Budget 2014: Property Sector Hit Hard by RPGT and DIBS ruling

As widely expected, property sector would be one of the hardest hit sector in view of the proposed cooling measures to be imposed. Out of the 3 tightening rules forecast by Finance Malaysia, 2 already Bingo! (Read our previous articles regarding property sector "3 Tighter Rules for Property Sector?" and "3 Critical Factors to watch out by Year End")

These cooling measures announced highlighting that government will not hesitate to curb property speculations and to ensure a affordable property prices. Of course, property developers will be the one screaming painfully.

The 3 Key Measures:

1. Higher Real Property Gains Tax (RPGT)
   This was the 3rd consecutive year government raised RPGT. Even said so, it was just reinstated back to its original rates since 2007. The different this time compared to previous rounds was different set of rates to be imposed on different categories of buyers as shown below:
   
   
   
   
   
   
   
2. Banning DIBS
   As predicted by us previously, DIBS was deemed to be one of the key motivating factor for speculators, thus pushing up property prices to current level. By banning DIBS, it will effectively diminished the speculative interest as the cost of investment increase with interest payment during construction period. It's good to genuine and first-time house buyers.
   
   
3. Higher minimum Purchased Price for Foreigners
   To minimized influx of hot money shoring up local property prices, government raised the minimum purchased price to above RM1mil from RM500k per unit. However, this doesn't impact the market much because most properties purchased by foreigners are above RM1mil. Nevertheless, foreigners' favorite investment hotspot, such as Iskandar or KLCC or Mont Kiara area would be affected.

Would this be the end of property up-cycle?

3 Tighter Rules for Property Sector? (Sept 2013)

Prior to Budget 2014 (to be tabled next month), speculation has rift up on a few proposal to tighten the rules, especially on property sector. Following the outcry from public stating the alarming high property prices, measure should be taken to tackle the issue before bubble was formed.

The Bubbling Biz...

Among the measures being proposed were:

1. Non-other than Real Property Gain Tax (RPGT)
   
   
   
   
2. Higher Stamp Duty:
   ~ 5% of purchase price for 3rd property
   ~ 7.5% for 4th property
   ~ 10% for 5th property onward
   
   
3. Loan-to-Value ratio reduce to 60% for 3rd property onward
   
   

While the above info need to be ascertained further, some banks already implemented their in-house ruling. What's that? It was to limit the maximum term for refinancing of property to 10 years. Yes. Sooner or later, all of the banks will follow.

* Please note that the above 3 rules need to be ascertained further. Stay tune!

[Property] 3 Critical Factors to Watch Out by Year End (July 2013)

Ever since the property boom started in 2009, right after the global financial crisis, investors were laughing to the bank. But, can these sustain until next year? Many analysts doubt so. Why?

The most crucial determining factors might uncover itself in the next few months, approaching year end. In short, we have summed out to the below 3 critical factors:

1. Banning of DIBS
   This is not a secret anymore. Speculation rife up recently, saying that BNM may ban the Developer Interest Bearing Scheme (DIBS) by year end. BNM is studying the implications of DIBS which benefiting speculators more than serious buyers. Note: Singapore already banned such scheme few years back.
   
   
2. Interest Rate hike
   BNM also may revised the Overnight Policy Rate (OPR), which determine the cost of financing in the country including Base Lending Rate (BLR) for mortgage loan. A 25 basis points hike was expected. This will affect all type of loans, except fixed interest loans. Let's get prepare for higher monthly loan installment amount.
   
   
3. Higher RPGT
   Coming this 2014 budget to be tabled on 25th Oct, watch out for higher Real Property Gain Tax (RPGT). Currently, it was 15% for first two years and 10% for disposal from 3rd year to 5th year. Note: RPGT was much higher before 2008.

In our view, once DIBS was banned, developer no need to bear the interest, financier no need to bear the risk, new launching properties should be selling at lower price. Then, this is bad news for existing property, especially bought under DIBS before?

Example, phase one selling at RM500k under DIBS, phase two selling at RM500k without DIBS. No effect?

Think again... More supply now releasing for secondary market, assuming phase two also selling at same price, which is very good already. Right?

