The new budget announced by Malaysian Prime Minister Najib Razak will have a significant impact on its property market, foreign investors and government coffers. The measures are multi-pronged which is meant to gain back ground that Barisan Nasional (BN) lost during the recent election. Foreign property purchasers will be significantly impacted as the real property gains tax (RPGT) hikes are quite hefty. The RPGT for the first two years has been increased from 15 to 30 percent. The rate has also been increased to 20 and 15 percent respectively from the fourth and fifth years. Previously it was 10 percent during the third to fifth year and no tax after five years.
These measures will deter speculation and will affect the subsale and resale markets. Foreign investors will have a hard time offloading their properties. Meanwhile, bumiputras can only sell in the resale market to fellow bumis and not foreigners. This will lead to a softening in the Malaysian price index. According to the last updated Malaysian Price Index from the Ministry of Finance’s Valuation and Property Services Department, in 2011, the Malaysian average was almost 140 points while those in KL are the highest breaching the 160
There have been complaints from first-time Malaysian couples that they had been priced out from the property market and this was a contentious issue during the recent Malaysian General Election. So much so that it led to the fall of Gelang Patah in Johor to the Democratic Action Party (DAP). Also the “My First Home Scheme” proved to be unpopular with very little awareness and take up rates from locals. This caused a huge loss in votes for BN.
To correct the anomalies in the property market, BN appears to follow the policies in opposition-held states, like in Penang held by the DAP by increasing the minimum purchase price for foreigners from RM500,000 to RM1 million. It is also offering more help for low- to middle-income families. For example, families earning less than RM3,000 will get RM650 in cash, up from RM500. Individuals above the age of 21 earning less than RM2,000 will get cash hand outs up from RM250 to RM3,000. Middle-income families earning between RM3,000 to RM4000 are also not forgotten with RM450 in cash handouts. These measures will help first-timers to finally get their foot in the property market.
The budget specific to the property market will likely be temporary until the price index drops significantly so that property prices will be in tandem with wages. This is a win for Malaysians on the whole. Property markets that will be affected are those popular among foreigners like Penang, Kuala Lumpur and Johor, including Iskandar Malaysia. Moving forward, Budget 2014 is pro-Malaysia and is good for locals. For foreigners, those looking to invest long term should still continue by taking advantage of the “Malaysia My Second Home Scheme”. However, the resale market will be very challenging for them.
This article was first published on PropertyGuru Singapore.