market suffered a decline due to lower purchasing power. Based on AmInvest Bank Research, the approval rate for residential property lending is low, 36% up to July 2021 as banks remain cautious.
Until June, overhang properties had risen to 31,112 units valued at RM49.28 billion. On top of that, affordable housing construction is off-target and there is a mismatch between supply and demand. The surge in steel, cement, and construction materials prices are adding more pressure to the construction costs.
Budget 2022 wishlist
Hence PEPS Budget 2022 wishlist focuses on the following issues:
- How best to revive the property sector
- Recommendations to reduce the property overhang
- Affordable housing: Issues, problems, and measures to address these problems.
- Property taxes
- Industrialised building system
1. Reviving the property sector
The market is steadily finding its new footing after seeing some YoY improvement in H2 2020 and H1 2021. Taking a cue from this positive note, the property market must be revived and create a more sustainable growth momentum, while at the same time mitigating risks of market non-sustainability.
Boost the subsale housing market through the extension of stamp duty exemption benefits
PEPS proposes an exemption on the stamp duties payable for the property transfer and financing facilitation for the purchase of first residential property priced below RM300,000 (or up to RM500,000), corresponding to the benefits of the Home Ownership Campaign or HOC. Extension of HOC benefits to the subsale market will allow a wider range of property choices for potential homeowners hence liberating the demand of these buyers
The subsale housing market has historically accounted for 60% to 65% of total residential transactions. However, in the past few years, the subsale market has become stronger at more than 80% of total residential transactions. The rise in the subsale housing market growth will translate to more transaction activities, influencing the general market sentiment and boosting consumer confidence in the property sector. Furthermore, the subsale market offers more housing options for home buyers, including first-time homebuyers.
Reinstate RPGT to 0%
The government is urged to reinstate the Real Property Gain Tax (RPGT) back to 0% for locals, foreigners, and companies disposing of residential properties after five years of ownership. This will give the market a boost for those contemplating plans to dispose of their properties, hence spurring transactional activities. The rationale is after owning the property for five years, it will not be deemed speculation.
Introduce Residential Tenancy Act
PEPS proposes the government introduce the Residential Tenancy act as a measure to protect the interests of tenants and landlords in residential tenancies as the market steadily puts more focus on rental options as a means of securing a home over their heads. This would also give a better level of comfort for home seekers who are voluntarily opting to rent (rather than buying) a residential unit according to their priorities, and for those who opt to rent due to affordability and location constraints.
Incentivise developers through special tax deduction to promote the RTO scheme to private and public housing projects
The government may consider incentivising the developers through special tax deductions to encourage them to offer more affordable housing units in strategic locations under the Rent-to-Own scheme. The rental housing market is poised to grow further if the proposed Residential Tenancy Act is passed. The RTO scheme allows the buyer/ renter to pay rent for the first three to five years which embeds the downpayment for the property by the expiry of the tenancy period. The option of making the purchase may be exercised then or rescheduled according to the situation then.
Facilitating home financing for first-time homebuyers, especially within the gig economy and informal employment sectors
Banks should make their assessments of the borrower from wider assessment criteria, especially for employees in the gig economy and informal employment sectors. Today, more people are working in the sectors due to the technological advancements as well as the new normalcy induced by the pandemic, which has changed income documentation and formal records are not as forthcoming. The recognition of these new trends in employment especially for first-time homebuyers should be facilitated through special verification for them to obtain house loan approvals.
The supply-demand mismatch has to be addressed in a more structured and systemic manner
The government must address the supply and demand mismatch systematically to sustain the new momentum whilst mitigating risks of future oversupply and overhang problems. An independent market and feasibility study that is carried out by qualified professionals are required for all new development application submissions to facilitate the authorities’ decision and approvals. This would help the local authority in deciding on Development Order approvals and in executing their Local Plans for the area more efficiently towards creating a vibrant and sustainable municipality. The requirement can also be applied at project financing stages as a second gatekeeper where the banks and financial institutions should commission these studies directly to protect the independence of the feasibility report.
Data accuracy, transparency, availability, and timeliness in making real estate development and approval decisions
Data availability is key to enabling better decision-making. PEPS proposes that the government hasten the earlier-proposed central database on property-related matters. The planning departments of Local Governments have vast information on all plans and proposals in their administrative areas. This source and the developers’ data/submission at Jabatan Perumahan Negara (JPN) under the Ministry of Housing and Local Government (KPKT) can be streamlined through Big Data and Artificial Intelligence (AI) whilst maintaining the necessary data confidentiality and be made available to the stakeholders in the property industry to allow better and more accurate future decisions on real estate planning and development to be made.