New Fund: AmAsia Pacific REITs Plus

Do you remember the AmAsia Pacific REITs fund? I'm sure you have heard about it. Yes, backed by its success story, AmInvestment Management Bhd has launched a new version called AmAsia Pacific REITs Plus. The word "Plus" is used as a continuation of the AmAsia Pacific REITs and the fund may invest in listed equities in the real estate sector.

The fund aims to provide regular income and to a lesser extent capital appreciation over the medium to long term (at least 3 years) by investing in real estate investment trusts (REITs) and equities in the real estate sector.

What's the strategy?

Minimum 70% in REITs and a maximum of 29% in listed equities in real estate sector, which are in the Asia Pacific region. This is the asset allocation of the fund. Diversification in terms of country and different REITs sub-sectors (etc. residential, commercial and industrial) is expected.

An active allocation strategy will be employed by fund manager, based on macroeconomic trends and REITs market outlook of respective countries in Asia Pacific region. Meanwhile, bottom-up security selection strategy will be used for equities, with focus on undervalued companies.

Who is suitable for this fund?

• Those who wish to have investment exposure in real estate sector through a diversified portfolio of REITs and real estate equities in Asia Pacific region.
• Those seeking regular income and to a lesser extent capital appreciation over medium to long term

What's AmInvest aiming?

4% payout on yearly basis, which AmInvest said is achievable and is higher than fixed deposit rate offered by banks. AmInvest favors Australia, Singapore and Japan for REITs and China, Indonesia and Thailand for listed equities.

Click here to download the fund prospectus

A Malaysian Guide to Home Buying Fees & Charges

Like any other country, buying a house and taking a home loan / mortgage in Malaysia involve legal fees & charges - which many people fail to take into consideration especially when they’re buying a property for the very first time.

So to all Malaysians buying your dream houses right now, allow iMoney to show you ALL the fees and charges involved when you buy a house or apply for a home loan.

13th General Election and the Property Market

General Election is coming. One of the hotly debated topic would be the escalating house prices and the needs to provide more affordable houses to Rakyat. In line with that, iProperty.com has done a survey on "The 13th General Elections and the property market" with 2275 Malaysians respondents. What did they said?

Created by Iproperty MY, the number one website in Malaysia. Whether you have a house for sale or are looking to buy.

Budget 2013: Election or Rakyat centric?

General election is around the corner. External environment was not so promising, following the no ending of European debt crisis, world economic slowdown, and recent tension between China and Japan. I believe all of these would be some key factors being taking into consideration to formulate the Malaysia Budget 2013.

Goodies? Bonus? Cash handout?

Themed as "Prospering The Nation, Enhancing Well-Being of the Rakyat: A Promise Fulfilled". Our prime minister, who is also Finance Minister, tabled the 2013 Budget at Dewan Rakyat yesterday. Over here, Finance Malaysia blog would only touches on some key points:

• Economic growth projected to expand between 4.5% - 5.5%
• Federal Government's revenue in 2013 is estimated to increase to RM208.6 billion
• Continuation of BR1M of RM500 to households earning not more than RM3,000 a month and also extended the aid to cover a payment of RM250 for single unmarried individuals aged 21 and above, earnings not more than RM2,000 a month
• RM 16 million a year group insurance scheme for registered hawkers and small businesses for coverage of up to RM5,000
• FM: Once again goodies were dished out to created a feel-good factor for govt and we doubted whether Msia could achieves the 4% budget deficit target in 2013. Anyway, govt could still succeed by increasing the revenue by using these goodies. How? Very simple, that's to entice the non-registered self-employed and businesses to registered so that they are accountable for their earnings.

Spurring retail bond/sukuk market:

• DanaInfra Nasional Bhd to issue retail bonds worth RM300million by end-2012 to finance MRT development projects
• Additional expenses incurred in issuance of retail bonds and retail sukuk to be given double deduction for a period of 4 years from YA2012 to YA2015
• Individuals investors given stamp duty exemption on instruments relating to transactions of retail bonds and retail sukuk
• FM: It's very clear and straight forward that the govt want to see the soon-to-be launched retail bond/sukuk market to prosper, thus, attracting more foreign funds to the country to make it more vibrant and liquid.

