Reducing speculation in the property market

Given the comprehensive and wide-ranging nature of the Budget 2014 measures to rein in excessive speculation in the property market, all the stakeholders, irrespective of whether one is looking to buy or sell or acting as market mediators, are bound to be impacted in one way or other by the measures come Jan 1, next year.

The budget measures are among the most pervasive and some say “rather tough” on the market. Whether one is a potential house buyer, seller, developer or consultant, the multi-pronged measures have a good chance of influencing their decision making.

Tailored to promote a more stable and sustainable property market, the reinstatement of the full real property gains tax (RPGT), removal of developer interest bearing scheme (DIBS), affordable housing initiatives by the Government, and higher price threshold for foreign buyers will undoubtedly bring forth some major changes in both the demand and supply sides of the equation.

Market players, especially developers, will have to brace themselves for greater competition in terms of product offerings and pricing, targeting buyers and financing facilities.

For starters, more affordable residential projects are expected to be launched in the coming months since an incentive of RM30,000 a unit will be granted to developers who build such houses.

The profit on transaction within the first three years has been raised to 30%, 20% in the fourth year, 15% in the fifth year, while property held for more then five years will not be taxed.

This time around, foreign buyers are also feeling the brunt of these measures. Profit from their transactions within the first five years will be taxed at 30%, while transaction from the sixth year onwards will be taxed at 5%. The price bracket for houses that foreigners can purchase has also been raised to RM1mil from RM500,000.

In terms of financing facilities, developers can no longer offer products for sale under the DIBS, which means property buyers will have to bear the bank interest rates themselves during the construction period. Buyers can no longer just pay the minimum 5% or 10% deposit downpayment and only start to service their loans after the delivery of vacant possession of their property.

Top that up with the proposed 6% Goods and Services Tax come April 2015 and market players are practically staring at a slew of challenges ahead of them.

CB Richard Ellis (Malaysia) group executive director, Paul Khong calls the Budget a relatively tough budget especially for the property sector in 2014.

“The dismantling of DIBS will affect the new launches in the mid and mid-high end segments, especially in the high-rise residential market. RPGT, however, will cool off the entire market as it applies to all sectors and curb speculators looking for short-term gains,” he observes.

Speaking up for the developers, Real Estate and Housing Developers’ Association (Rehda) president, Datuk Seri Michael Yam says the measures to curb speculative activities in the market may disrupt the healthy and orderly growth of the property market.

Surmising the concerns of his fellow developers, Yam questions the necessity for the Government’s intervention.

“If the bulk of the market is controlled and subsidised to some extent in varying degree, should the Government be too aggressive in intervening in the free market spectrum of the housing market?

“The needs of the mass market is already taken care off, so shouldn’t those who wish to acquire a lifestyle and higher specification and prime location home be prepared to pay more? A one-size-fits-all measure applied universally may have drawbacks in that not only does it impact that which the Government aims to control, but it also affects negatively healthy market forces,” he concedes.

Yam explains that the price increase of property was primarily driven by cost-push factors (input costs of construction, particularly material and labour, land bought at market price, and compliance costs) and in some urban areas, an imbalance of demand and supply.

And in the longer term, inflationary pressure and lack of supply will continue to drive price, he contends.

“Fundamentally, data points to the overall shortage of supply compared with demand attributable to a growing population and increase in the house buying group. This is more acute in the economic centres of Greater KL, Penang and to some extent Iskandar region,” Yam says.

He points out the increase in RPGT would cause recent purchasers to retain ownership for a longer period beyond the five-year holding period, thus reducing supply into the sub-sale market. “As such, would-be purchasers of older properties would now turn their attention to the new supply market which could consequently tilt the demand and supply equilibrium and add to further price increase in high demand enclaves and landed housing,” he observes.

Giving the thumbs up for the budget initiatives, National House Buyers Association (HBA) honorary secretary-general, Chang Kim Loong says what Malaysia needs is a vibrant and sustainable housing market based on real demand, and hopefully, the anti-speculative measures will be effective in stabilising the market.

“We certainly hope the measures will stem the steep rise in property prices that has affected the lower and middle income groups that typically comprise property priced below RM200,000 for the lower income and up to RM500,000 for the middle income group.

“The higher RPGT will hopefully slow down speculative effects which has resulted in higher property prices in recent years. It will not affect genuine house buyers who buy for own occupation or for long-term investment. Besides, buyers of residential property can seek a once-in-a-lifetime exemption from RPGT,” Chang says.

Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS) president Lim Lian Hong voices his confidence that the measures should help the market to mature and market players will be responsible and considerate in their investments.

“Property will remain as a major long-term investment instrument and buyers will get better value for the money they pay for in comparison to the yields they may get. Capital appreciation will not be as astronomical as before but increase there will be,” Lim observes.

Concurring with Lim is Khong & Jaafar Sdn Bhd managing director, Elvin Fernandez who says the measures in the Budget are bold and needed, for the economy and the property market.

“The Government hopes to make the taxation system more efficient and in line with international practices. The right set of messages is sent and this should be followed with good implementation and continued consistency as we move forward,” he notes.

Calling for “taming the market until it is tamed”, Fernandez says if the measures do not bring prices closer to the underlying fundamentals, then further and additional measures should be taken.

“Such an overall strategy is the clear message that should be transmitted to market players. Tame until it is tamed.”

He says in the past, monetary policy by way of interest rates was the main instrument used to tame asset markets. But after the global financial crisis, most countries use macro-prudential measures directed at specific sectors, such as the property market.

On the proposed Goods and Services Tax (GST), Rehda’s Yam calls for greater clarity on its implementation.

“Although it is rumoured that residential properties may be GST exempt, developers would still need to bear the increased cost of input, which would be subject to GST and (there will be the) need to pass (on) the incremental costs. Thus, subject to further clarification, selling prices would need to be adjusted to account for the increased costs.”

Khong & Jaafar’s Fernandez says: “The GST, 17 months from now, has the potential of increasing the price of residential properties by 1% to 2%, but that too will depend on the state of the market at that time. If the residential market is buoyant at that time prices may go up, but if the residential market is not that buoyant and is in a steady state, it is likely that developers may just have to absorb the “input” costs.”

“Some input costs (sales tax) for building materials at present are at 5% so that means a 1% increase in the future, whereas others are at 10% and this will result in savings when the 6% GST comes into play.” - By Angie Ng (The Star)

No comments