HwangDBS: Hike in RPGT could push up property prices

by **Cals** Thu 17 Oct 2013, 10:47

Business & Markets 2013

Written by Levina Lim of theedgemalaysia.com

Thursday, 17 October 2013 10:05

KUALA LUMPUR: HwangDBS Vickers Research said higher real property gains tax (RPGT) may push property prices higher instead of reining in speculation, and suggested instead curbs on incentives such as developer interest bearing schemes (DIBS).

It said in a report that while it understands the government’s need to be seen to be actively reining in property speculation, it does not advocate raising RPGT which “had relatively short-lived impact in the past and could push house prices higher as sellers may pass on the incremental costs to buyers”.

RPGT is currently levied at 15% for disposal within two years and 10% for disposal within three to five years compared with 5% to 30% prior to Budget 2010.

Note that there has been speculation that the coming Budget 2014, to be announced on Oct 25, may include a hike in RPGT rates.

HwangDBS added that higher RPGT could also spur sellers to postpone disposals and developers to hold back launches in view of weaker sentiment, leading to even tighter supply in the market.

It said while raising stamp duty may have a bigger impact, sellers would also try to pass on the incremental costs to buyers.

“Any hike will not only affect new projects but also those under construction — especially strata-titled and projects under master title whose titles have yet to be transferred.

“It could spur sellers to postpone property disposals and developers to hold back launches in view of weaker sentiment, leading to even tighter supply in the market,” it said.

The research house said first- and second-home buyers should be spared from any tightening measures, in line with the government’s aim to promote home ownership. According to the investment bank, tighter regulations are likely to have the unintended effect of discouraging home ownership instead of curbing speculation.

Tightening measures in 2013 included a reduced tenure for cash-out from refinancing to a maximum of 10 years (which was previously based on typical mortgage tenure) and a reduced loan tenure to a maximum of 35 years or age 65 from a previous 40 to 45 years or age 70 years.

It added that reducing the loan-to-value cap for a second property would affect genuine upgraders, who may find it challenging to pay a higher downpayment while waiting to sell their existing properties.

“This could reduce supply in both the secondary and the primary markets as developers may also delay launches due to poorer take-up,” it explained.

According to HwangDBS, house prices in Malaysia have proven to be resilient in the past, driven by inadequate supply to meet overwhelming demand for landed property and prime areas. “House prices have risen by 31% over the past three years as residential sales value and volume hit record highs of RM67.8 million and 272,699 units in 2012 (47% and 64% of overall property sales, respectively), and new supply has also declined sharply since the global financial crisis,” it said.

It highlighted the need to address the root cause of high property prices and attributed high prices to shortage of supply, marked up prices for new launches, demographic changes, rising construction and compliance costs.

Instead, HwangDBS suggested curbs on primary market incentives such as DIBS, unreasonably high discounts and guaranteed rentals, among others to rein in property speculation.

However, despite higher prices, HwangDBS said it does not think there is an asset bubble as affordability remains high with rising income levels, and a still healthy household debt to assets ratio of around 40%.

HwangDBS expects house prices to continue to rise at a modest 3% to 5% per annum over the next two to three years as new supply trickles in and cheap liquidity dissipates against weakening demand.

Its top picks for the sector are Pavilion REIT, KLCC Property Holdings Bhd, Wing Tai Malaysia Bhd and Eastern & Oriental Bhd.

This article first appeared in The Edge Financial Daily, on October 17, 2013.