Youth-centric offers:

• A one-off rebate of RM200 for the purchase of one unit of 3G smartphone from authorized dealers for youths aged between 21 to 30 years old with monthly income of RM3,000 and below.
• PTPTN loans: 20% discount for full repayment of loan; 10% discount for regular repayment.
• RM250 1Malaysia book voucher for students studying at institutions of higher learning
• FM: It seems too good to be true for PTPTN borrowers. But, it was attractive for probably 1% of them only. Why? We must remember that they borrow because they doesn't have money in the first place, not because they want to leverage. Do you get my meaning? Or, does govt scared if opposition coalition will void all outstanding loans if they took over?

Addressing the skyrocketing property prices:

• RM500 million by PR1MA to build 80,000 houses in major locations nationwide with selling price ranging between RM100,000 and RM400,000 per unit. Among the locations are KL, Shah Alam, JB, Seremban and Kuantan.
• MyFirst Home Scheme will be enhanced by increasing the income limit for individual loans from RM3,000 to RM5,000 per month or joint loans of husband and wife of up to RM10,000 per month.
• Real Property Gains Tax (RPGT) for properties disposed within 2 years will be taxed at 15% (up from 10%) and 10% for between 3rd to 5th year (up from 5%), whereas other term remained unchanged.
• FM: For us, we think that 15% RPGT is still too low if compared to pre-2007, where RPGT for first 2 years disposal was as high as 30% and 25%. Meanwhile, MyFirst Home Scheme was very tough to get it, as far as we concerned. Once again, good luck to those potential property buyers.

Changes to personal income tax:

• Individual income tax rate to be reduced by 1% for each grouped annual income tax exceeding RM2,500 and RM50,000.
• Tax relief on children's higher education scheme (SPNN) increased to RM6,000 per person (from RM4,000 previously).
• FM: The 1% tax reduction seems more effective to help out those mid-income earners, although it's not much. However, we are disappointed once again for the unchanged REITs withholding tax structure which makes M-REITs less attractive compared to regional REITs.

Government servants is the BIG winner AGAIN!!!

• Minimum pension to be increased to RM820 for those who had served the govt for at least 25 years. More than 50,000 pensioners benefited.
• 1.5 months bonus for civil servants.
• FM: Well... Nothing much we can say about it. This is a govt budget. What's wrong if govt servants being the beneficiary? But, should it be again and again? Hmmm...

"Stocks-to-watch" for the coming Monday:

• Genting, GENM, JTI, BAT on the surprise unchanged sin taxes
• Construction companies on the River of Life projects, EPP projects and schools upgrade
• Consumer related players on the expected extra spending by govt servants with bonuses
• Low cost housing developers (etc. Hua Yang) for possible contracts by PR1MA
• Financial institutions with investment banking arm for the launching of retail bond/sukuk market

New IPO: IGB Reit

IGB REIT comprises of Mid Valley Megamall (retail; 1.72m sf NLA) and the Gardens Mall (retail; 0.82sf NLA) with a total appraised value of RM4.6b. Currently, Mid Valley Megamall is 99.8% occupied and the Gardens Mall is 99.7% occupied. Based on the IPO price of RM1.25, IGB REIT’s market capitalization would be RM4.3bn, making it the largest pure retail M-REIT. Following closely behind IGB REIT in terms of market capitalization size is Pavilion REIT (RM4.08b), Sunway REIT (RM4.02b) and CMMT (RM3.02b).

What are the key selling points for IGB REIT?

1. Prime asset with strategic location, huge catchment area and well connected transportation networks.
   
   
   
   
   
2. Diverse based of tenants to sustain rental income.
   
   
   
3. Low gearing provides ample room for acquisition growth. Based on IGB REIT’s Pro Forma Statement of Financial position, IGB REIT’s gearing ratio upon listing will be approximately 25.8%, which is below the average of listed MREITs of approximately 29.2% as at 31 Dec 2011. Hence, for future acquisition, IGB REIT has the flexibility to borrow additional RM1.1bn before reaching the statutory gearing level of 50%.

