If the only reason for higher RPGT is to stop foreigners flipping property for profit then it is a tax on an activity that technically does not exist in Malaysia.
Malaysia announced last month that real property gains tax (RPGT) will increase next year on 1 January 2014. The rates announced ( 30% tax on profits made on sale within 3 years of purchase) are twice the present rates and will be the highest ever rate of property tax since the introduction of RPGT in 1975.
The new rates will be:
A) For Malaysians:
Property sold within 3 years of purchase: 30%
Property sold in 4th year of purchase : 20%
Property sold in 5th year of purchase : 15%
sold in 6 th year and longer : nil ( personal) ; 5% ( company)
B) For Foreigners (including Permanent Residents and MM2H visa holders)
Property sold within 5 years of purchase: 30%
sold in 6th year and longer : 5%
Local homebuyers are mostly happy at the news (so we are told) because they hope higher property gains tax would lead to lower property prices.
Experts have assured citizens that an average middle-income wage earner who works and saves hard to buy a roof over his head can now get closer to his dream of owning a home and when he eventually sell his house to buy a bigger one (five years later) RPGT does not apply to him anyway.
The government said that such policy is not meant to target genuine homebuyers but is directed at foreigners and other greedy investors who take advantage of Malaysia’s cheap property and currency to make a fast buck. They say that such unbridled speculative flipping of property will lead to a property bubble and worse.
Malaysia’s house prices especially those of good areas in Kuala Lumpur, Penang and the heavily promoted “real estate tourism” hotspot of Iskandar Malaysia near Singapore have doubled in the past five years.
How much of the big price jump is actually caused by inflation, rise in cost of building materials, the diminishing ringgit, and the practice by Developers in marking up prices through creative marketing schemes including the soon to be banned “Developer Interest Bearing Scheme (DIBS), still unregulated “guaranteed rental return “ (GRR) scheme and the subsidizing of lawyers fees and other types of fees, is hard to say.
Even harder to know is the impact on prices by the government own policy of encouraging foreign buying by abolishing FIC approvals while setting a floor price at ringgit half a million (soon to increase to RM1 million) per unit for foreigners which in turn encouraged developers to build even more expensive apartments to meet the influx. Unlike shares, price of an apartment moves not with market average but with the last transacted price of similar property in the locality. So if a newly launched project sells higher to foreigners it will drive up prices for all similar accommodations in the area including older ones.
In any event, Kuala Lumpur despite its recent globalized outlook, still has strides to take in catching up regional property hotspots such as Hong Kong and Singapore. Property investors from overseas (aka speculators, sorry) will need time to understand the few idiosyncratic features of Malaysian property such as: how come it can take up to 4 month to get government consent to buy and up to 9 months to receive money on sale of a property?
These long waiting periods coupled with the fact that a foreign buyer of off-the-plan project property needs to first wait until the Property is fully built (up to 2 to 3 years) before he is allowed to sell show that foreign investors cannot legally “flip” property in Malaysia like they can in other countries. In other words, the RPGT hike is ostensibly to discourage an activity that technically does not exist in Malaysia.
Kerk Boon Leng