POLICY 7

Year 2013 will be continuously a challenging year for most property investors in Malaysia. Since last year we have seen many improvised guidelines imposed by Bank Negara Malaysia (BNM) to rein property speculation such as loan-to-value ratio at 70% for third and subsequent property purchased and loan processing based on net income instead of gross income previously.

Starting this year onwards, the real property gains tax (RPGT) for residential property disposed within first two years from the date of purchase has been increased by 5% to 15% and from 5% to 10% for disposal between the third and fifth year. These new rates were tabled in the parliament during the Budget 2013 announcements in last October 2012 by Prime Minister Datuk Seri Mohd Najib Razak.

Basically,RPGT is a tax structure for investors who wish to dispose their property and gain profit out of it. RPGT may apply upon disposal of second property or subsequent property disposed. The tax that will be paid to Inland Revenue Board (IRB) is calculated based on net profit or the price difference between purchase and selling price. Plus, investors who are eligible under the RPGT is no longer required to pay income tax.

Since the announcement, we have heard mixed reaction from the industry players mainly developers and estate agents as well as investors. What I agree the most is the increment will not have significant impact to the property market especially to property prices. The impact is viewed as a “mild” cooling measure and most likely to have similar form of impact with the previous increment.

Within the analysis, the 30% rate caused a severe impact only for the RM500,001 and above housing segment by more than 20% decline in average price per transaction in 2007. Hence, this segment is more receptive to RPGT while below RM500,000 housing segment is forecasted will have a moderate impact on property purchase due to the bulk of the purchasers are transacted by locals.

However, factors such as increasing demand for own occupancy, less supply of affordable homes ranging between RM250,000 to RM400,000 in certain areas near central business districts (CBDs) further support this segment to be irresponsive to RPGT and continuously keep contributing to price hike too.

One key takeaway point for investors is that RPGT was imposed by the government is a policy purely to fight against excessive speculation as well as to curb price overheating in order to encourage investors to own a house and stay in Malaysia. As Malaysian property market is suitable for medium to long-term investors as it takes at least five to seven years in order to reach maturity stage.

Not many people know the good thing about Malaysian RPGT because its sound negative in the eye of investors. In fact, RPGT will give a better tax-relief option for investors instead of being taxed under income tax where the rate is much higher. Moving forward, it is safe to say that the new RPGT rate of 15% for the first two years will not have much impact on property prices especially for RM500,000 and below housing segment.

As a conclusion, RPGT is still a “liability” for investors. House buyers who wish to dispose their property should take note of the new RPGT that takes effect on January 1, 2013. By having such regulatory measures, Malaysia wanted to be recognised as a second home to foreigners rather than a playground for short-term speculators.

180

160

140

120

100

80

60

40

20

0

Index

RPGT

172.08

136.35

95.73

152.74

125.85

96.85

Figure 5: Malaysian House Price Index by Segment, 2004 - 2013f

(30%

) 200

4

(30%

) 200

5

(30%

) 200

6

(30%

) 200

7

(0%

) 200

8

(5%

) 200

9

(5%

) 201

0

(10%

) 201

1

(10%

) 201

2e

(15%

) 201

3f

Source: NAPIC, MPI Research

2004 = 100

by Hazrul Izwan

CHANGING THE

OF MINDAn analyst’s views on the impact of real property gain tax (RPGT) on Malaysian property market

STATE

“Malaysia is preferred as a

second home to foreigners rather than a playground

for short-term speculators

Legend: Overall: Avg. price / transaction Below RM500,000: Avg. price / transaction RM500,001 and above: Avg. price / transaction Note: e = estimates f = forecast