What's the fair value?
As shown below, different research house gave different fair value by using different method of valuations. To summarize it, the fair values estimated could give investors an upside potential of between 7.2% - 16%. Does this enough for you to consider to subscribe this IPO? Anyway, only 1% of the shares were being allocated to retail investors. Good luck.

Source: Various research report

New IPO: Sentoria Group

Sentoria Group Berhad (Sentoria) is principally involved in two complementary core business divisions, namely property development and leisure and hospitality. Its property development business division specializes in township developments and resort city developments, while the leisure and hospitality business division owns / leases, manages and operates the hotels / resorts and theme park facilities and attractions.

Its Bukit Gambang Resort City (BGRC) leisure and hospitality facility in Kuantan is the largest integrated resort city in Malaysia that resides on a 547-acre land area and features multiple attractions in a single location.

The Listing Exercise

Future Income Generating Plan...

Looking ahead, Sentoria plans to enhance its recurring income stream from BGRC, by adding new attractions such as Safari Park, Aquarium Park, Adventure Land, and expand the MICE division by constructing a grand ballroom with 3,050 pax capacity to increase the average revenue and length of stay per visitor. Product mix will also be expanded by constructing themed villas (Global Heritage South – Amsterdam, Venice, and Barcelona villa etc) in BGRC, and commercial properties to add development value to acquired land.

As for its property development division, the company is currently looking for opportunities to diversify to other states, such as Selangor and Negeri Sembilan. Currently, it has 237 acres of land, mainly in Kuantan and BGRC, with an estimated GDV of RM1.48bn.

How did Singapore's Cooling Measures Impact Malaysia's Property Sector? (Dec 2011)

On 7th Dec 2011, the Singapore government announced that it would impose an Additional Buyer's Stamp Duty (ABSD) to moderate investment demand for private residential property and promote a more stable and sustainable market. This is needed in view of the stubbornly high inflation rate in Singapore amidst the slowing demand from developed markets. For those who don't know, inflation rate in Singapore was mainly contributed by surging property prices.

The ABSD was effective 8 Dec 2011. After the announcement, property-related stocks slumped last week, following by a slump in banking stocks because of an expected slower housing loan growth. The latest measures are a near-term negative for property developers with an anticipated trend in lower average selling prices and transactional volumes, which will hurt profitability. Nevertheless, most large-cap property developers in Singapore are relatively well diversified, not just across sectors (industrial and commercial), but also geographically.

Under the latest cooling measure, the ABSD will be added on top of the current Buyer's Stamp Duty, and apply to the purchase price or market value of the property (whichever is higher) according to the type of purchase as below:

1. ABSD of 10% for foreigners and corporate entities buying any residential property
2. ABSD of 3% for permanent residents who already own one property, and buying the 2nd and subsequent residential property
3. ABSD of 3% for Singaporean citizens who already own 2 properties, and buying the 3rd and subsequent residential property.

What's the Impact on Malaysian Property Sector and Developers?

Because of our closely linked economies, some of our property players already ventured into Singapore property market, such as Sunway, SP Setia, IOI Corp and YTL Land. According to OSK research report, Sunway has 4 ongoing projects with a total GDV of around SGD1.7bn under its 30:70 joint venture with Ho Hup Group and a small wholly owned project with at GDV of SGD32.8m. Two of the projects, which are under the Executive Condo (EC) and Design, Build and Sell Scheme (DBSS), are exempted from the ABSD. While the remaining three ongoing projects, coupled with another upcoming project (GDV: SGD357m), are under private development (PD) which is subjected to the ABSD. However, with its ongoing PD projects already achieving a strong take-up rate at around 70%, we believe the impact on Sunway will be rather minimal.

Sector wise, Finance Malaysia believes that there will be a in-flowing of money to our shore given its proximity to Singapore, coupled with the attractively packaged Johor's Iskandar Development Region (IDR). This would be a timely process where IDR is gaining traction with basic infrastructures were almost completed. Those developers which had already jumping into IDR may benefits from the announcement. Tebrau Teguh, being one of the most sensitive stocks linked with IDR may see some buying interest. 

Asia property sector to deteriorate?