Enhance the efficiency of property and land administration matters by utilising the technology
The use of technology would enhance the efficiency of the system as a whole in matters relating to transfers, conversions, subdivisions, and approvals. As highlighted at the launch of the National Fourth Industrial Revolution Policy (4IR), new technologies such as AI, the Internet of Things (IoT), blockchain and Distributed Ledger Technology (DLT), and Big Data Analytics (BDA) should be encouraged and promoted. This could help cut the red tapes involved in the real estate supply chain as well as provide a platform for greater data democratisation for a more informed industry.
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2. Reducing overhang properties
Based on the National Property Information Centre (NAPIC) data, the total number of overhang units stood at 65,309 units valued at RM49.28 billion as at end of H1 2021. The residential property overhang is among the highest, which had increased from 29,565 units in 2020 to 31,112 units by H1 2021. Condominiums and apartments formed the bulk of residential property overhang, which account for 58.48% of the total residential property overhang. Among the property sectors overhang, serviced apartments appear to be the largest contributor to the property overhang with 24,064 units, which contributed 36.84% of the total property overhang in the country, followed by condominiums and apartments 27.85% or 18,195 units in H1 2021.
Extend HOC until the end of June 2022 to help to clear the massive overhang in the property market
PEPS Budget 2022 wishlist calls for the government to extend HOC at least until the end of June 2022 to help clear the massive number of unsold residential units in the country. HOC was a successful campaign with its stamp duty exemption. Real Estate & Housing Developers’ Association (REHDA) Malaysia reported a total of 34,354 residential units valued at RM25.65 Billion have been sold as of the end of February 2021 since its introduction in June 2020
Extend HOC to the subsale housing market
Currently, the HOC is only applicable to the primary market (new units by developers). PEPS pushes the government to assist subsale house owners by extending the HOC (and its benefits) to the subsale housing market.
Allow 100% financing from banks for first-time home buyers for highrise apartments
Currently, banks and financial institutions provide 90% loans for first and subsale homebuyers. Banks must provide a 100% loan to first-time homebuyers for the purchase of highrise apartments, including serviced apartments to clear the bulk of property overhang, mostly highrise residential properties.
Release Bumiputera Lot (Bumi Lot) to clear property overhang
A big percentage of the overhang units refer to Bumiputera quota units. The government must review and make clear the Bumiputera quota mechanism and release the Bumiputera quota upon completion to clear property overhang.
Reduce the ceiling price for foreigners buying Malaysian houses for the year 2022
PEPS proposes the government review and reduce the ceiling price for foreign purchasers for the year 2022 from RM1,000,000 to RM800,000 to buy Malaysian properties. This is to reduce the number of overhangs of residential and serviced apartment units. There are a total number of 35,429 units from these two segments, valued at RM34.29 billion as of H1 2021.
Make it compulsory for developers to appoint consultants to conduct independent market and feasibility
The government must make it a compulsory requirement for developers to appoint consultants to conduct independent market and feasibility studies, to submit to the banks for their bridging loan.
3. Tackling issues surrounding affordable housing
In Malaysia, the basic demand for housing is affordable housing. There is no published data on the current supply of affordable housing as each state has different pricing for affordable housing. There is a target to build 500,000 units of affordable housing under the 12th Malaysia Plan (12MP), from 2021 to 2025. Based on current household income, most Malaysians cannot afford a house. The current median house price is far beyond the affordability level of most Malaysian households.
At the moment, there are 8,439 unsold affordable housing units, despite pricing below RM300,000. This shows a mismatch in supply and demand and it is partly due to affordable housing being built in the wrong locations within the poor catchment area and lack of public transport. Not just that, there is still a lack of communication among the various agencies and State Governments involved in affordable housing even though KPKT is the coordinating ministry for affordable housing.
Expand the role of KPKPT and give research grants for the ministry to conduct research
The government must expand the role of KPKT as the coordinating agency for affordable housing and make it mandatory for agencies and State Governments involved in affordable housing to report their plans to the ministry to avoid duplication. Also, a research grant must be given to the ministry for them to carry out in-depth research on supply and demand, product types, pricing levels to match the household incomes in each locality, etc.
State agencies, SEDC, and GLC must play a more active role in developing affordable housing
PEPS proposes the State Economic Development Corporations, (SEDC), state agencies, and Government-Linked Companies (GLCs) to participate actively in developing affordable housing because of their available land bank, either on their own or set up joint ventures with housing developers to develop affordable housing.
