Budget 2014: Property measures timely

PROPERTY consultants and analysts described the proposed new real property gains tax (RPGT) regime and the removal of the developers interest bearing scheme (DIBS) as both timely and much needed in view of the speculation in the property market of late.
All of them agree that the overall budget for the property sector is good and are of the view that the the new RPGT which imposes a 30% tax on gains within the first three years of disposal upon the signing of the sale and purchase agreement coupled with the removal of DIBS will help curb speculation. (See table)
The new RPGT, effective Jan 1, 2014, targets individuals and companies. It is a more stringent regime and has more bite than the previous regime.
Says BIMB property sector analyst Law Mei Chi: “Many have expected the RPGT. The impact will be on the secondary market and may slow down transactions. What is good from the budget vis-a-vis the property sector is the removal of DIBS.
“However, the increase in the RPGT might discourage some speculators but the strong holding power (of buyers) due to the low interest rate environment will provide a buffer for speculators to hold a property longer before disposing of it.
“The removal of DIBS may affect many high-end developers.”
Another analyst who declined to be named said he was “pleased” with the property measures in the sense that they were “lower than expected”. “At least there was no reduction in the loan-to-value (LTV) ratio to 60% or a rise in stamp duties,” he explained.
As for the removal of DIBS, he said he was not at all worried about that impacting developers negatively, as “they (developers) can still circumvent (the removal) with rebates.”
Meanwhile, the Association of Valuers, Property Managers, Estate Agents & Property Consultants in the Private Sector Malaysia (PEPS) publicity chairman James Wong said the new regime was a more effective anti-speculation tool. The previous regime involved a 15% tax in the first two years of disposal.
“Property is a long-term investment and this new regime actually promotes long-term investment among investors and, at the same time, also helps to prevent excessive speculation,” Wong said.
“Government revenue will also increase. In 2011, the revenue received from RPGT was RM1.24bil and this involved a tax of 10% for the first two years.
“In 2012, RPGT revenue is estimated to be between RM1.5mil and RM2bil. This increase will help to bring more revenue to the government,” Wong said.
Wong said the 5% tax on companies and non-citizens was also significant as it involved disposal from the sixth and subsequent years.
“This will stamp bulk buying by foreigners with speculative intentions. However, it will also affect Iskandar Malaysia, if there is excessive speculation there but on a longer time, it will bring confidence into that market. In the interim, there may be a slight slowdown in sales but in six months to a year, it will self-correct.”