A combination of excess liquidity, low interest rates and a robust macroeconomic outlook has pushed prices up over the last few years. As a result, housing affordability for low and middle income families has worsened across the region, with low interest rate slightly cushioning the adverse effect of higher prices. Several central banks have intervened and introduced regulatory measures - such as higher minimum down payments (etc. Msia) and more land releases for construction (etc. Singapore) - to cool down the markets and slow credit expansion.

Within a specific market, the prime segment should hold up better than the mass-market segment. Should the real estate market correct instead, steep corrections for the mass segment are unlikely because of the following reasons:

1. Rental Yields still appear attractive in the current low interest rate environment;
2. Residential vacancy rates are low in many Asian cities, especially in Hong Kong and Singapore (not in the case for Msia);
3. Governments are well aware of the potential negative spillover effects of a strong housing market downturn to the overall economy. Thus, they are more proactive in making monetary decision to juggle between tightening or loosing the monetary policies.

New IPO: Pavilion REIT

Are you bored of the current small market capitalization of REITs in Malaysia? I think Sunway REIT (the largest REIT right now) is by far sitting there very lonely without anyone closer to it. Come 7th December 2011, we will witnessed a new contender - Pavilion REIT, to challenge the title. Although it may started-off in 2nd place, the new REIT may grows to clinch the first place from SunREIT. Below is some info taken from RHB Research report on the IPO;

Pavilion REIT (PavREIT) has an asset size of RM3.5bn, just after the largest MREIT - Sunway REIT’s RM4.5bn. PavREIT has two assets – Pavilion KL Mall which is worth RM3.4bn and Pavilion Tower (office) RM128m.

The Prime Asset

Pavilion Mall is one of the only four premium retail malls in KL. It is designed to complement the malls along Jalan Bukit Bintang, developing the street to a key shopping destination in the region. Located at the “Golden Triangle”, which is the business, shopping, entertainment and tourism district, the mall enjoys massive catchment of population. It has an NLA of 1.33m sqf.

Since it commenced its operations in late 2007, occupancy has consistently stayed above 96%, with a 3-year CAGR of 4% in average rental rate. With such a short operating history, the mall has recorded 31m visits in 2010, comparable to Suria KLCC’s 40m footfalls. Over the longer term, Pavilion Mall is poised to enjoy higher number of visits as it will sit near to the upcoming MRT station, which is less than 300m away. The covered skybridge currently under construction that connects Pavilion Mall and KL Convention Centre which in turn adjoins Suria KLCC and the Petronas Twin Towers, will also pull in more shopper traffic between the two tourist spots.

The Pavilion Tower (NLA of 167k sqf) is an office tower connected to Pavilion Mall. It currently has an occupancy rate of 41.4% (expected to achieve 80% by year end), housing Malton roup, Mrail International, Clever Eagle and Aker Engineering (from 1st July). As the office tower only contributes about 2% to total rental income, coupled with the oversupply of office space in KL city centre, we are neutral on this commercial asset.

Future Growth Potential

Three other retail assets can potentially be injected in future for growth. PavREIT has been granted rights of first refusals (ROFR) by its sponsor and a 3rd party to purchase fahrenheit88, Pavilion Mall extension and an upcoming community mall in USJ Subang. These assets are estimated to have a combined value of about RM1.5-2bn. We believe the injection of assets will take 2-3 years, as only farenheit88 is still in the early stage of operation, and the other two malls will only be completed in three years’ time.

How to Value?

We benchmark PavREIT against KLCCP. Although KLCCP includes non-retail assets such as office towers and hotel apart from Suria KLCC, all these assets are of Grade A class. To reflect its prime status, we value PavREIT at a target yield of 5%, which is close to the average yield of 4.72% for KLCCP over the past 5 years (we gross up to exclude the impact of corporate tax – as REITs do not have corporate tax component). This translates to a fair value of RM1.14, based on our FY12 DPU estimate.

Source: RHB Research report

Property prices to Come Down after BNM's latest guidelines? (Nov 2011)

Like it or not, Bank Negara Malaysia announced that effective 1 Jan 2012, financial institutions must make appropriate enquiries into a prospective borrower's income after statutory eductions for tax and EPF, and consider all debt obligations, in assessing affordability.

