Budget 2018: How will it propel the property industry?

Updated 07 Nov 2017 – By Caitlyn Ng


When Budget 2018 was announced on October 27 2017, Malaysians tuned in to see where a chunk of the nation's funding will flow to. Facing a tough election battle ahead of him, Malaysian Prime Minister Datuk Seri Najib Tun Razak (who is also the Finance Minister) declared that this was the "Mother Of All Budgets".

The reason for coining such a term was simple: "It is holistic, filled with philosophy and contains various premises which form the basis of a comprehensive budget," he explained during his presentation.

While the RM280.25bil allocation for next year (an increase from this year's RM260.8bil) will no doubt be beneficial to all, we decided to take a closer look at some of the key announcements that will propel the property industry in the coming year.

1) Affordable housing

Owning your first home may just be a dream that's closer than ever, with a budget that partially addresses the local housing woes. Firstly, the Government is aiming to intensify efforts to further increase home ownership for Malaysians with an allocation of RM2.2bil for the following efforts:

A sum of RM200 million is also to be allocated for maintenance and refurbishment of houses, including the 1Malaysia Maintenance Fund.

Furthermore, PR1MA's step-up financing scheme will be extended to private housing developers as well, so as to encourage the construction of more affordable homes. For those not in the know, this scheme allows you to pay less in mortgage installments during the early years when your income is still low, and then gradually increase the amount of repayment in tandem with your income increments over the years.

This move, however, will be subject to certain criteria which have yet to be announced. As such, not much can be deduced for now, except for some hypotheses that the scheme may only be made available to borrowers whose income falls below a certain level, or are only for properties that are classified within a certain price point.

To see the full list of affordable housing projects that are available in Malaysia, you can refer to our Malaysia Affordable Housing Guide Part 1 as well as Malaysia Affordable Housing Guide Part 2.

How will it affect you: While there are no further details, if the scheme for private housing developers is to be similar with PR1MA’s step-up financing, then you can expect to pay only the monthly interest for the first five years and then from the sixth year onwards, the principal amount is added on until the entire loan is paid off.

For example, you’re 30 and have been working for the past 8 years. With a current salary of RM5,000 a month and no outstanding loans, you want to purchase your first property. You’ve found your dream home from IJM Land with a price tag of RM600,000. Under a similar step-up financing scheme, the following scenario will occur:

Loan amount: RM600,000
Loan tenure: 30 years
Interest rate: 4.58%
First five years payment (Interest only): RM131,729
Subsequent years payment (Interest + principal): RM3,068 x 300 months = RM920,400

As can be seen, the first five years payment (interest only) would mean that you only need to fork out roughly RM2,195 per month. This equates to about 44% (within the maximum DSR qualification range), a healthy rate. After which, when you start earning more, you’d be able to comfortably pay off the higher amount from the sixth year onwards. 

2) Rental market

For the first time in Malaysia's 60 years of independence, the Government is taking steps to promote the rental of residential homes. A 50% proposed tax exemption on rental income could mark the beginning of stimulation for the housing rental market.

Note that this exemption is only for residential properties belonging to Malaysians living in the country and on rental income not exceeding RM2,000 per month. It will also only be effective from the year of assessment of 2018 to 2020.

The Government is also looking to formulate the Residential Rental Act to protect tenants and owners. Once the Act is in place, it will help to provide clarity to the rights of both the landlord and tenants, which is indicative of the focus shifting to strengthen the rental market in the coming years.

However, not all parties laud this effort, with the Property Management, Valuation and Estate Agency Surveying (PMVS) Division of the Royal Institution Of Surveyors Malaysia (RISM) being one of them. As the tenants are the ones who are mostly in need of assistance, RISM believes that the tax exemption should be granted to them instead. However,

How will it affect you: If you are currently the proud owner of a property where the rental market is priced at RM2,000 and below, rejoice! The scenario below is why:

3) Disposable income

Millions of Malaysians now get to enjoy lowered income taxes, with the mid-income range taxpayers emerging as the main group to benefit (also known as ‘M40’). Najib announced that individual income tax rates would be reduced by two percentage points for those earning in the RM20,000 to RM70,000 band, as follows:

This measure enables Malaysians to have more disposable income from between RM300 to RM1,000 totalling to an estimated RM1.5bil additional disposable income.

How will it affect you: If you’re planning to invest in a home, then this move by the Government would surely be a welcomed one since you would be able to have additional cash-on-hand from anywhere between RM300 to RM1,000. This can then be used help you with the rising cost of living, or saved up towards your first home.

To conclude

Whether this budget is one that will serve to propel the Malaysian property market to better times remains to be seen. Don't forget to use our Home Loan Calculator to better visualise your monthly installments and other entry costs that may be involved should you be wanting to purchase a property in the near future thanks to the latest announcements in Budget 2018!

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