Converting unsold affordable housing units to RTO scheme
The government must set up a unit within KPKT to buy unsold affordable housing units to create a Rent-to-Own (RTO) Programme for deserving B40 groups.
Provide funding for affordable housing and youth housing buyers, and purchase unsold units for RTO
The government needs to set up a fund to finance the purchase of affordable housing, youth housing, and the purchase of unsold units from other agencies for the RTO Scheme.
Mandatory market and financial feasibility study for affordable housing projects
The government should make it mandatory to carry out a market and financial feasibility study on affordable housing projects’ viability before the commencement.
4. Revising property taxes
The pandemic has affected the country’s property market and also foreign investment in the property sector. Today’s property market is a buyers and renters market. It is time for the government to revise property taxes.
Restructure RGPT
PEPS wishlist is for the government to address the Real Property Gain Tax structure by exempting RPGT for individuals, Malaysians, and Permanent Resident (PR) for all property sectors for transactions of RM10 million and below. This is as a measure to boost the revival of the property. Also, to uplift foreign investment, the government should consider equalling the RPGT of a foreign individual existing RPGT rate to a similar structure as companies and zeroing the RPGT after five years for all. This will help to tone down speculation and encourage longer investment in our market.
Stamp duty exemption under the HOC to be extended to both primary and subsale housing sales in 2022 and 2023
The HOC stamp duty exemption must be extended to both primary and secondary residential sales in 2022 and 2023. Stamp duty for property transactions valued at more than RM1 million should be maintained instead of the current 4% rate. At the moment, stamp duty exemption is only for residential properties under the HOC (primary market). The government should consider giving an equal opportunity to a first-time homebuyer for both primary and subsale properties, given the shift in buyers’ needs and perceptions of a home.
Introduce specific subsidies and tax incentives rates for construction/ manufacturing industry players, businesses, WFH individuals
The government must assist construction/ manufacturing industry players by providing tax rebates or any kind of subsidies for workers’ accommodation. This is to encourage them to set proper migrant worker’s accommodations with minimum standards in accommodation comprising basic amenities, the main water supply and electricity, hygiene, fire safety, and medical assistance.
Also, there should be individual tax rebates on an internet connection, purchase of furniture/ equipment, and creation of workspace at home. The work-from-home (WFH) trend comes with many benefits like reducing business occupation costs and even bringing latent workforce, especially parents who had earlier decided to quit their jobs. Businesses that give such subsidy/ provision for the staff, they should be allowed to claim this wholly as cost of business rather than as limited staff benefits.
5. Implementation of IBS
The Industrialised Building System (IBS) is unique building technology that has not been effectively implemented in Malaysia. In an attempt to address this issue, the government, through its caretaker, the Construction Industry Development Board (CIDB), tries to make an effort to stimulate a paradigm shift in the construction process from the traditional or conventional method to an industrialised approach. On that account, the government has to continue to support the adoption of IBS, since IBS is proven can reduce the overall construction cost and dependency on foreign labour.
Introduce IBS course at the university level
PEPS hopes the government introduces an IBS course where the content of modules is formulated with the cooperation of various professional bodies representatives at local and private universities in Malaysia. This course will facilitate government and private project implementors in commencing IBS projects. This is because such an approach from an educational level would produce workforces that are well equipped with the knowledge and perhaps hands-on experience and exposure in the industry of IBS from the final year of their study.
Continue tax incentives for IBS manufacturers and contractors
The government to continue the tax incentives for both IBS manufacturers and contractors, while at the same time offering a more favourable investment tax allowance. From 2015 to 2020 under Construction Industry Transformation Programme (CITP), the government has offered IBS Promotion Fund by SME Bank, exemption import duty for heavy machines, and major tax incentives have been offered to IBS implementors. According to a media statement released by CIDB, construction productivity increased by 60% under the CITP program. Hence
Amend the CIDB Act 520 to be inclusive of IBS guidelines
PEPS Budget 2022 wishlist is that the government shall amend the CIDB Act 520 to be inclusive of IBS guidelines. This is to provide a more comprehensive policy on how the requirement and policy of IBS shall be done by construction players. The current CIDB Act mainly focuses on construction quality and safety of buildings.
Make it a compulsory requirement to incorporate the IBS guidelines for all low-cost projects in Malaysia
PEPS Budget 2022 wishlist recommends the government enforce compulsory rules for all low-cost projects in Malaysia to incorporate the IBS method in their development to increase its adoption. There are several public buildings and residential properties built from the IBS technology. However, the implementation of IBS in the commercial and industrial sectors is still very low.
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