Aimed at promoting prudent, responsible and transparent retail financing practices, the new guidelines require financial institutions to make assessments of a borrower's ability to afford financing facilities based on a prudent debt service ratio as inputs to their credit decisions.

On top of that, a new guideline was stipulated that the maximum tenure for vehicle financing should not exceed 9 years, with immediate effect (18 November 2011). Right now, there are only 2 banks which offers vehicle financing up to 11 years, and less than 2% of car buyers now opted for tenures beyond 9 years. The changes was neglect-able.

Are you an Informed Borrower?

The guidelines additionally hope to ensure that consumers are treated fairly in the sales, marketing and administration of financing facilities. As such, financial institutions are required to provide consumers with specific information on the following:

• total repayment amount
• total interest cost as well
• impact of an increase in the financing rate

The BIGgest Impact will be on Property sector?

Since that the banks are required to assess the affordability of borrowers based on net income, many people may not have the capital needed to pay for down payment. Although automobile industry will be affected, the biggest victim will be on property sector. This is because property purchasing needs more capital outlay.

On top of that, the value of property went up so high currently where the market value does not match the seller's asking price. To meet the short-fall, buyers are forced to fill-in with cash. This had already slowing down property prices lately. But, after the new guideline, would it be worst? Definitely.

The numbers of affordable buyers will became lesser. Hence, demand for property will be softened. What if supply more than demand? Simple economic theory told us that prices have to come down in order to strike a balance. I think this is true and will materialize next year.

Budget 2012: Another interesting debate --- RPGT

Property prices had been skyrocketing since 2009, creating more millionaires in Malaysia. The key factors behind the increasing properties prices were low interest-rate environment, attractive housing loan packages and ample of liquidity in financial system. These had prompt investors ,and general public too, to invest into properties searching for better return among all the investment instruments. Oppss... Favorable Real Property Gain Tax (RPGT) is one of the factor too.

While creating millionaires, many middle and low income groups are facing difficulties to come out the higher capital required to purchase their homes. Genuine buyers, who are first-time house buyers, were being forced to delay their buying and ended up renting. This will resulted in widening wealth gaps between Malaysians. As such, government had proposed to increase the quantum of RPGT to counter the potential socioeconomic backlash. (see attachment)

Curbing speculations?

Traditionally, there are two important tools available to government to curb excessive properties speculations and they are interest rate and RPGT. Since 2008 global financial crisis, central banks globally including Malaysia had slashed their interest rate to all time low in order to spur economic activities.

Picture taken from Business Times

On top of that, RPGT stayed low at a flat 5% for properties sold within 5 years. "5% only?" you may ask. Yes, and this is a contributing factor on why properties prices remain elevated.

Is it enough?

However, economists are saying that the latest announcement made on RPGT was relatively "too soft" in contain the problem. Anyway, this is a good news though for property speculators or investors as 10% RPGT within 2 years can be easily absorbed. Then, how much is enough?

     

     Genuine buyers said: "Higher is better".

     Property developers said: "Current rate is enough".

Finance Malaysia reckons that 10% is definitely not enough. The marginal increments looks like government is only "entertain" the perception of general public, while protecting property developers, we think. As such, we are suggesting a higher rate as below:

By imposing a higher RPGT, that could possibly boosted government tax revenue, thus lowering down the over-optimism budget deficit target. Why don't government implement that way?

New IPO: UOA Development Berhad

Being one of the most established developer in Klang Valley, UOAD is going to be a darling property stocks for investors once listed. The strong "UOA" brand name as a developer of high end residential and commercial properties, makes it stands out from its competitors.

What's so interesting about UOAD?

Based on the IPO price of RM2.90 per share, the company is listing with a market capitalization of RM3.5bn, which eventually will place UOAD to be the 4th largest property company in Bursa Malaysia. The top 3 are UEMLand, SP Setia and IJMLand.

Don't forget about UOA REIT, which is the real estate investment trust of UOA Group in Malaysia. In other words, whatever properties that was construct by UOAD may inject into REIT one day. With UOAD being granted a "Right of First Refusal" to inject its completed commercial buildings into UOA REIT, it definitely provides UOAD the opportunity to redeploy its capital where the proceeds from asset injections will be re-utilized for future development projects. This would act like a "ready-exit" strategy for UOAD's asset. Not good enough?

