Malaysia Budget 2017 is looming up and there are already signs in the market that significant changes are coming along. The Statutory Reserve Requirement (SRR) Ratio was reduced from 4% to 3.5% in January 2016, EPF contributors were given the option to reduce their compulsory contributions from 12% to 8% in February 2016 and the Overnight Policy Rate (OPR) was reduced by 0.25% in July 2016.
In layman’s terms, the above actions by the authorities are clear indications that the government is trying to boost the people’s spending due to the weak local economy. The reduced SRR rates encourages banks to lend more, the reduced EPF contribution rates encourages the public to spend more and the reduced OPR translates to lower monthly mortgage repayments for existing loan holders.
Aside from spurring spending, these actions from the authorities may also have been triggered by the increasing household debt, which Malaysia scores one of the highest in the region at 89.1%.
Now to further complicate things, there are rumours of the Real Property Gain Tax (RPGT) increasing at the next elections - a rather daunting prospect for property investors. So here’s a look into the possible effects that might be felt by the buyers and sellers of the property market.
A Short History of RPGT in Malaysia
RPGT rates in Malaysia have been at its highest since the year 2014, with tax on the first 3 years standing at 30%, the fourth year at 20% and the fifth year at 15%. Prior to that, the only other time that the RPGT rates were almost as high was between the years 1995 to 1997, which was then followed by an abolishment of RPGT between the years 2008 and 2009.
The RPGT was then gradually increased again year-on-year starting from the year 2010 until it reached its peak again in 2014. Check out the Malaysia RPGT guide for a clearer idea of the Malaysia RPGT historical trend.
How will an Increase in RPGT Affect Buyers
The general consensus of an increment in RPGT is that it will not hurt genuine buyers. The move is generally meant to stop speculators from bulk buying and causing property prices to increase steeply. There are however a couple of side effects to this.
- Lesser New Developments to Choose From
While this phenomenon may not noticeably affect the market, there may be a delay in project launches due to the slow market sentiments. An example of this is Twilight Residences in Section 13 of Petaling Jaya which was supposed to be launched in the second quarter of 2016, and has now been delayed indefinitely.
If the property market is to stagnate further after the 2017 budget announcement, more developments may be put off which may amount to less choices for property buyers; although not significantly so.
- Increased Subsale Price
Prices of the subsale market may just increase in direct proportion to the RPGT charged, as sellers transfer the cost to buyers. As the owners of many newly completed projects which are in the market for sale are speculators, buyers who are really looking forward to owning a home of a particularly new project may have to bear the cost of RPGT.
The seller will be unable to sell without taking a loss when the development is newly completed due to RPGT if the development hasn’t crossed the 5-year mark, hence they will pass the cost on to the buyer.
- Great Discounts and Better Coming Along
Nevertheless, one of the best parts about a stagnant property market caused by an increased RPGT are the freebies and rebates that developers give out in an attempt to attract buyers. It is during this period that speculators with holding power profit the most, as they can bargain with developers to get better deals.
Some more exotic offerings that developers are offering now includes coloured themes, such as at The Opus in Kuala Lumpur where the buyer can choose a lighter or darker colour scheme. Other goodies include semi-furnished units where the typical unit nowadays come with built-in kitchen cabinets and hood and hob. Some of the higher end ones even boast higher quality sanitary ware such as Roca and Hans Grohe.
How will an Increase in RPGT Affect Sellers
Looking at the other side of the hand, how will an increased RPGT affect sellers? Property gurus have been going on about the property bubble bursting for many years now, a not very surprising fact as the property prices have flatlined since late 2015.
- Speculators Affected
Unfortunately for many speculators, they may have to hold on to their properties for longer than expected - which will affect those with no holding power. Those who own more than one investment property and are not able to settle their monthly mortgage loans will be the most affected.
This is a time where the number of bankruptcy cases may increase even more dramatically as new projects are completed, even as the age group for bankruptcy cases decrease.
- Selling Below Market Price
In order to avoid losses, some sellers may decide to just dump their property at the best price they can get; even if that means taking a loss. After all, being able to sell at below market price and at the same time reduce your loss is better than being labelled as a bankrupt and all the inconveniences that come with it.
Therefore, there is a possibility that the market might suddenly be flooded with very affordable properties upon more completion of new developments. This is also akin to the ‘property bubble’ that property experts have been forecasting for ages now.
Looking Apprehensively towards 2017 Budget Announcement
The budget announcement usually brings much apprehension, but maybe not so much as this time will - especially with the uncertain political climate. Many are expecting positive decisions, while others are apprehensive of the changes.
Among some of the hoped for changes are more affordable housing schemes, more tax exemptions especially on selected incentives and a tax rate revision. There is even some hope that the government might abolish the RPGT scheme.
But nevertheless, the property market has flatlined for the past year and is going through price correction; hence perhaps the government might decide that it is time for another bump in the property market. Anticipating the announcements, let’s sit tight and ride through the upcoming Budget 2017 report!