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Tuesday, October 27, 2009

Flurry of property transactions on the cards

KUALA LUMPUR: The proposed flat tax rate of 5% on gains from any property transacted, irrespective of the number of years it is held before being sold, is expected to create a spike in transactions of property held for five years and more, said a tax consultant.

The consultant said that in a bid to minimise the effects from the tax that was proposed in the Budget 2010, the number of property transactions is expected to significantly increase over the next few weeks leading up to the end of the year.

The proposed tax is to take effect from Jan 1, 2010.

In tandem with developments that are expected to negatively impact the property sector, stock prices of property counters on Bursa Malaysia have declined.

The property index fell 15.12 points to 805.26 with IGB Bhd and IJM Land Bhd being the top losers. IGB, which is the ultimate parent company of MegaMall and Properties surrounding it in Mid-Valley, shed 14 sen to close to RM2. IJM Land, which is fast gaining ground as the next “S P Setia”, lost 12 sen to close at RM2.37.

The tax consultant said that medium- and long-term property investors and companies holding property for more than five years would dispose the property within the next few weeks.

The consultant said that since 1976 when the real property gains tax (RPGT) was introduced, property transacted after five years of ownership were not taxed.

“But the new proposal calls for tax on all property transacted irrespective of the number of years it is held. This will disadvantage those holding properties for more than five years and that have seen an appreciation in its value,” said the consultant.

He cites an example of a person or company that has held a property for more than five years and looking at a gain of RM1 million.

“After Jan 1 next year, the tax would be equivalent to RM50,000 for a gain of RM1 million. If the property is transferred before January 2010 for say RM1 million and sold a year or two later for about RM1.1 million, the tax will only be on the gain of RM100,000 which is RM5,000,” said the consultant.

However not all are of the view that the ruling would spark a slew of transactions by people owning property for more than five years.

KGV-Lambert Smith Hampton executive director Samuel Tan said that it was too early to tell whether there would be a spike in property listings or transaction.

“But I foresee people becoming more careful when it comes to purchasing and selling a property, thus slowing down the momentum we are just starting to gain which is detrimental to our marke,” he said.

However, nearly all players in the property sector agree that the proposed tax was not fair to long-term holders of property.

According to YY Lau, a director of YY Property Solutions General, the people who are being penalised are those who own properties for many years.

“Long-term owners will feel discriminated. When they bought their properties 20 to 30 years ago, they were not told they will have to pay a 5% RPGT. That is why, there should be an exemption for properties owned for more than five years.”

He also said that it was not clear as to why the RPGT would be imposed.

“If it meant to curb speculation, then I’m afraid it’s counter-productive. In fact, it will encourage speculation, as there is no difference whether you sell within a year or five years like previously where a progressive rate based on the years of ownership was in place. If there is no differentiation, what’s to stop a speculator from selling and buying?”

Raine & Horne International Zaki and Partners Sdn Bhd executive director Lim Lian Hong expected the proposed tax to be an immediate shocker but in the long run, it won’t be a big deal.

“However, this will affect those who own properties for longer number of years. If you bought a house over 30 years ago, the prices would have appreciated and it would cut into the profit they will make from the sale. The government needs to take another look at the ruling as tax should not be imposed on properties owned for more than five years.”

By The EDGE Malaysia (by Jacqui Chan)

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