Source: OSK Research

By managing its construction works in-house, this gave UOA a very competitive cost advantage, resulting in gross development margins of 50%, which is way above the industry average. They got their own team of architects, planning experts, M&E and civil engineers and quantity surveyor, hence, giving UOAD the edge to respond wisely and promptly to any unforeseen changes.

At last but not least, of course, is UOAD's flagship integrated property development project - Bangsar South. RM8bn, 60-acre located near Federal Highway and Mid Valley. According to HL Research, the land was acquired in 2005 for RM46psf, and its Horizon project has commanded pricing of RM600psf despite its leasehold status. In short, strategic location with huge value enhancement potential.

Fair Value?

OSK gave RM3.57
RHB gave RM3.45

HLIB gave RM2.57

Source: HLIB Research

When is the BEST time to buy House? (25 Apr 2011)

Last year 2010, Malaysia property market recorded the BEST year ever. Will it be another record breaking year in 2011? Many economist and property analysts opine that this year, the property market will appreciates by another 10-15%. So, should we wait some more?

Recently, many of my friends keeps on asking the same bold questions.

• Should I buy house now?
• Or, should I wait some more?
• But, when is the property downturn?

Modern Design: Swimming pool in the house.

Good questions though, but if you ask me when is the property downturn, I really do not know. As a rule of thumb, I will rely on the stock market to give me the indication. Commonly, property market will take a blow one year after the crashing of stock market. Example, the 2008 financial crisis gave us a good timing to invest in property market. For those who buy house during that time, you should know what I am talking about and smile.

So what? How about now?

Before answering your question, I would like to throw you back a question "Are you looking for your first house?". If YES, anytime is the best time to own a house, forget about the timing factor. Your objective to own it, not invest for return. Why bother waiting for the best time? Otherwise, you are renting while waiting, and money still running out of your pocket every month.

But if your answer is NO, and you treat it as an investment, I do not think this is a good time. Why? As you already know, the valuations is rich enough to swallow your future potential return. Given the risk reward profile, it is not worth to invest at current high level to exchange for a reasonable return. If you're renting it out, sure this is not wise move. Please bare in mind that the rental is very hard to go hand-in-hand. Prices are going way too fast for rental to catch up now.

Real Property Gains Tax (2011)

Malaysia is known as "tax heaven" of the world. Why? Because Malaysia does not impose tax on any capital gains derived from investment, such as shares, unit trust... But, there is only one type of capital gains that attracted tax - property.

PARC @ One South, Seri Kembangan

Real property gains tax (RPGT) is a form of capital gains tax. RPGT is charged on gains arising from the disposal of real property in Malaysia. These so called real property is defined as:

• any land situated in Malaysia and any interest, option or other right in or over such land; or
• shares in a real property company

How much?

Actually, we have RPGT in our tax system many years ago until 31 March 2007, when government abolished RPGT to attract foreigners to invest in Malaysia. But then, from 1 January 2010, RPGT is re-imposed at the rate of 5% on gains arising from disposals of chargeable assets in respect of real properties that are disposed within 5 years of owning.

What is real property company?

It is a controlled company holding real property or shares in another real property company as a major asset. And, the "major asset" here refers to defined value > 75% of the value of its total tangible assets.

Mon't Kiara

Withholding of RPGT

With effect from 1 January 2010, an acquirer of chargeable asset must withhold 2% of the total value of the acquisition price to be paid to the Inland Revenue Board within 60 days from the date of disposal.

Are there any exemptions?

• an amount of RM10,000 or 10% of the chargeable gain, whichever is greater, accruing to an individual (w.e.f 1 January 2010)
• gain arising on disposal as a result of compulsory acquisition of property under law
• gain accruing to an individual who is a citizen or a permanent resident in respect of the disposal of one private residence

In other words, everyone of us have one "Free RPGT" card in hand. This is the ONLY card that the government gave us, and we can decide to use it or not, and when to unveil the card. You can saved it for another day, because it is not compulsory to use it for your first disposal.