With a number of Asian countries bracing for a potentially devastating asset bubble burst, Malaysia is also rolling up its sleeves if the Budget 2014 measures were to offer a glimpse of the Government’s foresights.
The measures are meant to deter speculators and promote a more stable market that is driven by real demand. Although generally applauded by various stakeholders for its noble intentions, there are also some apprehension as to the measures’ potential impact on the property market.
Real Estate and Housing Developers’ Association president Datuk Seri Michael Yam says while the measures are meant to curb speculation, they may also dampen the market as a result of slower velocity of transaction, even though prices are not expected to fall but to remain flattish.
Yam says in the medium to longer term, the short-term knee-jerk reaction to delay decision to purchase may lead to an acute spike in demand, if supply does not keep in step. “However, those in the mass market should be less concern about this possible scenario as the Government’s strategy and incentive to supply affordable housing would ensure that those who cannot afford premium property would not be impacted,” he explains.
He says while the higher RPGT rate would discourage speculative activities, its potential effect will be rather limited, since only RM18bil (assuming 10% of this is speculation or only RM1.8bil or less than 3% of the RM68bil market) is in the total new residential sales market in 2012.
“It will impact the secondary market more. Recent owners and future buyers are expected to hold onto their property beyond the five-year period, thus reducing the availability of stock in the secondary market which accounts for 70% of the total value of residential transaction in 2012.
“Less supply with no change at best, or at worse increase in demand leading to further price increase. Likewise, if intending purchasers can’t buy old property, they will turn their attention to the primary market, thus increasing demand for new properties,” he points out.
Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS) president Lim Lian Hong believes the measures would be able to prevent people from over-committing themselves and driving prices up to astronomical heights.
“It will immediately curtail flippers of both commercial and residential property. As such, the measures will be able to put sanity back into the property market and prevent a property bubble where prices have risen beyond the reach of the masses and the income level of the population,” Lim says.
Lim, however, stresses that the effectiveness of the measures will “really depend on the liquidity situation”.
“Loan availability, employment and income factors are paramount in determining property prices. It’s money that drives up property prices. It’s such an obvious statement but the availability of money is a factor of employment, banking policies as well as fiscal policies on lending. So, effective or not, it is in the control of money supply by the government and ultimately the central bank,” Lim concedes.
Managing director of property consultancy Khong & Jaafar Sdn Bhd Elvin Fernandez says with the budget measures all excessive speculation is expected to subdue fairly substantially.
The property market as a whole will move closer to its basic fundamental relationship with household incomes and long-term rental returns (for residential properties), and long-term rental returns and returns from business operations for commercial and industrial properties.
Fernandez does not expect prices of residential properties to rise in the near term as the slew of measures take effect.
CB Richard Ellis (Malaysia) group executive director Paul Khong concurs that the two measures will “surely curb speculation in the local market”.
Khong says the reinstatement of the full RPGT will obviously impact all types of properties as it was designed to curb speculation.
Investors and house buyers will now take this tax into consideration before making any purchase decisions.
“The measures will control the sharp rise of all segments of the markets. The dismantling of DIBS is an immediate measure to curb new investors from the cash-flow angle, while the RPGT affects investors’ decisions in terms of his investment tenure.
“The higher tax will cut off short-term players looking for attractive capital gains.”
Nipping the bud
However, with the escalating cost of development land and construction materials, there will still be pressure on house prices to move northwards, albeit on a slightly lesser degree, Khong concedes.
He says the categories of buyers called “the flippers” who are forced to sell down by year-end may flood the market with properties which they need to off load to escape the RPGT.
“The property market will stabilise further and many existing speculators will be looking to exit the market by year-end or be subject to 30% RPGT next January.”
He says while property prices will be affected slightly, there will not be a substantial drop as the difference between the current and the latest RPGT rates is just about 15% of the net gain.
“Investors will not loose any money due directly to this measure but will merely gain slightly less.”
The higher RPGT levied on foreigners will hit those who are in the market for short-term gains, and they may now look for a quick exit by year-end or be subject to the new rates come 2014.
Khong believes property prices will stay flattish for the next six months to a year, and that many investors will defer their decision to purchase until they come to accept the new changes.
The medium and high-end condos will be affected; with many speculators and short-term investors likely to reconsider their options. Some may just stay away.
Khong says the higher price bar for foreign buyers of RM1mil will impact the mid-level segments of the residential market and not the luxury end products.
“In the Klang Valley, most of the residential properties are already moving above the RM1mil mark. A two-storey terrace house in Sri Hartamas costs RM1.5mil now.”
He says new projectssuch as studio or one-bedroom apartments which are about to be launched priced below RM1mil will be impacted.
“However, it may not be substantial as the majority of the local residential projects usually have less than 30% foreign buyers. Projects affected would largely be in the Klang Valley, Penang and Iskandar, locations which are popular among foreign investors,” he says.
Meanwhile, National House Buyers Association (HBA) honorary secretary-general Chang Kim Loong opines that while the higher tax on profits will cut investors’ profits when they exit the market, the entry cost side has not been addressed.
He says the best way to control the entry cost to deter speculation is a review on the stamp duty payable for the transfer of property.
The present stamp duty payable does not deter speculators as the rate imposed is the same regardless of the number of properties already held or bought.
“The low stamp duty regime has been misused by speculators to accumulate multiple properties, driving up these prices by creating false demand and denying genuine buyers the opportunity to buy such properties.”
To nip speculative tendencies, he urges for a higher flat rate to be imposed on the third and subsequent properties, although the current scale can still be used on the first two properties.
Allaying market concerns, Chang says: “The HBA-proposed stamp duty would not cause any disruption to genuine house buyers who can only afford to buy two properties in their lifetime (one for own stay and one for long-term investment). On the other hand, property speculators would be discouraged as the stamp duty will greatly increase their entry cost,” Chang explains.
According to Rehda’s Yam, the higher-end premium segment of the housing market and large built-up apartments bought for investment may be most affected by the measures. Commercial strata offices which are bought by investors for recurring rental income may also see a lull.
Property in highly sought after addresses and landed housing are not expected to be affected although the rate of price increase is likely to be at a slower pace. - The Star
